In 2009, Tiffany employed a number of smart strategies to help it maintain sales during tough times. These strategies remained under wraps until last week, when the US-based company released its annual report.
The report contained a range of simple measures that successfully protected the company from the impact of the recession, according to a report by IDEX Online.
While the company’s net sales declined slightly in 2009, its profit margins were still four-times the industry average.
The company also bounced back very quickly, quadrupling its earnings for the first quarter of 2010, compared to the same time last year.
Strategies revealed by the IDEX Online study included:
Raise prices for bridal jewellery and discount fashion jewellery
Fashion jewellery is a discretionary purchase, leaving it most vulnerable to the effects of the recession. To counter this Tiffany dropped the average price of its high-end fashion jewellery by approximately $895 – from $3,460 in 2008 to $2,565 in 2009.
To counter-balance the reduced prices, the recession-proof industry of engagement jewellery saw a $340 increase in average prices – from $3,350 in 2008 to $3,690 in 2009.
All Tiffany staff members are given financial incentives to perform. Statistics reveal Tiffany generates sales of about $360,000 per employee (full and part-time), far above the jewellery industry average sales of $225,000 per employee.
These figures were achieved despite the drop in average prices, and are attributed to the superior productivity of Tiffany’s sales people.
The company’s strict performance-based payments extend all the way to corporate level. CEO Michael Kowalski’s salary represents only 16 per cent of his earning potential. Despite the company’s solid performance during tough times, Kowalski was not rewarded in 2009 because he didn’t achieve key financial targets.
Reduce reliance on outsiders
Following the recession Tiffany reduced its reliance on outside suppliers. By manufacturing more product in-house, the company avoided much of the volatility of related markets. Last year Tiffany manufactured about 60 per cent of its own merchandise. Seventy per cent of its diamonds were purchased rough, and cut and polished in-house.
This was a dramatic increase from 2008 and 2007 when only 40 per cent of its diamonds were polished in-house. The company also has a long-standing policy of not entering into long-term supply agreements with manufacturers, ensuring the company has greater flexibility during times of uncertainty.
Like most jewellers, Tiffany reduced advertising costs as a percentage of sales in 2009. The company spent 5.9 per cent of sales on advertising in 2009, compared with 7.2 per cent in 2008. However, the percentage allocated to advertising was still far higher than the average jeweller. Statistics show jewellers spent an average of just 4.2 per cent of sales on advertising in pre-recession 2008.
In an interview in March this year, CEO Michael Kowalski spoke about his company’s recession-busting success. “Notwithstanding the global economic challenges over the past year, the decisive measures we took to control spending were successful and, combined with the considerable and growing international awareness of the Tiffany & Co. brand, helped us to generate strong earnings and free cash flow,” he said.
“Tiffany has the necessary components for ongoing success – compelling products, organizational and financial strength, an efficient infrastructure and a premium brand that is increasingly recognised for lasting value,” Kowalski added.
The Asia-Pacific region – which includes Australia – accounted for 35 per cent of Tiffany & Co sales in 2009.
Tiffany & Co has six stores in Australia – two each in Victoria and NSW, one on the Gold Coast and one in Perth and is planning a major expansion
of its Australian operations.
Asia-Pacific sales increased 51 per cent for the first quarter of 2010 (compared to the same time last year), and the target for the remainder of 2010 is for just under 10 per cent growth.
Interestingly, the IDEX Online reports states that Tiffany’s marketing spend will increase in 2010. “After cutting back modestly on marketing expenditures in 2009, management said that it plans to increase its marketing budget during calendar 2010 in an effort to boost market share. Consumers will be hearing more messages from Tiffany this year,” the report states.
See the full report at IDEX Online
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