By Neil Saunders
Tiffany has opened its new fiscal year with another set of numbers devoid of any sparkle. Total worldwide sales declined by 7%, with worldwide same-store sales down 9%. Both slips come off the back of negative growth in the prior year; over a two-year period, Tiffany’s sales are down by almost 12%. Declines were seen across almost all regions, with Japan the only notable exception.
Tiffany is finding it a struggle to connect with consumers in a way that it once did, especially in North America.
The slide in sales, and in store productivity, has taken its toll on the bottom line. Net income fell by 16.6% over the prior year, and by 30.3% over the same period two years ago.
Tiffany attributes some of the decline to the stronger dollar, which is affecting earnings from its overseas operations as well as weakening spending by tourists at its U.S. stores. This is part of the story, but the figures also tell a tale of a brand that is now finding it more of a struggle to connect with consumers in a way that it once did. This is especially so in the competitive North American market.
Over the past three years, Tiffany has suffered from a decline in both the number of American consumers who consider it for jewelry purchases and the proportion who actually end up buying from it—despite overall interest in jewelry remaining strong. This dynamic is a particular problem in the jewelry sector; the fact that customers buy infrequently gives Tiffany little opportunity to recapture lost spending.
This decline in customer share is evident among most shopper segments, including more affluent households. It is pronounced among affluent younger shoppers, who see the brand as representing Old World luxury. While not an negative view, this perception does not chime with the lifestyles and values of this cohort. This group will become an increasingly important constituent of the market as population demographics shift over time.
American views of Tiffany may not hold across the entire world, but Tiffany faces a different set of challenges globally. A slight slowdown in Chinese consumption, as well as a more marked slowdown in mainland visitor numbers to Hong Kong, have harmed sales in the important Asia Pacific region. In Europe, negative economic headwinds and lower consumer confidence have likely dissuaded some consumers from purchasing expensive jewelry.
The main issue, however, is one of brand image. Tiffany needs to reconnect with consumers and make itself relevant. As much as this can be difficult in the slow-moving jewelry sector, it is vital if the group is to reverse the slide in shopper numbers and in sales. Such a reconnection is not likely to yield an immediate uplift, so even if it starts to correct the problem now, our view for the current year remains negative.
Neil Saunders is CEO of research firm Conlumino.