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How Does Tiffany Make Money? A Quick Glance At Tiffany Business Model
With over $4.4 billion in net sales for 2018, Tiffany has brand awareness and a perceived sense of luxury and quality thanks also to strategic marketing, PR, and media relations activities. Many of these activities are focused around the iconic Flagship Store located in 727 of Fifth Avenue.
Tiffany’s business model is based on three primary products that range from jewelry collections, designer jewelry, and engagement jewelry. With its iconic brand, Tiffany made over four billion dollars in net sales in 2017. Tiffany operates in four main geographical areas reported separately:
Americas
Asia-Pacific
Japan
and Europe
Jewelry represented 91%, 92% and 93% of worldwide net sales in 2017, 2016 and 2015.
A vast range of jewelry products
Tiffany sells three main kinds of products:
Jewelry collections that comprise a wide range of products like Tiffany Victoria, Tiffany Soleste, Tiffany Keys, and Return to Tiffany, among others
Engagement jewelry comprise engagement rings (about 60% of the total collection for this category) and wedding bands
Designer jewelry comprise jewelry that is attributed to one of the Company’s “named” designers: Elsa Peretti, Paloma Picasso, and Jean Schlumberger
The key to Tiffany’s success? Advertising, Marketing, PR and Media Relations
Tiffany’s brand has managed to keep its iconicity for decades. Today the company still invests massive resources in marketing and PR programs to maintain and enhance its brand awareness. The critical association that Tiffany tries to establish in the mind of its customers in the sense of luxury. That is not by chance that Tiffany silver products cost way much than any other competitor. Thus, Tiffany has been able to create this powerful sense of luxury and quality in its customer’s minds.
This kind of association requires massive investments of resources, Indeed, in 2017, 2016 and 2015, the Company spent $314.9 million, $299.0 million and $302.0 million, representing 7.6%, 7.5% and 7.4% of worldwide net sales in the following activities:
advertising
marketing
and public and media relations,
Other key activities are about creating new product offerings and engaging in-store and online environments. Tiffany is also working on a multichannel strategy that together with print media leverages digital and social media.
Tiffany control over its supply chain
A key ingredient for Tiffany is represented by its ability to maintain control in its supply chain by leveraging internal jewelry manufacturing and direct diamond sourcing. For instance, Tiffany manufactures jewelry in New York, Rhode Island, and Kentucky, which produces about 60% of the jewelry sold by the organization.
The iconic flagship store in New York City
The iconic store located at 727 Fifth Avenue, with about 45,500 gross square feet and its “The Blue Box Cafe” opened in 2017, are both a key ingredient to Tiffany marketing and public relations efforts. Sales in this store represent less than 10% of worldwide net sales.
What’s next for Tiffany?
Other vital activities Tiffany will be focusing on the following areas:
Amplify an evolved brand message
Deliver an exciting omnichannel customer experience
Cultivate a more efficient operating model
Inspire an aligned and agile organization to win
To achieve sustainable sales growth
Compensation composition for executive management
Source: Tiffany Annual Report 2017
Tiffany top three institutional investors
Source: Tiffany Annual Report 2017
Business strategy lessons learned from Tiffany
Tiffany has been able over the years to keep its brand awareness strong, and nonetheless its higher prices it managed to keep its sales growth over the years. A few of the lessons to learn from Tiffany:
If you want to give a perception of luxury and quality, create a sense of scarcity through pricing.
invest in PR and media relations by creating a strong brand in the minds of people. This requires an important investment of resources to create a continuous buzz but also sustained.
keep tight control on the supply chain, by sourcing the best products and internalize manufacturing to have as much control as possible on the quality of the final outcome.
LVMH Empire taking over Tiffany
With an all-cash deal, Bernard Arnault from LVMH offered $16.6 billion for Tiffany in November 2019. According to the FT, a first letter offering $14.9 billion was placed by Antonio Belloni, group managing director at LVMH, to Alessandro Bogoglio, chief executive, which valued the company at $120 a share, until the deal closed at over $130 a share.
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