By Neil Saunders
Tiffany has produced another good set of numbers, especially on the sales line, where worldwide revenue grew by 4%. The rate of increase has weakened somewhat since the prior few quarters, although we attribute much of this to the company starting to lap its recovery period from last year.
Brand recognition and affinity has increased sharply among consumers aged 35 and under. In a relatively short space of time, Tiffany has started to demonstrate that it has something fresh to offer younger consumers.
Despite the increase in top-line sales, operating income declined by 22.9% over the prior year. While this is unfortunate, the outcome is acceptable as most of the cost increases related to higher spending on marketing, new technology, and the digital channel. These are all prudent areas of investment that Tiffany needs to advance if it is to maintain its success. Fortunately, a much-reduced income tax provision meant that despite lower operating profit, net earnings slipped by a modest 5.3%.
Marketing campaign captures interest
On the sales side, we remain satisfied by Tiffany’s growth, especially within the American market, where sales rose by 5%. Some of this is related to the strength of the economy, with the increased affluence and confidence of middle and higher income consumers helping to boost spending on jewelry. However, much is also due to the revival of the Tiffany brand, which is now resonating strongly among key consumer groups.
Our consumer tracking shows that brand recognition and affinity has increased particularly sharply among consumers aged 35 and under. A few years ago, this group was largely apathetic to Tiffany, viewing the brand as old-fashioned and irrelevant to their needs and tastes. In a relatively short space of time, Tiffany has started to shift that perception and demonstrate that it has something fresh to offer younger consumers.
The Believe In Dreams marketing campaign was a step change for Tiffany. It was powerful and compelling enough to capture the interest of shoppers unfamiliar with the brand. We are pleased to see Tiffany build on this success with a surrealist holiday version featuring Zoë Kravitz and Naomi Campbell in a jewelry-inspired Alice in Wonderland setting. The whimsical tone and style of the advert should resonate with both target and core shoppers.
Paper Flowers launch a blooming success
The product has also been a critical part of Tiffany’s transformation. New ranges such as Paper Flowers have been a hit with consumers and have given Tiffany a powerful and cohesive range to take to market. The recent launch of the Tiffany True engagement ring is another triumph that presents a traditional category in a modern way.
Increased personalization offered via the “Make it My Tiffany” program is now available at over 100 stores globally and has been well received by customers. The combination of Tiffany’s expert craftsmanship along with its iconic status means that it will be a winner in luxury jewelry personalization—a segment of the market that will grow rapidly over the next five or so years.
An area where we have been critical of Tiffany is the environment and ambiance of stores, which has been fusty. However, we applaud the modernizations that have been scheduled, including the big refurbishment of the Fifth Avenue flagship, which is scheduled for Spring of 2019. The work will be extensive and costly. It is a bold move that underscores Tiffany’s newfound confidence.
Neil Saunders is managing director of research firm GlobalData Retail.