Tiffany & Co
Has long been renowned for its luxury goods, especially jewelry, and has sought to market itself as an arbiter of taste and style. Tiffany designs manufacture and sells jewelry, watches, and crystal glassware. It also sells other timepieces, sterling silverware, china, stationery, fragrances, and accessories. Many of these products are sold under the Tiffany name, at Tiffany stores throughout the world as well as through direct-mail, corporate merchandising, and the Tiffany Web site. The company branched out in the early years of the new millennium, opening retail locations under the Temple St. Clair and Iridesse monikers. It also acquired a majority stake in Little Switzerland, a duty-free specialty retailer found in the Caribbean, Alaska, and Florida.
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In 1837 Charles Lewis Tiffany and John F. Young opened Tiffany & Young, with $1,000 in backing from Tiffany’s father. Located on Broadway opposite Manhattan’s City Hall Park, this store sold stationery and a variety of “fancy goods,” including costume jewelry. Unlike other stores of the time, Tiffany featured plainly marked prices that were strictly adhered to, sparing the customer the usual practice of haggling with the proprietor. Tiffany also departed from the norm by insisting on cash payment rather than extending credit or accepting barter. In 1841 Tiffany and Young took on another partner, J. L. Ellis, and the store became Tiffany, Young & Ellis. By 1845 the store was successful enough to discontinue paste (costume jewelry) and begin selling real jewelry, as well as the city’s most complete line of stationery. Silverware was added in 1847. In addition to these main items, Tiffany’s also sold watches and clocks, a variety of ornaments and bronzes, perfumes, preparations for the skin and hair, dinner sets, cuspidors, moccasins, belts, and numerous other sundries, including Chinese bric-a-brac and horse and dog whips.
The new partner’s capital enabled Young to go to Paris as a buyer, and he later established a branch store there. When the French monarchy was overthrown in 1848, Young purchased some of the crown jewels and also a bejeweled corset reputed to belong to Marie Antoinette. A shrewd publicist, Tiffany was quick to exploit this coup. He teamed up with P. T. Barnum, to their mutual profit, on a number of ventures and presented a gem-studded miniature silver-filigree horse and carriage as a wedding present to Tom Thumb and his bride. He introduced sterling silver to the United States in 1852, a year after contracting John C. Moore to produce silverware exclusively for the company. In 1853 he bought out his partners, and the firm became Tiffany & Co.
During the Civil War, the company was an emporium for military supplies, producing swords and importing rifles and ammunition. During the Gilded Age that followed, its main problem was finding enough jewelry to satisfy overwhelming customer demand. By then it also had established dominance in the American silverware market. In 1868 a London branch store was added and Tiffany & Co. was incorporated, with its proprietor as president and treasurer. Also in that year, Moore’s workshop became part of the firm. The store, which had been inching uptown with the city itself, moved into a newly constructed, company-owned building adjoining Union Square in 1870. Tiffany’s prestige reached a new level when the company won the gold medal for jewelry and a grand prize for silverware at the Paris Exposition in 1878. Soon it was serving as a jeweler, goldsmith, and silversmith to most of the crowned heads of Europe. Its real clientele, however, came from the burgeoning ranks of America’s wealthy, many with far more cash than taste. Tiffany accommodated them all, no matter how ostentatious or whimsical their desires. The height (or depth) of vulgarity was reached when Diamond Jim Brady ordered, and Tiffany duly produced, a solid gold chamber pot for Lillian Russell, with an eye peering up in the center of the bottom. It was estimated in 1887 that Tiffany’s vaults held $40 million in precious stones. Among these was the largest flawless and perfectly colored canary diamond ever mined. This 128.5-carat “Tiffany Diamond,” still held by the New York store, has been valued by the company at $22 million.
In 1894 a factory was established in New Jersey in Forest Hill, which was later annexed by Newark, for the manufacture of silverware, stationery, and leather goods. Charles Tiffany died in 1902, leaving an estate estimated at $35 million. He was the only Tiffany to run the company. Louis Comfort Tiffany, his eldest son to survive childhood, was an accomplished artist who sometimes made jewelry for Tiffany but was best known for his Art Nouveau stained glass windows and lamps. In 1905 the store had moved into quarters at Fifth Avenue and 37th Street designed by Stanford White in the form of a Venetian palazzo, and two years later John C. Moore, great-grandson of the silversmith, became president. Tiffany’s sales volume rose from $7 million in 1914 to $17.7 million in 1919. This figure was seldom if ever matched during the 1920s, but profits remained high and dividends rose steadily. A share of stock bought in 1913 for $600 was worth the same in 1929, but split five-for-one in 1920 and also earned close to $10,000 in dividends over that period.
Overcoming the Depression
Even the rich cut back on luxury goods after the 1929 stock market crash. Tiffany’s sales fell 45 percent to $8.4 million in 1930, dropped another 37 percent to $5.4 million in 1931, and yet another 45 percent to a rock bottom $2.9 million in 1932 when the federal government imposed an additional 10 percent on the excise tax for jewelry. There were staff layoffs in 1933, 1934, 1935, 1938, and 1939. The company lost about $1 million a year throughout the decade, but, dipping into its capital reserve, never stopped paying a dividend, although it fell to $5 a share in 1940. In that year $3.6 million had to be taken from the reserve just to stay in business, and the London store was closed. Also in 1940, Tiffany moved uptown for the sixth and last time, to the southeast corner of Fifth Avenue and 57th Street, where it put up a $2.5 million Art Deco seven-story building. It was the first completely air-conditioned building in New York. Louis de B. Moore succeeded his father as president in that year. During World War II the Newark factory (which made surgical instruments during World War I) was chiefly given over to military production. It made precision parts for anti-aircraft guns (which it made again during the Korean War) and fitting blocks for airplanes.
Tiffany’s fortunes revived somewhat in this period, but in 1949 earnings came to only $19,368. Net profits were a mere $14,787 in 1952, when the Paris store was closed, and $24,906 in 1953. The company’s $7 million in 1955 sales was no more than it had taken in during 1914. Conservative management and outdated styles were blamed by restive shareholders. One of these was Harry Maidman, a realtor attracted mainly by Tiffany’s long-term lease to the land under its prime-location building. He quietly bought up at least 30 percent of the stock. Denied a seat on the board of directors, Maidman sold his shares in 1955 to the Bulova Watch Co. To prevent Bulova from taking control, Tiffany heirs and close associates sold Hoving Corp., owner of neighboring Bonwit Teller, 51 percent of the stock for $3.8 million. Walter Hoving, who soon became chairman and chief executive officer of Tiffany, had to report to the General Shoe Corp. (later Genesco, Inc.), which took a majority share of his own company in 1956. He did not win firm control of the store until 1961 when he assembled a group of investors that bought out Genesco and Bulova. Nevertheless, Hoving immediately put his stamp on Tiffany by conducting the first bargain sale in the firm’s history to clear out merchandise he considered gaudy or vulgar. He dropped diamond rings for men for that reason and discontinued leather goods, antiques, silver plate, brass, and pewter as not worthy of Tiffany’s attention.
1960-70: Focusing on “Aesthetics”
Hoving recruited a galaxy of stars to create a new standard of quality for Tiffany’s products. Jean Schlumberger was hired to design its finest and most expensive jewelry. Henry Platt expanded the jewelry workshop’s staff from eight to sixty and later enlisted Elsa Peretti, Angela Cummings, and Paloma Picasso to create jewelry exclusively for Tiffany. Van Day Treux, the new design director, revived vermeil (gold-plated sterling silver) and old patterns of silver flatware and commissioned new china. Gene Moore, put to work dressing the store’s windows, spent nearly 40 years creating striking and often provocative displays. “Aesthetics,” Hoving pronounced, “if properly understood, will almost always increase sales.” To broaden the base of its clientele, the store added high-quality but lower-priced goods such as silver key rings for $3.50. By the early 1960s, a third of the store’s patrons were living 100 miles or more away. One of the firm’s many longtime sales clerks said, “It’s gotten so there are customers here whose names I don’t even know.” A San Francisco store was added in 1963, and branches in Chicago, Houston, Beverly Hills, and Atlanta soon followed.
The balance sheet reflected Tiffany’s turnaround. Annual sales reached $21.9 million in the fiscal year 1966 (ending January 31, 1967). Net profits rose every year, from $173,612 in 1955 to $1.7 million in 1966. That year about 65 percent of Tiffany’s volume came from jewelry, 18 percent from silver, 14 percent from china and glassware, and the remaining 3 percent from stationery (engraved, not printed) and specialty items. The company made all its diamond jewelry and a small part of its gold jewelry in the Fifth Avenue store itself. Virtually all of it was designed by the staff. Nearly all of its sterling silver (carried by 150 franchised dealers as well as Tiffany stores) also was staff-designed, and 85 percent was being manufactured in the Newark plant. China and glassware were being made to company specifications. Tiffany’s catalog (free until 1972) was the first major catalog entirely in color.
New Ownership: 1970-89
Business continued to grow in the 1970s. Sales increased from $23 million in 1970 to $35.2 million in 1974. Net income passed the $1 million mark in 1972 and reached $2.1 million the following year. In November 1978 Tiffany & Co. was sold to Avon Products Inc., the world’s leading manufacturer and distributor of cosmetics and costume jewelry, for about $104 million in stock. Tiffany’s sales had reached $60.2 million and net profits about $4 million in the previous fiscal year. Hoving remained chairman and chief executive officer until the end of 1980 when he retired. Avon spent $53 million (raising some of it by selling some of its inventory of uncut diamonds) to open Tiffany stores in Dallas and Kansas City, expand its direct mail orders, introduce Tiffany credit cards, and streamline and computerize its back-office operations. But its ratio of operating profits to revenue fell from 17.6 percent to 6.5 percent between 1979 and 1983, mainly because it tried to compete with department stores in selling low-margin watches, china, and glassware. A 1984 Newsweek article noted that the Fifth Avenue store had stocked so many inexpensive items that it began looking like Macy’s during a white sale and that customers had complained about declining quality and service. In August 1984 Avon agreed to sell Tiffany to an investor group led by its chairman, William R. Chaney, for $135.5 million in cash. The company had earned only $984,000 in 1983 on sales of $124.2 million.
Under its new management, Tiffany & Co. shifted direction again. It sought to reassure the affluent but socially insecure patron that Tiffany’s taste remained “safe.” The firm also cut costs by closing the Newark plant and its Kansas City store, cutting staff, and embarking on a program to wholesale its jewelry and silverware and the line of leather products that had been restored under Avon’s management. Tiffany lost $5.1 million in 1984 and $2.6 million in 1985, mainly because of heavy interest costs on borrowing to pay off Avon, but in 1986 it earned $6.7 million on net sales of $182.5 million, despite paying out $9.1 million for interest on its debt. During 1987 it earned $16.8 million on net sales of $230.5 million. Tiffany went public again in 1987, raising about $103.5 million by selling 4.5 million shares of common stock. About $43 million of this sum was earmarked to retire nearly all of the company’s outstanding debt. The newly public company no longer owned the Fifth Avenue building nor the land beneath it, which it had purchased for $2.8 million in 1963. (The air rights over the building had been sold in 1979 to Donald Trump, owner of neighboring Trump Tower, for $5 million.)
“Tiffany,” a fragrance, was introduced in 1987 at $220 an ounce and marketed by department stores across the country. Wool and silk scarves were introduced the same year, shortly after neckties had been added, and the company’s line of handbags, evening purses, wallets, and briefcases expanded. A London store was reintroduced in 1986 and stores in Munich and Zurich opened in 1987 and 1988, respectively. Emphasizing its glitter in 1988, Tiffany displayed, in five of its stores, a collection of 22 individual pieces of jewelry made in its own workshop and valued at more than $10 million. All but one piece sold. Paradoxically, perhaps, but profitably, Tiffany’s emphasis on luxury drew in the masses; as many as 25,000 people visited the store on a Saturday during the holiday season.
1990 and Beyond
Tiffany’s catalog mailings reached 15 million in 1994. These publications were seen as powerful sales and image tools for the stores as well as a source of profit in themselves. The company’s direct-marketing effort also included business-to-business sales, which included a corporate gift catalog each year. Corporate customers purchased Tiffany products for business gift-giving, employee service, and achievement recognition awards, customer incentives, and other purposes. The Far East played an important role in Tiffany’s resurgence. Mitsukoshi Ltd., the “Bloomingdale’s of Japan,” which began stocking Tiffany items in its department stores and smaller shops in 1972, accounted for $26.5 million of Tiffany’s $290 million in sales in 1988. Mitsukoshi bought 10 percent of Tiffany’s stock in 1989 to increase its earlier 3 percent stake; it eventually sold its stake in 1999. Tiffany opened two stores in Hong Kong during 1988 and 1989, a third in Taiwan in 1990, and a fourth in Singapore in 1991.
Tiffany suffered a serious setback in 1992 when sales to Mitsukoshi fell 35 percent, from an estimated $113 million in 1991. Hurt by a recession, Japanese consumers had cut back spending, catching the retailer with more inventory than it needed. In 1993 Tiffany assumed direct responsibility for sales, merchandising, and marketing at Mitsukoshi’s 29 Tiffany boutiques, taking a $32.7 million after-tax charge to buy them and run them on its own. This restructuring was largely responsible for a $10.2 million loss in 1993 despite sales of $566.5 million, a 16 percent gain. In spite of the setback, Tiffany ranked sixth out of 28 public specialty retailers in return on equity from 1989 to 1993, averaging an annual 18.8 percent over this period. Also in 1992 the company, affected by curbed spending during the 1990-91 recession in the United States, again began to emphasize mass merchandising. A new information campaign stressed that the average Tiffany purchase was under $200 and that diamond engagement rings started at only $850. It sent “How to Buy a Diamond” brochures to 40,000 people who called a toll-free number. To keep the company from losing its cachet, however, it continued to maintain its high-style image through books on Tiffany objects and in-store table setting displays. Avoiding calling Tiffany a luxury-goods firm, Chaney described it as “a design-led business offering quality products at competitive prices.”
During fiscal 1994 Tiffany’s net sales rose to $682.8 million, of which U.S. retail accounted for 45 percent, international retail 41 percent (up from 32 percent two years earlier), and direct marketing 14 percent. (Despite this breakdown, “retail” also included wholesale sales.) Net income rebounded to $29.3 million. Long-term debt was $101.5 million at the end of 1994. In mid-1995 Tiffany was leasing 18 retail stores in the United States and was completing two more, in Short Hills, New Jersey, and Chevy Chase, Maryland. Another 11 were abroad. Tiffany was also operating Faraone stores in Milan and Florence, many boutiques in Japanese stores, and one in Taiwan. Other parties operated four Tiffany boutiques in South Korea and one each in the Philippines, Abu Dhabi, Taiwan, Hong Kong, Hawaii, and Guam. Four Faraone boutiques were in Japanese department stores. Of merchandise offered for sale by Tiffany in fiscal 1994, 26 percent was produced by the company itself. Finished jewelry was produced in Tiffany’s own workshop and also purchased from more than 100 manufacturers. The company acquired Howard H. Sweet & Son, Inc., a manufacturer of gold and silver jewelry and chains in fiscal 1989, and McTeigue & Co., a manufacturer of gold jewelry, in fiscal 1990. Cut and polished diamonds were being purchased from a number of sources. Diamond jewelry accounted for about 22 percent of Tiffany’s net sales in fiscal 1994.
A single manufacturer produced Tiffany’s silver flatware patterns from Tiffany’s proprietary dies by use of its traditional manufacturing techniques. Likewise, engraved stationery was being purchased from a single manufacturer. A Paris workshop decorating hand-painted tableware was acquired in fiscal 1991. In the same year, Tiffany established a watch assembly, engineering, and testing operation in Lussy-sur-Morges, Switzerland. The following year the company acquired Judel Glassware Co., Inc., producer of crystal glassware in Salem, West Virginia. A distribution facility was being leased in Parsippany, New Jersey, and additional warehouse space in adjacent Pine Brook, New Jersey. During the late 1990s, Tiffany focused on boosting its profits by offering fine diamond jewelry. Realizing that its vertically integrated structure bode well for profits, the company purchased a 14.9 percent stake in Aber Resources in 1999. The Canadian firm owned part of the Diavik Diamond Project, a Canadian mine that began producing gem-quality diamonds in 2002. The company sold its stake in Aber in 2004 after it secured a diamond supply contract that extended into 2013.
Tiffany entered the new millennium on solid ground. Overall, the company’s earnings had risen at 24 percent compound annual growth rate from 1996 to 2001. To keep its momentum, Tiffany launched an aggressive growth strategy. By increasing its store count, Tiffany hoped to cash in on middle-income shoppers. An April 2002 Forbes article described the scene at a suburban Tiffany store. “Shoppers clutching Gap and Benneton bags clogged the aisles and elbowed one another to get to the store’s self-service corner, where boxes of sterling-silver key rings, pendants and charm bracelets, many priced under $100, were stacked and prepackaged in Tiffany’s trademark robin’s-egg blue. For customers needing service, staffers roved the sales floor passing out beepers.” Analysts warned that this strategy could possibly tarnish the prestigious brand. Nevertheless, Tiffany’s management anticipated that offering and promoting lower-priced merchandise would lure new customers and spark growth at its retail locations.
The company moved into the Caribbean market in 2001 when it acquired a 45 percent stake in Little Switzerland, a duty-free retailer based in the U.S. Virgin Islands. It increased its stake to 98 percent the following year. In 2003, Tiffany launched a new retail concept under the name Temple St. Clair. Two stores, one in California and one in New Jersey, were opened that year and sold trendy jewelry ranging from $500 to $35,000 per piece. In 2004, the company launched another retail concept, this time focusing on pearls. Named Iridesse, the new stores carried merchandise ranging from $50 to $50,000. In 2004, the company opened ten stores and boutiques: four in the U.S., three in Japan, one in Taipei, one in Shanghai, and one in London. It also launched several new jewelry lines including Atlas, Voile, and Rose. That year, sales increased to $2.2 billion while net income climbed to $304.3 million. In early 2006, the company ended its stockholder rights plan, more commonly known as a poison pill plan that prevented hostile takeovers. The action prompted speculation that the company could possibly go up for sale in the near future.
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