By Neil Saunders
Although Tiffany’s final quarter numbers are soft, they at least indicate that the declines which have plagued the company for a long period are starting to level off. For the second consecutive quarter total sales growth nudged into positive territory, and for the first time in over a year same-store sales were not negative. Admittedly both of these improvements come off the back of very soft prior year comparatives. Higher gross margins also helped to offset increases in operating expenses, although not to a sufficient degree to counterbalance the decline in sales – which meant net income for the quarter fell by 3.3%.
Although the business is making some progress, it is fair to say that that progress is patchy and does not indicate a company that is back to full health. Indeed, under the detail of the numbers it is clear that Tiffany still has issues in a number of regions, including the Americas and Europe. In the fourth quarter, sales for the former fell by 3%, and sales for the latter slipped by 7%.
It is clear that Tiffany wants to reestablish its relevance and to project a much more distinctive image. The advertising during the Super Bowl, which highlighted Lady Gaga as the face of the brand, was a good start. However, it is not enough: it needs to be accompanied by a step change in products, store environments, and the general approach to selling.
Part of the decline in the Americas is down to lower tourist spend which is impacting some flagship stores; that said, trend is now starting to dissipate and the effect on results is only slight compared to where it was at the start of the year. However, in the final quarter this was exacerbated by disruption at the Fifth Avenue flagship store which, due to its proximity to Trump Tower, saw customer traffic dip by around 14% over November and December, and sales drop by 7% in the final quarter. Given that this store usually contributes almost a tenth of company sales, it is reasonable to attribute some of the decline to this exceptional factor.
The troubles, however, run wider than flagships and tourists. Tiffany is a brand that is increasingly overlooked by American consumers, especially younger demographics. Just as was the case at the start of the year, Tiffany is still failing to connect with many shoppers segments and continues to lose ground to rivals.
During the fourth quarter, this dynamic was not helped by the fact that jewelry has become a less significant holiday purchase. Prior to the economic downturn of 2008 the period between Thanksgiving and Christmas was key for jewelry buying. Today, while it remains the most important single period for purchasing, it accounts for a much smaller share of annual sales than it once did. Jewelry is no longer at the top of the Christmas list. For a brand like Tiffany, where lavish gifting is an important driver of buying, such a trend is distinctly unhelpful.
Looking ahead, it is clear that Tiffany wants to reestablish its relevance and to project a much more distinctive image. The advertising during the Super Bowl, which highlighted Lady Gaga as the face of the brand, was a good start. However, in our view, it is not enough: it needs to be accompanied by a step change in products, store environments, and the general approach to selling. There is a need for a more fundamental and deeper shift in the brand’s direction. Fortunately, recent changes made to the management team, including the appointment of Reed Krakoff as Chief Artistic Officer and the hiring of three new board members, should act as a catalyst for this change.
Neil Saunders is managing director of GlobalData Retail.