Luxury Institute: “Tiffany is no pretender”
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Luxury Institute: “Tiffany is no pretender”

Macy’s, Sears, and J.C. Penney have all struggled with shrinking growth over the last twelve months, as their brick-and-mortar operations fail to compete against the steamroller effect of ecommerce – a proposition that offers more choice, more convenience, and better value. Yet, in the same time frame, iconic jeweler Tiffany & Co. has seen its share price rise by 33.38%. How has the company managed to stay at the top of the luxury world, and is at really “Amazon proof?”

Tiffany & Co. has had a great twelve months

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SOURCE: Yahoo Finance

The high-end nature of Tiffany’s products lends itself to a particular experience – if you’re spending $30,000 on a piece of jewelry, you don’t necessarily want a quick and simple transaction: you want to feel it, deliberate over a number of pieces you can touch, and try on. And you probably want to do it in a physical location that has class. This makes it hard to replicate online. Brian Yarbrough, an Edward Jones analyst, even goes as far as saying: “we think it’s a brand, as well as a retailer, that is more Amazon-proof.”

Given the incredible success of Amazon, this is quite the claim – but it is not one that Yarbrough is alone in making. Milton Pedraza, CEO of retail research group the Luxury Institute, says:

“I think the world will become a barbell – at the one end it will be Amazon, commoditized products – and then there will be real luxury. There are a lot of luxury pretenders… Tiffany is no pretender. I think they will continue to survive and thrive.”

Tiffany’s store footprint is relatively small – 125 stores in the U.S., and around 300 worldwide. They’re also relatively safe, as they tend to be positioned in upscale malls, which offer some protection from the difficulties facing retail and declining footfall. As a result of this small, protected, retail network, Tiffany’s operating costs are very low. But the best thing is that these low costs are balanced against high profitability: Tiffany saw sales of about $2,600 per square foot in 2016, and an enviable 62% of that converted to profit.

None of this means that Tiffany & Co. is sitting back ignoring the world around it. The brand realizes it needs to attract newer Milliennial consumers while retaining its more venerable customers. To do so, it’s experimenting with more accessible fashion jewelry that doesn’t carry the gems for which it is famous. It’s also an ecommerce realist, having recently brought in Alessandro Bogliolo, a noted luxury retail veteran with a habit for modernization and revitalization, as its new CEO.

In an uncertain retail environment, two things are certain about Tiffany – the last twelve months have been great, and the brand today looks as attractive as ever: a real diamond of the luxury retail sector.

Disclosure

Dominion holds Tiffany & Co. in its Global Trends Luxury Fund.


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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.