Jewelry Industry: Tiffany

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Jewelry IndustryTiffany Co.

• Group 6
• John Cayo
• Jessica Wilson
• Kirk Griffith
• Jessica Aragon
• Brandy Wolfe
• Raynee Bradley
• Cole Naylor

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The Jewelry Industry

• Jewelry dates back to 75,000 years ago
• Uses of jewelry wealth, status, membership, etc.
• The industry is timeless and very attractive to
  those who are in it

3
Main Players of the Industry

• Tiffany Co. (top competitor)
• Blue Nile Inc.
• Signet Jewelers Limited
• Zale Corporation
• DGSE Companies Inc.
• Birks and Mayors Inc.

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Industry Life Cycle

• Mature stage
• Will not be taken down by economic crisis
• Adaptation Short-run Medium-run
• Research shows that this is a favorable industry

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Overview of the Environmental Scan

• There are six environmental factors that an
  investor needs consider when analyzing an
  industry economic, political, social,
  technological, competitive, and geographical.
  These factors are known as the environmental
  scan. Performing this secondary research provides
  an investor with much needed insight into an
  industry and helps build a foundation for further
  exploration and analysis.

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The 6 Environmental Factors

• Economic
• Political
• Social
• Technological
• Competitive
• Geographical

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Additional Implications

• Dependence on Economic Well-Being
• Reliance on Suppliers and Natural Resources
• Market Niches

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Dependence on Economic Well-Being
X-Axis 1,2,3,4,5 refer to Year 2004, 2005, 2006,
2007, 2008 respectively
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Dependence on Economic Well-Being
-Axis 1,2,3,4,5 refer to Year 2004, 2005, 2006,
2007, 2008 respectively.
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Driving Forces for Change
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• In the last couple of years politics and
  economics have played a big role in driving
  companies in the jewelry industry to change in
  order to stay competitive.

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Conflict Diamonds

• Conflict diamonds better known as Blood
  diamonds
• Used to fund conflicts in war-torn areas.
• Captured the worlds attention in 1990s, but
  more recently in the movie Blood Diamond
• Conflict diamonds represent 4 of the worlds
  diamond supply

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Changes Made

• In January 2003, an intergovernmental agreement
  was created called the Kimberley Process
  Certification Scheme was created.
• Companies also participate in a voluntary program
  of self-regulation in addition to KPCS.
• Eliminates conflict diamonds from the worlds
  diamond supply.
• Through these joint efforts 99 of the worlds
  diamond supply is free from conflict diamonds.

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Dirty Gold Mining

• Gold mining has been a dirty practice for over
  4500 years.
• Conditions worsen as easily accessible deposits
  of gold have declined, and open-pit mining is
  becoming more wide spread.
• These practices lead to destruction of the
  environment, damage to the ecosystem, and the
  opening of vast craters.

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Social Responsibility

• In 2003 Tiffany and Co. framework for
  responsible mining A guide to evolve standards.
  
• Zale Corporation, along with other industry
  members, formed the not-for-profit Council for
  Responsible Jewelry Practices in May 2005
• Since this move began, more and more companies
  seem to be making the change to this more
  socially responsible initiative.

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• Since repeat consumers play a key role in the
  success of the jewelry industry it is important
  for companies to adapt to the evolving mindset of
  their consumers which in this case is to take a
  strong position in social and ethical
  responsibility.

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The Current Economic Condition

• Jewelry companies across the board take a second
  look at their strategies in attempt to weather
  this current economic storm.
• The jewelry industry, which typically gets most
  of its profits from Valentines Day, Christmas,
  and Mothers Day, has also seen a downturn in the
  recent years due to the current economic
  situation.
• Companies are approaching this situation in a
  number of ways.

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Marketing Techniques

• Companies are using ads to adapt to the current
  mindset of its consumers.
• Jewelry is considered a luxury and not a
  necessity
• Some companies are changing their approach to
  make diamonds seem like a thoughtful investment
  rather than a luxury.

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De Beers

• "Here Today. Here Tomorrow. In times like these,
  it's perhaps wise to reflect on the things that
  last rather than the things that come and go. A
  diamond has outlasted all that history can throw
  at it, from the formation of continents to the
  turmoil of markets. Across the generations, in a
  thousand years' time, a diamond will still be
  here. Just like love. Just not like your
  401(k).

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Other Marketing Techniques

• High-end retailers have chosen to focus on
  upper-class consumers.
• These consumers are less likely to be as affected
  by the current economic state.
• They continue to use quality as their competitive
  advantage.

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Tiffany and Co.

• "Dreams Can Still Come True, Give her the ring of
  her dreams. For less than you imagine, the best
  there is."
• This ad still focuses on the high quality that
  Tiffany and Co. is known for, yet it changes its
  approach by saying dreams can still come true
  implying that even in this down-turned economy
  you can get great quality for the one you love.

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Good to Great

• The strategy that De Beers and Tiffany and Co.
  have chosen to follow is similar to the mindset
  of the Stockdale Paradox.
• It talks about facing the brutal facts of your
  current reality.
• The companies are embracing this crisis and
  adapting their strategy to sustain their market
  positions in the changing environment.

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Facing even more Brutal Facts

• As the economy has continued to decline these
  marketing techniques have become less successful.
• Aspirational buyers have been knocked out of
  the high-end jewelry market.
• Even companies such as Tiffany and Co. have even
  seen a decline in recent sales.
• The few companies that do continue to market to
  just upper class successfully are usually the
  retailers that have higher brand recognition and
  greater differentiation of products- Providing
  greater customer loyalty.

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Innovative Designers

• Innovative designers are very important.
• Companies do not typically brand their products.
• Innovative designers provide companies with a
  recognizable product design and packing.
• They also give companies a wider range of
  products.
• This helps them differentiate from their
  competitors while battling in the red ocean of
  the jewelry industry.

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Market Niches

• The Right-Hand-Ring-De Beers, Helzberg, Zale
  Corp. and others.
• Mens Jewelry
• Estate Jewelry
• Gay Americans - a segment that has been steadily
  growing as civil marriages are becoming more
  prevalent.

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Inflation

• Raw materials such as platinum and silver are at
  an all time high at an estimated 60 percent and
  40 percent, respectively, from a year ago.
• Companies have started to increase their prices
  to compensate for their costs due to inflation.
• This causes an additional adverse impact on the
  demand for jewelry, especially for companies that
  compete on price, such as Wal-Mart.
• High-end companies dont seem to be as affected.

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• As of right now, it remains to be unseen what
  will exactly become of the jewelry industry as a
  whole as the economy continues to change.
• Whether it is for the better or worse, these
  companies will persist in finding ways to remain
  competitive as there are always driving forces in
  this ever-changing economy.

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Porters Five Forces
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Competitive Rivalry amongst existing firms HIGH

• In the jewelry industry companies that are
  considered mass merchandisers or limited line
  jewelers generally compete on the basis of price.
• Specialty jewelry companies, have found great
  success competing on quality rather than
  competing on price. Brand recognition is the
  greatest asset.
• There is a high growth rate in the industry. As
  the jewelry industry expands globally, the
  industries top competitors are opening many
  stores in order to increase market share and
  capitalize on competition.
• This has created a stagnant industry that now
  competes by taking market share away from the
  other players and creates price wars among many
  of the firms in the industry.
• The switching costs and degrees of
  differentiation lower as the industry grows.
  These low degrees of differentiation lead to
  consumers purchasing items based on price rather
  than quality.

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Threat of New Entrants Moderate to Low

• Several of the existing firms have contracts with
  well-known diamond distributing companies.
• New entrants may find it difficult to contract
  with these companies, because they lack the
  financial status. Also new entrants do not have
  a reputable name, which may cause doubt from a
  diamond distributing company and thus no contract
  will be created.
• The entry into this market is getting
  increasingly difficult due to the growth of
  companies already established in the industry and
  due to high initial investment costs.
• Existing firms experience economies of scale from
  large investments in research and development,
  brand advertising, or in physical location of
  stores.
• The barriers to entry and to exit are very high
  in this industry.

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Threat of New Entrants (continued)

• Large economies of scale make it very difficult
  for new entrants to compete in an industry.
• The more assets a firm has the greater the firms
  ability to take advantage of economies of scale.
• The following chart shows each of the competitors
  total assets from 2006 to 2008

Total Assets (in thousands)
    
       
2006 2007 2008
Tiffany Co. 2,777,272 2,845,510 2,922,156 
Blue Nile Inc. 138,005 122,106 160,586 
Signet Jewelers 3,106,288  3,442,710 3,564,700
Zale Corp. 1,462,568    1,613,946 1,422,622
DGSE Inc.  11,830    13,146 36,859 
Birks and Mayors 229,489   252,516 291,848 
   
   
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Threat of Substitute Products High

• The threat of substitutes depends on the relative
  price and performance of the competing products
  and on customers willingness to consider
  substitutes.
• In this Industry there are millions of consumers
  who will not purchase a diamond unless they are
  absolutely certain it is conflict free due to
  ethical and social concerns. Since conflict free
  diamonds are harder and more expensive to obtain,
  this creates a high level of competition for the
  jewelry industry.
• Products price elasticity is also affected by
  substitute products. For example, as more
  substitutes become available the demand becomes
  more elastic because customers have more
  alternative choices. Therefore a close
  substitute product constrains the ability of
  firms in the industry to raise prices.

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Bargaining Power of Customers Moderate

• When there is a large market of buyers the
  industry has the ability to set its price points
  as high or as low as they choose.
• Customers have little bargaining power regarding
  price when they shop at luxury stores and refuse
  to search for alternatives, because of such a
  limited selection.
• However, when buyer power is strong, the
  relationship to the producing industry is near to
  what an economist terms a monopsony- a market in
  which there are many suppliers and one buyer.
  (Quickmba) In this particular market condition,
  the buyer sets the price.

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Bargaining Power of Suppliers High

• Since diamonds are scarce, mining companies have
  absolute control over the selling price.
• Diamond-mining companies such as DeBeers and Aber
  control the price of the diamonds that are
  supplied to several firms in the jewelry
  industry, such as Tiffany and Co. Since these
  precious gems are of great value to the firms,
  the power of the supplier is even larger.
• The power of suppliers within the jewelry
  industry has skyrocketed within the last few
  years due to natural gemstone scarcity.

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Major Players

• Tiffany and Co.
• Blue Nile Inc.
• Signet Jewelers Limited
• Zale Corporation
• DGSE Companies Inc.
• Birks and Mayors Inc.

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Tiffany and Co.

• TIF
• Founded 1837
• Headquartered in New York, New York
• Stores
• Compete

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Blue Nile Inc.

• NILE
• Founded 1999
• Online selling
• Compete

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Signet Jewelers Limited

• SIG
• Founded 1950
• Headquartered in London, United Kingdom
• Store names and locations
• Compete

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Zale Corporation

• ZLC
• Founded 1989
• Headquartered in Irving, Texas
• Store names and locations
• Compete

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DGSE Companies Inc.

• DGC
• Founded 1965
• Headquartered in Dallas, Texas
• Online auctions
• Compete

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Birks and Mayors Inc.

• BMJ
• Founded 1879 and headquartered in Montreal,
  Canada
• Store names and locations
• Compete

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Financial Data

• Current Ratio
• Debt/Equity Ratio
• Stock Price
• Market Cap
• Total Revenue
• Return on Equity
• Mean Recommendation
• Long Term Growth Rate Over 5 Years

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• How well assets cover short term obligations.

• Companies ability to borrow and repay loans.

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Stock Price

• BMJ taken from November 05 because that is as
  far back as stock history could be found.

Market Cap Market Cap Market Cap Market Cap Market Cap Market Cap Market Cap
TIF NILE SIG ZLC DCG BMJ
PRESENT 2.43B 307.54B 63.21M 36.67M 9.05M 4.99M

• Mid cap TIF
• Micro cap NILE SIG
• Nano cap ZLC DCG

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Total Revenue Total Revenue Total Revenue Total Revenue Total Revenue
TIF NILE SIG ZLC
2008 3.1B 295.3B 3.6B 2.1B

• Sales must be brought in to turn a profit.

Return on Equity

• The higher the percentage, the more likely the
  company is able to generate cash internally.

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• Suggests if a stock should be bought or sold

Long Term Growth Rate Over Five Years

• This illustrates Who will grow the most and a
  profitable investment.

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Predicting the Moves That Competitors Will Make
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Trends

• Developing socially responsible lines of jewelry
• How competitors deal with economic crisis
• Use of e-commerce in the industry

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Social Responsibility

• Becoming a fashion trend
• Conflict Free
• Free of violence, war and exploitation
• Jewelry for a cause
• Bulgari Pandora
• Segmented target marketing
• Movie Bling on Emitations.com

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Bulgari
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Pandora
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Dealing with Economic Crisis

• Focusing on lower-priced pieces
• ShopNBC.com
• Luxury goods tax
• New York
• Buyouts
• Berkshire Hathaway
• Bankruptcy
• Fortunoff Fine Jewelry

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E-commerce Innovations

• Different approach to online purchasing
• New niches
• Harry Winston lower priced pieces
• Blue Nile fashion jewelry
• Uncertainty in these times, but potential for
  huge success in the future

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Predictions

• Must lower prices to keep up in crisis
• Target specific customers through direct
  marketing and new market niches via internet
• Move toward Conflict Free lines
• Partner with charity organizations
• Enhance online shopping options

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Key Success Factors in the Jewelry Industry

• Introduction and execution of e-commerce
• Understanding and reacting to economic conditions
• Aspects of consumer spending

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E-Commerce

• History of e-commerce
• Consumers new power of choice
• Blue Nile Inc. reported a 30 percent growth from
  2003 to 2004, showing a need for items to be
  offered not only in stores, but also online.

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Economic Conditions

• Key players may face volatile prices, mergers, or
  even bankruptcy in the near future
• A strong leadership team from the bottom up
• Issue of divergence of demand
• Apply resources where the opportunities for
  profits are the highest

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Understanding Consumer Spending

• Disposable personal income variances
• Prices of goods and services unstable
• Issues in a struggling economy and overcoming
• Two types of jewelry consumers and the effect on
  high end vs. lower end jewelers
• Being socially responsible
• Continuously monitor the changing environment and
  adapt accordingly

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Conclusions

• This is a favorable industry
• Can take advantage of market trends
• History proves that jewelry is long-lasting
• Highly volatile market, highly attractive
• Will overcome the economic crisis

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Always Remember

• Diamonds are a girls best friend!