Michael Kowalski, chairman and CEO of Tiffany and Co, very generously gave me an hour long interview this morning. While a lot of the interview was about social issues, spurred by Tiffany’s funding of a study about Fair Trade Diamonds, we also talked business. One intriguing statistic: Tiffany now gets “about half” of its diamond supplies direct from mines, through its deals with Harry Winston (the former Aber), Tahera and its DTC sights in partnership with Rand. It also buys from Ekati and Rio Tinto.
Among the main points we covered:
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 4th 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 [in a recession] customers become more discerning. 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 and 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 five to 7,000-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.
Last week there were more stock purchases by “activist investor” Trian. 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.
[He also noted that Tiffany’s major initiatives this year, including Collections and its deal with Swatch, all were in the works before Trian’s investment.]
Why is Tiffany funding a study about Fair Trade Diamonds?
We wanted to look at what constitutes Fair Trade jewelry product. It’s an extraordinarily complex question. The industry is far from understanding all the relevant components of a Fair Trade system. For instance, we are far from a consensus on what constitutes a socially responsible gold mine. These issues are complex, and we don’t know enough to have an opinion.
We always look for third party certification. I can tell the consumer anything I want, but if I were a consumer I would be looking for an objective assessment to assure me what Tiffany is doing has an objective basis in reality.
Do you plan to carry Fair Trade Diamonds in your store?
We’re far from making a commitment to sell them. We are committed to responsibly sourced materials. We would very much like to responsibly source diamonds from Sierra Leone. But we don’t want to create sub-brands in our stores where we say this brand is better than the product next to it.
Tiffany is often spoken well of by NGOs. Do you think that’s made a difference as far as consumer perception?
We believe consumers care deeply about these issues, even if that is not articulated on a day-to-day basis.
We have been historically quiet on many of the things we have done. We stopped selling Burmese rubies in 2003. We stopped selling coral jewelry five years ago. We have tried to get ahead of any issues. Consumers expect that of the Tiffany brand.
It’s interesting he brought up coral jewelry, as that issue seems to be heating up … Again, thanks to Tiffany and Mr. Kowalski for the interview …