Tiffany & CO.

Hongfeng Guo
Instructor: Dr Strickland
GBA 490 -002 (11:00-12:15 TU&Thursday)
October 22, 2015
Exhibit 1: Dominant Economic Features

Market Size & Growth Rate:

Tiffany & Co. was a company founded in 1837 in NYC specialized to the sales of
stationery and fine goods emporium at that time. The company was original known as the
Tiffany & Young, but after starting to sell luxury goods and silver-ware, the company
changed the name to Tiffany & Co. in 1853. The company had made it a priority to
maintain the luxury brand and service as its strategy. By 2010, the company opened over
60 retail stores around the world including Europe and Asia-Pacific as well as the online
stores. In 2012, Tiffany’s total revenue through worldwide had reached $3 billion which
rose about 50 percent from 2006. By 2011, The U.S. Jewelry industry is still a $ 30
billion-dollar industry with 56,000 different business and holding annual growth rate of
3.1 percent. Although, the whole industry were still in the process of a slow recovery
from recession in 2008, the annual growth rate was estimated as the same per year
through 2016. The jewelry industry sales would be about $36 billion and 70,013 retail
stores through the world in 2016.

Numbers of Rivals:
The jewelry industry had low barriers to entry into the market, there are plenty
numbers of players in the industry. However, due to the high volume of retail jewelry
stores and the vast availability of jewelry products and merchants, the jewelry industry is
highly fragmented with no single dealer owning in excess of 10 percent of the totally
market. Nevertheless, the four largest players hold 20 percent of the totally jewelry
market, which are Signet Group, Bulgari S.p.A, Blue Nile, Inc. and Costco.
Scope of Competitive Rivalry:
The U.S. jewelry industry is mostly in the southeast and mid-Atlantic regions,
which account for 45 percent of totally industry sales. Therefore, the geographic area of
the Tiffany is competing with the four major players and individual stores. Due to the
enhancement of E-commerce and huge profit from abroad market, foreign markets would
be important and compete with these major players as well.

Number of Buyers – Retailers and End Consumers:

Due to the high price and specific use, the main consumers in the jewelry industry
including Tiffany would be affluent households and individuals. The top 50 percent of all
income- producing households accounts for about 70 percent of totally industry revenue,
while the lowest 25 percent of income-producing households only have 6 percent of
revenue. And the 20 percent of high income individuals would bring the most revenue
aging from 45 to 64 years old because of established fixed and disposable income.
However, the industry noticed that next target market would be the individuals aging
from 20 to 30 years old along with the increased marriage in that age period. The
consumers in jewelry industry is not fragmented because of the price. The consumers did
not have any bargain power whatever the quantity they demand. For example, the
revenue of whole industry had to bear the effect by the rising gold price. The retail stores
really depend on the economic development and individuals’ income. If there are high
individuals’ income, there are more retail stores. Most of the revenue came from retail
stores like Tiffany, 50 percent revenue from retail stores.

Degree of Product Differentiate:

The product from Tiffany was once features the fine jewelry selection, which was
also 90 percent revenue come from. But there are different jewelry selection account for
about average revenue from each different product line, such as silver and gold items,
engagement rings and wedding bands. The expanding product line brought Tiffany a
larger sales on the jewelry.
Product Innovation:
The jewelry industry is not characterized by the rapid product innovation, the
companies in the industry had sold the same products for about hundreds of years like
rings. The diamonds were only determined by four C which are carat, color, clarity and
cut. When the diamonds are classified high in these four C, they would have more values.
Therefore, the quality, service, price and reputation would be most important points in
jewelry industry.

Demand-Supply Condition:
The jewelry industry is approximately $30.2 billion industry, which made up over
56,000 different businesses, with a projected growth rate of 3.1 percent 5 years away
from 2011. The result of the growth would become $38 billion industry annually.
However, the possible recession in the future might also affect the industry’s growth. As
for the jewelry industry, there are many reason leading to reduction on the demand.
Because the industry focus the people who have a high income. If these people suffer a
lower income, the market will drop by a lot immediately. Recall from the recession of
2006, the profitability of the jewelry industry fell by 2.7 percent from 2006 to 2011. Also,
Due to the increase price of the gold would directly affect the demand and profit of
jewelry. For example, the gold price increased from $604.71 per ounce from 2006 to
$1564.91 in 2011. The profit of jewelry industry fell by 5.1 percent correspondingly. As
the largest sold in diamond and gold, the risk exist in the future. Also, the number of
retail stores continue to grow at the rate of about 4.6% annually to 70,013 stores
nationwide by 2016. As the result the numbers of new entry of the firms, the industry is
overcrowded.

Pace of Technological Changes:

Advancing technology plays an important role in this industry, because there
would have more people going to understand the brand of jewelry by the online
advertisement and by the social media. Customers could know the basic knowledge on
how to choose good diamond and gold. Also, along with the development of ecommerce,
the upgrading online website and shopping will bring more convenience for the
customers.

Vertical Integration:
Most of the companies in the industry are considered as multiple stages, because
most of the firms are going to integrate most of their task by outsourcing instead of
themselves. Most of them are just the retailers because of the high cost to manufacture
high quality products but not Tiffany. Tiffany still hold 60 percent products produce by
itself in order to ensure the high quality products and good reputation. Moreover, for
instance, the company has to consider where and how the tasks are being implemented at,
such as designing, materials, processing, assembly, and packaging.

Economic of Scales:
The possible economic of scale could be the wide spread of the advertisement,
manufacture and reputation for both loyal and new customers in the different locations
considered as locally in the United States and globally throughout the world. The large
company like Signet Group, PLC account for 9.7 percent market share, which also has
over 1,300 stores in the United States. In the industry, the large-scale operation would
have more advantages than the small-scale operation, they could provide high quality
products and service to customers and they also could ensure their high-quality service
and products with a good reputation comparing to the small firms. Therefore, the loyal
customers will not change their brand easily. In the period of recession, the big
companies including Signet and Tiffany still showed a slow positive growth.

Learning/ Experience Cure Effect

Tiffany was always focus on making the best jewelry and becoming the most
respectful company. But they realized that their target market was too small to be affected
by customers. Looking back the recession in the jewelry industry, the company
experienced decrease by 4.9 percent in 2008 because 90 percent of its profit come from
jewelry selection. Therefore, Tiffany tried to expand their product line by adding some
cheap products or non-jewelry items in order to make more customers have experience
with Tiffany to expand their customer market in order to minimize its loss from recession
in the future.. It expand its target market through its Blue Book catalog, website and new
retail market. More importantly, it expanded its product line without diminish its
respectful brand name.

Exhibit 2: The Five Forces Model

Substitute in other
industries(Strong):
• Costco

Suppliers(Weak): Rivalry among Buyers(Moderate):

• Diamonds Sellers(Moderate): • High income
• Gemstones • Signet individuals
• mental Group,PLC(9.7%) • Households
• Bulgari S.p.A • Individuals Aging
from 45-64

Potential New
Entrants(Strong):
• No entry barriers
• Blue Nile, Inc.
Competitive Pressures Created by the Rivalry among Competing Sellers
Rivalry is Generally Stronger when: Rivalry is Generally Weaker when:
• The companies like Signet expand • When the main rivalries just focus the
their market globally and Bulgari local market and keep the classical
expand their product line, then bring selling system, the competition will be
more new products to the customers less in the jewelry industry.
• During the recession of jewelry • If the companies have their loyal
industry, the demand grew slowly customers, it will be difficult and high
which give more time to increase their cost for them to switching the brand.
competition
• The buyers has low cost on switching
the brand
• When the big companies like Signet
also used advanced internet website

Competitive Pressures Associated with the Threat of New Entrants:

Entry threats are stronger when: Entry threats are weaker when:
• There is no entry barriers or no • The industry has high barriers
barriers for the new entrants for new entrants like high
• The demand for jewelry is technology and financial support
increasing • The demand for jewelry is
decreasing

Competitive Pressures Associated from the Sellers of Substitute Products

Competitive Pressure from Substitutes Competitive Pressure from substitutes
are stronger when: are weaker when:
• The price of material rose • The classical companies have
leading to the price of jewelry loyal customers based their
rose service and quality
• The price of substitutes are • The different price between
really low substitutes and jewelry
companies is low

Competitive Pressures Stemming from Supplier Bargaining Power and Supplier-

Seller Collaboration
Supplier Bargaining power is stronger Supplier Bargaining power is weaker
when: when:
• There is a high switching cost in the • The demand in the market is low
industry, they cannot change their and there are many materials
suppliers easily instead of considering • The good substitutes influence the
the high-quality materials
market so that the classical jewelry
• Because the scarcity of materials in
industry do not have the market
the industry, there are not many
like before, then they do not need
suppliers and some of the materials
the materials
could influence the quality of
 diamonds and jewelry
• When the demand increased in the
market, the suppliers hold the priority
to rise the price of materials

Competitive Pressures Stemming from Buyer Bargaining Power and Seller-Buyer

Collaboration
Buyer bargaining power is stronger Buyer bargaining power is weaker
when: when:
• When the customers just want the • When the customers only trust the big
jewelry, they do not care about the companies, they want their service and
jewelry’s brand and the service they high-quality jewelry, the choices for
could have. The most import point is them are small
the price. • Switching cost is low, the loyal
• Loyal customers know what they want customers do not think about the high-
from the specific brand and know quality products and service they had
what service and quality they want, so in the jewelry industry. They just care
the switching cost is high about the price

Is the Collective Strength of the Five Competitive Forces Conductive to Good

Profitability?
• The Stronger the forces of competition, the lower the combined profitability of
industry participants. Since the industry has no barriers of entry and there are
already competitors in the industry, the buyers has weaker combine profitability.
Exhibit 3: Driving Forces
• Increasing globalization and the expansion of its location could help the company to
increase its global notability and reputation along with more profit. Tiffany had expanded
its retail stores only in Europe and Asian-pacific. It can also expand its market such as
Australia, South America and Dubai, which are also the developing areas and lived with
wealthy people.
• Although the limited product innovation, the company could still focus on expanding its
product line getting more different products like watches, luggage and decoration.
• Emerging new internet capabilities and application could help Tiffany and other
companies in the industry have the capabilities to operate ecommerce and push the latest
design and news to its customers. It also could provide more convenient customer service
by using advanced internet capabilities and application bringing more loyal customers to
company even the industry.
• Seek more high quality and valuable suppliers in order to decrease the bargain power
from suppliers and decrease the potential risk from suppliers.
• Change social concerns, attitudes and lifestyles, nowadays, most of people are thinking
that the jewelry was still status. People only consume the jewelry when they really need
them and do the research then find exactly they want even they has enough disposable
money. The industry could change customers’ mind that the jewelry could the basic
decoration of wearing daily for both men and women.
• The old targeted market aging at 45-64, the companies in the industry start to change
their targeted market to the age 20-30 which hold a high rate of marriage. However, the
important point to know what design they want and push the product innovation.
Exhibit 4: Market Position of Rivals:

High Bulgari
S.P.A
Tiffany &
Co.
Price/Service/Quality

Signet Group,
Plc.

Costco Blue
Nile
LOW

Narrow Wide

Breadth of product offering

Exhibit 5: Strategic Moves of Rivals:

• By having 9.7% of total market shares and about $ 3 billion dollars revenue
only in the U.S with 1300 retail stores, Signet Group must have the strongest
strategy to have that result today. There are two brands as subset of Signet
Group, one provide high-standard service and quality with higher price with
off-mall selling, another one is low-standard with lower price with mall
selling. During the recession, The Company rebounded to bring 8 percent
growth from 2010 when they changed its targeted marketing and lower price
in mall-based stores.
• Although Bulgari is one of the luxury goods and jewelry retailers in the
world with 41 companies in 21 different countries operating 295 retail stores.
I think Bulgari has the weakest strategy, it has the potential risk in the future.
Firstly, the product line had been expanded from recession, but it stopped to
expand its product line after recession. It still focus on luxury and jewelry, the
customer’s market is changing to be smaller and smaller. Secondly, it is just a
retailer, its price and material price are affected and to be fluctuate according
 to the suppliers’ price. Therefore, its development will be limited by a lot by
suppliers.
The Competitive Strength Assessments of Signet, Bulgari , Tiffany , Costco
(Rating scale for each strength measure: 1 = very weak; 5 = average; 10 = very strong)
Competitive Importance Signet Group. Bulgari Tiffany Costco
Strength measure
Weight

Strength Weight Strength Weight Strength Weight Strength Weight

Global approach 0.20 10 2.0 08 1.5 06 1.5 10 2.0

Vital activities 0.20 08 1.0 07 1.0 10 2.0 08 1.5

Market size 0.10 10 1.5 09 1.5 07 1.0 09 2.0

Brand image 0.20 10 1.0 08 2.0 09 1.5 09 2.0

Age group vary 0.20 09 1.5 10 1.0 07 0.5 09 2.0

Media Tech 0.10 09 1.0 08 1.0 09 1.0 10 1.5

Financial strength 0.10 10 2.0 08 1.5 07 1.0 07 1.0

Price range 0.20 08 1.5 10 1.5 09 1.5 10 2.0

Innovation 0.20 08 1.5 09 2.0 10 2.0 08 1.5

Sum of weight 1.50

Total rating score 82 13 77 13 74 12 80 16

Exhibit 6: Key Success Factors for Future Competitive Success

Technology-related
• The social media and advertisements will help the company to attract and
bring more new customers
• The improvement of the technology on internet provides the ecommerce
website and platform for the firm to have more and easier way for them to
sell product
Manufacturing-Related
• Keep a high-quality products and good feedback and reputation from
 customers
• Ability to achieve economies of scales during the recession
• Has a little free in the price with manufacturing the products
Marketing-Related
• A well-known and well-respected brand name though the United States
and the world
• Relatively wide breadth of product line and selection
Distribution-Related
• Strong direct sales capabilities via the internet and other departments of
its retail stores.
Skills and Capability-Related
• Provide ensured customer service and repair service
• Keep the track of the fashion design

Exhibit 7: Industry Outlook

• The industry still has the space to grow, it will develop to about $36
billion in industry by 2016 with 70,026 retail stores worldwide. But
the top 20 jewelry retailers only account for 28.1 percent of the total
market shares, the rest are shared by some small companies and
retailers. As a result, there are so many new entrants to make the
industry crowded. It is vital to expand the product line to increase
competition with other small companies with lower price.
• The good brand like Tiffany has a good reputation and service with a
higher price. When new customers came to the industry, they
preferred to choose the lower price instead of higher price even with
good reputation and service. Therefore, it would be a high risk in the
industry like Costco the substitute from another industry.
 • Although the limit on the product innovation, the companies still
could still have new products based on keeping the character of
classical products because of the customer’s specific use. The new
design could improve 4C. The companies also could bring the idea to
put the jewelry in other forms.

Exhibit 8: How well the Company’s Present Strategy is working

• In 2006, the whole industry experienced the recession, each company
had to change their strategy to face the recession including Tiffany. In
2006, Tiffany had to raise its price due to the increasing gold price and
sporting an average price of $3,400. But it still showed the growth of
18.5 percent from 2006 to 2007. However, the company’s sales fell in
2008 with 4.9% and 2.6 in 2009. Starting from 2010, The Company
rebounded with the correct strategy and make a growth of 10.9
percent reaching %3.6 billion sales revenue in 2011 which rose 18
percent from 2010.
• The net earning was 9.8% in 2009 comparing to 11.9% in 2010. The
sales revenue was about $27 billion in 2009 and $31billion in 2010,
with the profit margin 19.08% from 2009 to 2010. The gross profit
was 56.5% in 2009 but rose to 59.1% in 2010.
• The net earning per diluted share was 2.11 in 2009 then rose to 2.87 in
2010.
YEAR 2007 2008 2009 2010 2011

REVENUE: in 1734.1 1547.0 1338.2 1484.5 1764..2

Million

GAGR from 2007 to 2011:

(1764.2/1560.9)^ (1/5)-1= -79.65%
As we know that, GAGR is negative above which means the whole industry is still in the
recovery from recession.

Exhibit 9: SWOT Analysis

Strength: Weakness:
• Tiffany is under a good reputation and • The jewelry industry is too classical to
fame of their classic and conservative make the product innovation.
fashion in the United States even in the • No research and do not know the
world customers’ need
• Tiffany has a group of loyal customers
• The good locations of each store and the
access right to the natural resources
• The financial convenience and resources
• High quality service and products
Opportunities: Threats:
• Expansion in retail stores and outlets • No barriers for new entries
• Increasing its online sales • The higher price comparing to the new
• Expansion in the men’s market entries
• Expansion in its global market • Increasing retail stores of the industry
and the industry start to overcrowd
locally
• Increasing buyers’ bargain power
• Decreasing market demand

Exhibit 10: Cost Comparison

• The cost of the company is relatively higher than other major rival
• The company use not only 6 percent to do advertisement and also
manufacture about 60 percent products with high quality-standard
• It also only open the retail stores in the centers of economy with the
highest rent
Exhibit 11: Is the Company Competitively Stronger or Weaker than
Rivals? How attractive is the Industry?
• Tiffany has a decent brand name and reputation for its products in order to
compete current four largest players and others small one in the industry
• It has a competitive and fixed size of market
• It will be potentially stronger if the right strategy is implemented at right time
• It will be easier to attract customers than other new or small firms by knowing the
Tiffany’s fundamental

Recommendation:
1. In recent years, the substitutes come from other industries and many new entrants
bring more competition to the jewelry industry. Also, the decreasing wedding rate
reduce the market’s demand for the jewelry selection. As we know, 46 percent
revenue in the industry come from diamond jewelry, but how about other 54
percent. There are about 13.9% revenue from Watches and 8.8% from gemstone
jewelry. As a result, Tiffany should continue focus on the products of watches and
non-jewelry products. Based on keeping the jewelry product line, if it is allowed
by the finance and environment, the company could expand these two product
line including watches and non-jewelry products such as luggage, clothes and
decoration. It is also a good idea to bring some products like mixing the sports
idea with jewelry watches by implementing and using the reputation of brand
Tiffany. Because it will be easy and ensured for people to recognize the brand
Tiffany than other newer brands.
2. The company sales are all come from retail stores, internet, catalog sales,
business-to business sales and wholesale distribution. But about 50 percent sales
come from retail stores. The internet sales only account for a very small part. As
mentioned that, the Blue Nile’s international sales had increased about 30 percent
from 2009 to 2010. As we can see that, the international market is a potentially
 huge market which would bring the decent profit to the company and industry.
Therefore, Tiffany should expand their retail stores globally such in Dubai and
Sydney as well as the promoting the internet sales worldwide. The company could
setup the different website like different theme and products based on the different
countries. For example, company could add the characters like sheep and koala in
its jewelry design if it open retail store or website in Sydney.
3. With no barriers to entry this industry, Tiffany had the pressure from other new
companies. Even worse, these new entrants provide the much lower price than
Tiffany to expand its customers’ market. Although Tiffany had started to sell stuff
blow $500 in order to provide the experience with Tiffany. I do think if Tiffany
are not willing to lose customer who has a relatively decent income. It definitely
should provide the products under $500 not just the experience but real good
Tiffany‘s products so that to attract more value customers because of the
reputation of brand. If the jewelry’s price cannot below $500, it could provide
some non-jewelry products at the beginning. Not only do attract more customers,
but compete with some big box firms like Costco.