Analysis: Tiffany facing a tougher external environment
Tiffany has posted a relatively weak set of second-quarter results, although these come off the back of very strong prior-year numbers and have been affected by currency conversion. When these factors are considered, the results are not terrible, although they still represent a marked deterioration from the type of growth Tiffany was posting a few quarters ago.
Sales in the Americas were down by 4% on both a total and same-store basis. A lot of the slide is down to lower spending by tourists – something that has now dogged the company for a few quarters and which we see as an ongoing issue as Tiffany enters the crucial holiday period. Domestic demand slipped modestly, mostly among middle-income shoppers who are cutting back more on expensive, unnecessary purchases. Tiffany has not been able to entice them with its various collections in the way it was doing last year.
The good news is that while marketing efforts are not necessarily driving sales, they are still succeeding at improving traction with younger shoppers. From our data, brand awareness is still rising among the under 35 cohort; however, conversion among this age band has been static over the past few months, meaning that Tiffany is not doing enough to activate this group.
Broadly, we welcome the fact that Tiffany plans to widen its audience still further by launching a range focused on male consumers. While the Tiffany brand is known to many men, it is not one that automatically resonates – mostly because the proposition is very focused on women. We believe there is an opportunity to remedy this; however, we are also cautious about execution and do not think this initiative will be an overnight success. Indeed, it will likely take a long time to change the perception of men and to get them actively shopping with the brand.
Moving away from the domestic market, we have a number of concerns about Europe where the pace comparable sales decline has accelerated. The outlook for the regional economy does not look positive over the near-term and this will likely have a negative material impact on demand over the next year or so. Fortunately, the Asia-Pacific market looks stronger and should deliver some modest growth for Tiffany over the next year.
One of the biggest forward challenges will be dealing with any slowdown in the domestic market. Our early data suggest that jewelry will not be a winning category over the holiday period, mostly because of rising economic concerns and a prioritization of more practical gifts. If this attitude persists into the third quarter and beyond, it is likely to have a sharp impact on Tiffany’s sales numbers. Fortunately, this will be counterbalanced, at least in part, by the softer comparative results that Tiffany will now come up against. Even so, we are just not optimistic that growth will return to the level being delivered a year or so ago.
Against this more challenging backdrop, it is important that Tiffany holds its nerve. Many of the strategies the company has put in place to refresh the brand are directionally correct and are working. There is a case for greater innovation in ranges, especially more modestly priced collections, as well as some elevated marketing over the holiday period. However, neither of these things will entirely counteract a tougher external environment – it will only take the edge of the difficulties.
Sales in the Americas were down by 4% on both a total and same-store basis. A lot of the slide is down to lower spending by tourists – something that has now dogged the company for a few quarters and which we see as an ongoing issue as Tiffany enters the crucial holiday period. Domestic demand slipped modestly, mostly among middle-income shoppers who are cutting back more on expensive, unnecessary purchases. Tiffany has not been able to entice them with its various collections in the way it was doing last year.
The good news is that while marketing efforts are not necessarily driving sales, they are still succeeding at improving traction with younger shoppers. From our data, brand awareness is still rising among the under 35 cohort; however, conversion among this age band has been static over the past few months, meaning that Tiffany is not doing enough to activate this group.
Broadly, we welcome the fact that Tiffany plans to widen its audience still further by launching a range focused on male consumers. While the Tiffany brand is known to many men, it is not one that automatically resonates – mostly because the proposition is very focused on women. We believe there is an opportunity to remedy this; however, we are also cautious about execution and do not think this initiative will be an overnight success. Indeed, it will likely take a long time to change the perception of men and to get them actively shopping with the brand.
Moving away from the domestic market, we have a number of concerns about Europe where the pace comparable sales decline has accelerated. The outlook for the regional economy does not look positive over the near-term and this will likely have a negative material impact on demand over the next year or so. Fortunately, the Asia-Pacific market looks stronger and should deliver some modest growth for Tiffany over the next year.
One of the biggest forward challenges will be dealing with any slowdown in the domestic market. Our early data suggest that jewelry will not be a winning category over the holiday period, mostly because of rising economic concerns and a prioritization of more practical gifts. If this attitude persists into the third quarter and beyond, it is likely to have a sharp impact on Tiffany’s sales numbers. Fortunately, this will be counterbalanced, at least in part, by the softer comparative results that Tiffany will now come up against. Even so, we are just not optimistic that growth will return to the level being delivered a year or so ago.
Against this more challenging backdrop, it is important that Tiffany holds its nerve. Many of the strategies the company has put in place to refresh the brand are directionally correct and are working. There is a case for greater innovation in ranges, especially more modestly priced collections, as well as some elevated marketing over the holiday period. However, neither of these things will entirely counteract a tougher external environment – it will only take the edge of the difficulties.