Tiffany Chairman: We're in a 'Good Place'

By Rob Bates -- JCK Online, 3/1/2008 2:00:00 AM

In an exclusive interview, Tiffany chairman Michael Kowalski talked with JCK about his company's business, including last year's disappointing Christmas sales. Kowalski's thoughts on the Fair Trade study his company's foundation is funding will appear in JCK's Green Issue next month.

Why do you think the company's Christmas sales were mixed?

We are still sorting that out. Obviously it's a combination of the uncertainty of the financial markets combined with the housing crisis. It is a pretty unsettled period so [the results] are not at all surprising. What was encouraging for us is our international business has been so strong. And we will have a very good fourth quarter, so overall profitability will be fine. We are really talking about the U.S. [in terms of disappointing sales].

In general, higher price points held up better, and engagement jewelry was strong, as was diamond jewelry in excess of $10,000. For silver jewelry, $500 and up was stronger than more modestly priced items. The very high end was down slightly in terms of sales but up in number of transactions. So our core customer base held up relatively well. We just haven't seen the trading up we've seen in other years.

Do Tiffany's mixed results bode ill for the luxury sector, as some are saying?

That's premature. Of course, if we got into a prolonged recession, all bets are off. But there is a big part of me that believes customers become more discerning [in a recession]. To the extent that our positioning is classic as opposed to fashion, I think that's a good place to be. I feel much more comfortable selling a diamond pendant for $2,000 to $3,000 that will last a lifetime, as opposed to a handbag that will be profitable for just a season.

Let's talk about the new Tiffany stores, with the working name Collections. Some have said they will cheapen the brand.

We don't agree with that. They will be Tiffany & Co. stores that do not present engagement jewelry or important jewelry in price points in excess of $50,000. We think that will allow us to create an environment that's a tad more relaxed. But there is nothing in the Collections concept that won't be available in the standard 5,000- to 7,000-square-foot store. The obvious risk is the number of stores becomes problematic in terms of consumer perception. But we continue to be surprised at how successful every new store is in the United States.

These stores are aimed at newer, smaller markets and markets where we already have a presence within a given metro area. For instance, in Southern California, we have a good number of stores. But there are a lot of wonderful opportunities within that market where people would welcome the greater convenience of an additional Tiffany store. As we've done [research], we've been surprised that the customer demand for shopping convenience is stronger than we realize.

Recently, there were more stock purchases by Trian, known as an activist investor. Do you see them having a bigger voice in the company?

We have conversations with Trian as we do with any significant shareholders. Over the past year, they have been pleased with everything we have done. We had a highly successful year in terms of continuing operations. I think Trian recognized an opportunity in Tiffany stock when it fell to $35 a share.