Features, Luxury

Tiffany’s Uneven Balancing Act Between Old and New Luxury

In a retail category that was going gangbusters last year – jewelry retailers were up 9 percent through November by the Census Department’s reckoning – Tiffany and Company has not shared in the bonanza. It was hugely disappointed with holiday 2018 sales.

By the Numbers

Comparing results for the last two months of the year, Tiffany’s global net sales declined 1 percent and comparable store sales were off 2 percent, according to a company statement. Except for 4 percent growth in Japan, revenues were off in all reporting markets: Americas -1 percent; Asia-Pacific -3 percent; Europe -4 percent and other -11 percent.

“Overall holiday sales results came in short of our expectations, which had called for modest year-over-year growth,” Tiffany CEO Alessandro Bogliolo said, citing a decline in Chinese tourist spending and “softening demand attributed to local customers in the Americas and Europe, which we believe may have been influenced more than expected by external events, uncertainties and market volatilities.”

Admittedly Tiffany was going up against strong comparables from holiday last year, in which global sales grew 6 percent, with Americas up 6 percent, Asia-Pacific up 8 percent, Europe up 5 percent, but Japan flat.

Holiday sales are focal for jewelry retailers in general, and Tiffany in particular. Last year the final two months of the year contributed about 25 percent to the company’s overall $4.2 billion in sales. Further the Americas is its most important region, accounting for 45 percent of total sales last year.

Weakness in Luxury Jewelry Sales Is Not Evenly Distributed

While 2018 has been challenging for Tiffany, it has not been so for its competitors in the luxury jewelry market.

For the third quarter ending December 31, 2018, Richemont reported 8 percent sales growth in its Jewellery Maisons on a constant exchange basis. This group is led by Cartier and Van Cleef & Arpels. Overall Richemont’s sales in the Americas rose 9 percent and it attributed “good performance by the Jewellery Maisons” to much of that growth.

Likewise, LVMH’s Watches and Jewelry group reported 14 percent growth for the first nine months of 2018, citing excellent performance in the Bvlgari brand and steady progress in Chaumet and Fred.

Richemont’s and LVMH’s vibrant 2018 growth in jewelry contrasts sharply with declining prospects at Tiffany. In a global luxury jewelry market (not including watches) estimated to reach €18 billion in 2018, jewelry will join shoes as luxury’s top growth categories, rising 7 percent each, according to Bain & Company’s annual luxury study. By contrast, luxury watches is nearly twice as large, €37 billion, but will be stalled with 0 percent growth year-over-year.

Tiffany Should Be Ahead, but it Is Falling Further Behind

Without a doubt, Tiffany is facing aggressive competition in the luxury space from LVMH and Richemont. But as the premiere and only legacy luxury jewelry in the United States, it should have a leg up on its foreign-born and bred competitors.

Founded in 1837, and with its reputation for luxury fixed firmly in the popular imagination thanks to its starring role in the 1961 hit Breakfast at Tiffany’s, Tiffany is struggling with conflicting forces that are common to other legacy luxury brands: the push-pull from their traditional wealthy and older customers who want one type of luxury and their younger, less financially-endowed customers and potential customers who want a totally different kind of luxury. Tiffany’s present fortunes hang on the one, and their future depends on the other.

This is the fulcrum upon which Tiffany’s prospects balance. And like other legacy brands, it is having a hard time finding the right combination of products and services to meet both new luxury and old luxury customers’ expectations. Take for example, Tiffany’s Paper Flowers collection, the first launch by Reed Krakoff, the company’s new chief artistic officer, mid-year.

New Collection for Young New Luxury Customers at Old Luxury Prices

To my eye Paper Flowers is a beautifully designed and executed line, but its luxury price point, starting at $2,500, is aimed at the traditional luxury ultra-affluent customer, not the less financially-endowed, younger HENRYs (high-earners-not-rich-yet).

For Paper Flowers’ launch, Elle Fanning was selected as the collection’s “It Girl.” Only 20 years old, she is the younger sister of Dakota Fanning, who has a longer track record in film and more fame as a result.

Which leads me to ask, why Elle Fanning, someone this baby boomer had to look up on Wikipedia? Admittedly, she was selected to appeal to the younger generation that Tiffany covets, but wouldn’t a slightly more mature celebrity that could span the generations be more appropriate? Or even one who can legally drink champagne?

Then there is the collections’ price points, which start at $2,500 to $16,000 currently for diamond cluster earrings in platinum. I don’t know many 20-somethings that can afford it, other than trust-fund babies and celebs like the Fanning sisters.

Tiffany Says No to the Lab Diamonds New Luxury Consumers Want

In a move aimed to appeal to the younger generation and their demand for responsibly sourced and environmentally sound corporate practices, Tiffany & Company took a step in the right direction, but didn’t go nearly far enough. Tiffany recently announced it will sell only responsibly-sourced diamonds, but as to the even more socially and environmentally-responsible and human-rights affirming lab-grown diamond alternative it said “No.”

In its Diamond Source Initiative, Tiffany will share the provenance of all newly sourced, individually registered diamonds it sells to customers and will buy only responsibly-minded diamonds.

In an interview with jewelry trade publication JCK, Andy Hart, senior vice president of diamond and jewelry supply, added that this move toward full transparency and disclosure is what today’s Tiffany customer expects.

“In the luxury industry, we are seeing a new generation of buyers that cares about the environment, social responsibility, human rights, and labor practices, and they care about the diamond traceability,” he stated. “We believe that [origin] is a crucial piece of information that will allow consumers to make an informed purchase.”

But in response to a question about selling man-made diamonds, Hart’s answer was as clear-cut as the facets of the diamonds Tiffany sells.
“Our position is lab-grown diamonds are not a luxury material. We don’t see a role for them in a luxury brand,” Hart said. “They have their use and they have their place, but I think luxury consumers will continue to desire the rarity and amazing story of natural diamonds.”

Taking umbrage to the idea that manmade diamonds are less luxurious than mined diamonds, Jason Payne, founder and CEO of Ada Diamonds and a leading visionary in the man-made diamond industry, wrote an open letter to Hart and the Tiffany company explaining why their perception of lab-grown diamonds is wrong.

Laboratory diamonds are what new luxury customers want, Payne contends. “My clients are steadfast in their belief that lab diamonds are the epitome of modern luxury, with most proudly evangelizing the superiority of ‘cultured’ diamonds over ‘dirt’ diamonds,” he writes.

MVI Marketing’s Marty Hurwitz has the data to prove it. Having conducted consumer research studies on lab-grown diamonds since 2004, many with millennial HENRY shoppers, Hurwitz reveals awareness of and demand for lab-grown diamonds is growing rapidly especially among the younger generation.

From 2004 when an overwhelming majority of millennials were unfamiliar with lab diamonds to 2018 when 68 percent of millennials said they would consider a lab-grown stone for an engagement ring, as compared with only 33 percent in 2005, Hurwitz believes the correct position for Tiffany is to offer their customers a choice.

That choice is one that Tiffany’s new luxury consumers want because lab-grown diamonds being of the exact chemical composition as mined diamonds are actually superior. “Diamonds grown by mankind are higher purity, lower strain crystals that have superior fire, brilliance and scintillation,” Payne states. And an added benefit, lab-grown diamonds are generally less expensive so customers can buy a bigger, better diamond for less.

Tiffany’s Holiday Campaign Tries to Bridge the Generation Gap

Despite being tone deaf to the next generation’s demand for lab-diamonds, Tiffany’s Holiday 2018 campaign tried to bridge the new luxury/old luxury generation gap. It starred a slightly older 30-something Zoë Kravitz, daughter of musician Lenny Kravitz and actress Lisa Bonet, but another millennial who lacks immediate recognition to this more mature consumer.

The “Believe in Dreams” video campaign takes Kravitz on an “Alice in Wonderland” looking-glass experience from the Tiffany shop floor to a magic Tiffany workshop featuring the Paper Flowers collection along with the other recent HardWear and Tiffany T collections. The video ends with a reimagined Mad Hatter tea party with Tiffany place settings and Naomi Campbell (I know her) and others, including one obviously senior woman, making cameo appearances.

The video’s soundtrack bridges the generation gap featuring Aerosmith’s 1973 “Dream On” hit sung by Steven Tyler. With over 25 million views on YouTube and 2K likes, it made an impression, but not enough to make magic for Tiffany this holiday season.

For 2019 Tiffany has a challenging road ahead in a luxury market that looks to be headed for more, not less turmoil in terms of those “external events, uncertainties and market volatilities,” that Bogliolo spoke of in his latest statement.

Tiffany is going to feel increasingly challenged to find the balance between its traditional older customer base and the next generation consumers who will determine the brand’s future. A one-size-fits-all marketing strategy will not work, nor will product lines with youthful zest like Paper Flowers work at old-luxury prices. Ignoring the demand for new-luxury lab-grown diamonds with the claim that they aren’t “true” luxury is out of touch with what millennials believe.

Being too exclusive, which to the younger generation connotes elitism and excess, turns off more than turns on the next-gen customers Tiffany must attract. Case in point: Tiffany’s version of “kick the can” in the form of a coffee can made over in sterling silver priced at an exorbitant $1,500. Part of its Everyday Objects collection, that product range sends a loud and clear message that Tiffany is out of touch with the culture and what contemporary customers want from a legacy brand like Tiffany.

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