IDEX Online Research: What Makes Tiffany Tick?
May 16, 06
Have you ever wondered how Tiffany maintains its leadership position among luxury jewelers? Its legal filings help peel back the layers of this complex multi-national company. Here are some findings gleaned from its recent filings with the U.S. Securities & Exchange Commission.
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- Price Points – Tiffany no longer reports its average ticket for all corporate sales. Instead, it defines its average ticket by product category. The following table summarizes the average ticket and total sales by product category.
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It is notable that nearly 30 percent of Tiffany’s
Further, it is notable that Tiffany appears to generate just 15 percent of its
Management says that its strongest business is jewelry sales with price points above $50,000.
A more detailed list of merchandise that Tiffany & Co. sells includes the following: besides jewelry, the company sells timepieces and clocks; sterling silver merchandise including flatware, hollowware, trophies, key holders, picture frames, and desk accessories; stainless steel flatware; crystal, glassware, china, and other tableware; custom engraved stationery; writing instruments; and fashion accessories. Fragrance products are sold under the trademarks of Tiffany, Pure Tiffany, and Tiffany for Men. Tiffany also sells other brands of timepieces and tableware in its
- Selected Average Tickets – While Tiffany does not report its average ticket other than by broad-based categories (see above), it recently revealed the average ticket for three segments of its business.
- Internet & catalog – In 2005, the average ticket for catalog/Internet sales was $221, up from $210 the prior year.
- Statement jewelry – In the fourth quarter of 2005, the average ticket for statement jewelry was $81,000, up from $74,000 in the prior year.
- Diamond engagement solitaire – In the U.S., Tiffany’s average retail price for a diamond engagement solitaire ring was $10,400, up from $9,800 in the prior year. This is roughly four times as great as the average ticket ($2,750) for a typical diamond engagement ring sold in the
- Largest Volume Jewelry Store in the World – Tiffany operates the highest volume jewelry store in the world – its flagship
- Internet & Catalog Sales – Tiffany distributes about 2,800 products through its
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- Advertising Expenditures – In 2005, Tiffany & Co. spent $137.5 million on worldwide advertising, or about 5.7 percent of sales. This is relatively consistent with prior years’ advertising levels as a percentage of sales of about 6 percent. This is well above the average of about 4 percent of sales which the typical
- Vertical Integration – About 65 percent of Tiffany’s merchandise, based on cost, is produced in-house. The balance is manufactured by outside third parties.
- Diamond Jewelry – Products containing one or more diamonds of varying sizes, including diamonds used as accents, side-stones, and center-stones, accounted for about 46 percent of Tiffany’s sales last year. Products containing one or more diamonds of one carat or larger accounted for about 10 percent of net sales in 2005.
- Key Properties – Tiffany’s key properties are listed on the table below.
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- Sales By Marketing Channel – Tiffany reports sales by broad geographic area and marketing channel.
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- Gross Square Footage – At the end of 2005, Tiffany & Co. operated 745,000 square feet of company-owned space. This represents a 2 percent gain, following a 9 percent gain in 2004. Sales per gross square foot in company-owned stores were $2,666 in 2005, a 5 percent increase over the prior year. Tiffany’s total worldwide sales per square foot are roughly five times as great at the typical
In addition, most
- U.S. Store Expansion – At the end of 2005, Tiffany operated 59 units in the
- Worldwide Expansion – Tiffany plans to open eight – 12 units worldwide (including the
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- Capital Expenditures – During 2005, the company spent more than $157 million on capital expenditures, or about 7 percent of sales. This was slightly higher than 2004’s expenditures of about 6 percent of sales.
- Acquisitions – To support its manufacturing and retail operations, the company has made investments in joint ventures and completed acquisitions of production facilities. The follow lists recent acquisition activity.
- In October 2005, Tiffany acquired – for $2 million – a Vietnamese corporation that specializes in polishing small carat weight diamonds.
- Over the past two years, the company has invested $10 million in a joint venture that owns and operates a diamond polishing facility in
- In December 2004, the company sold its entire investment in Aber Diamond. However, Tiffany still has the ability to purchase diamonds from Aber.
- In December 2002, the company made a $4 million investment in Temple St. Clair, a company that designs and sells jewelry. In October 2005, the company sold its equity interest in Temple St. Clair.
- In 2005, the company became the sold licensee for jewelry designed by the architect Frank Gehry. The Gehry collection began selling in early 2006.
- Profits by Operating Division – Tiffany’s sales and operating profits from its various subsidiaries are shown below. Its operating margin is at the top end of the jewelry industry average. The typical
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History & Organization of Tiffany & Co.
Charles Lewis Tiffany founded Tiffany’s business in 1837. It became a public company in 1987.
Tiffany’s channels of distribution include the following:
- Tiffany-owned stores – Includes
- Business-to-business – Sales to businesses, including trophies, custom designed items, and jewelry drawn from its retail product line.
- International Retail
- Retail sales from company-owned stores and from operating agreements with Mitsukoshi in
- Internet sales from its websites in the
- Wholesale sales to independent distributors for resale in Central/Latin/South America, Caribbean, Canadian, Asia-Pacific, Russian, and
- Direct Marketing
- Catalogs featuring selected merchandise mailed to a proprietary list of customers.
- Other
- Little
- Iridesse, which sells pearl jewelry, operates six stores.
- Wholesale diamond sales – both rough and polished – also are included in the “other” category; the diamonds which Tiffany sells off do not meet its quality standards. The company’s goal is to recoup its original costs; therefore, there is almost no profit in these transactions. Tiffany has a DTC Sight with a partner.