Tiffany progress more technical than strategic

Following on from a very weak second quarter, it is pleasing to see Tiffany nudge back into growth on a total sales basis.

The 1 per cent uplift is modest, but it is far better than the string of poor numbers the company has been posting for well over a year. That said, the figures do not show that all the problems at Tiffany have been resolved. Indeed, part of the increase is attributable to the very easy comparatives from the prior year; and part is down to the strength of the yen against the dollar, which aided performance in Japan. These are rather technical gains, and are not growth produced by a sound underlying strategy.

That Tiffany still has issues is demonstrated by the Americas figures, where sales declined by 2 per cent on both a total and comparable basis. This comes off the back of a 7 per cent and 9 per cent decline in total and same store sales in the prior year.

Notably, the impact of the strong dollar on sales to tourists at Tiffany’s flagship stores now seems to have dissipated and annualised out; if anything, the company noted that tourist sales were relatively strong over the quarter.

This dynamic means the blame for the dip comes, primarily, from domestic demand. Here, Conlumino’s data shows that Tiffany continues to suffer from a decline in both the number of American consumers who consider it for jewellery purchases as well as the proportion who end up buying from it. In a category like jewellery, where purchases are relatively infrequent, not being firmly on the consumer radar is an issue as it gives Tiffany little opportunity to recapture ‘lost’ spending.

There is an argument to be made that as US department stores see customer traffic weaken, Tiffany should be picking up some trade – at least for mid to higher end purchases. However, this does not seem to be happening. Instead, consumers are migrating to more contemporary premium brands, as well as to custom and direct-to market-players like Blue Nile – which was recently acquired by Bain Capital.

These represent the new growth spots of consumer demand in jewellery – spots to which Tiffany, with its ‘old world’ image do not have immediate and ready access.

Thankfully for Tiffany, its weak performance in the US was not replicated elsewhere this quarter. Sales in Asia-Pacific rose by 4 per cent, after a better performance in China. However, comparable sales in the region are still in decline, not helped by continued slides in Hong Kong and Australia. Japan also saw some strong uplifts, with a 13 per cent increase in total sales. However, these were a function of the strong yen and once this impact is removed sales dipped by 4 per cent on a constant currency basis.

While sales in Japan benefitted from a favorable exchange rate, Europe had no such tailwind. The depreciation of sterling and the euro saw sales decline by 10 per cent on a total basis and by 14 per cent on a same-store basis. Even so, underlying demand in the region – like in the US – remains soft.

Tiffany has a lot more work to do before it gets into sustainable growth.

  • Neil Saunders is CEO of retail analyst Conlumino.

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