Transcript Jewelry Industry

Jewelry Industry:
Tiffany & Co.
Group 6
John Cayo
Jessica Wilson
Kirk Griffith
Jessica Aragon
Brandy Wolfe
Raynee Bradley
Cole Naylor
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
Main Players of the Industry:
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Tiffany & Co. (top competitor)
Blue Nile Inc.
Signet Jewelers Limited
Zale Corporation
DGSE Companies Inc.
Birks and Mayors Inc.
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
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.
The 6 Environmental Factors
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Economic
Political
Social
Technological
Competitive
Geographical
Additional Implications
• Dependence on Economic Well-Being
• Reliance on Suppliers and Natural Resources
• Market Niches
Dependence on Economic WellBeing
Annual Revenues ($ millions)
Industry Revenue Totals (annual)
12,000
10,000
8,000
6,000
4,000
2,000
0
1
2
3
4
5
Year begginning in 2004
X-Axis: 1,2,3,4,5 refer to Year 2004, 2005, 2006, 2007, 2008 respectively
Dependence on Economic WellBeing
Industry Revenue Growth
% of industry growth
2.00%
0.00%
-2.00%
1
2
3
4
5
-4.00%
-6.00%
-8.00%
-10.00%
-12.00%
-14.00%
Year Begginning in 2004
-Axis: 1,2,3,4,5 refer to Year 2004, 2005, 2006, 2007, 2008 respectively.
Driving Forces for Change
• 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.
Conflict Diamonds
• Conflict diamonds better known as “Blood
diamonds”
• Used to fund conflicts in war-torn areas.
• Captured the world’s attention in 1990’s, but
more recently in the movie “Blood Diamond”
• Conflict diamonds represent 4% of the
world’s diamond supply
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 world’s diamond
supply.
• Through these joint efforts 99% of the world’s diamond
supply is free from conflict diamonds.
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.
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.
• 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.
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 Valentine’s Day, Christmas, and
Mother’s 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.
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.
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).”
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.
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.
“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.
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 highend 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.
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.
Market Niches
• “The Right-Hand-Ring”-De Beers, Helzberg,
Zale Corp. and others.
• Men’s Jewelry
• Estate Jewelry
• Gay Americans - a segment that has been
steadily growing as civil marriages are
becoming more prevalent.
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 don’t seem to be as affected.
• 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.
Porters Five Forces
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.
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.
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
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.
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.
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.
Major Players
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Tiffany and Co.
Blue Nile Inc.
Signet Jewelers Limited
Zale Corporation
DGSE Companies Inc.
Birks and Mayors Inc.
Tiffany and Co.
• TIF
• Founded 1837
• Headquartered in New York, New
York
• Stores
• Compete
Blue Nile Inc.
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NILE
Founded 1999
Online selling
Compete
Signet Jewelers Limited
• SIG
• Founded 1950
• Headquartered in London, United
Kingdom
• Store names and locations
• Compete
Zale Corporation
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ZLC
Founded 1989
Headquartered in Irving, Texas
Store names and locations
Compete
DGSE Companies Inc.
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DGC
Founded 1965
Headquartered in Dallas, Texas
Online auctions
Compete
Birks and Mayors Inc.
• BMJ
• Founded 1879 and headquartered in
Montreal, Canada
• Store names and locations
• Compete
Financial Data
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Current Ratio
Debt/Equity Ratio
Stock Price
Market Cap
Total Revenue
Return on Equity
Mean Recommendation
Long Term Growth Rate Over 5 Years
•How well assets cover short term obligations.
•Companies ability to borrow and repay loans.
Stock Price
*
*BMJ taken from November 05 because that is as far back as stock history could be found.
Market Cap
PRESE
NT
TIF
NILE
SIG
2.43B
307.54B 63.21M
•Mid cap – TIF
•Micro cap – NILE & SIG
•Nano cap – ZLC DCG
ZLC
DCG
BMJ
36.67M
9.05M
4.99M
Total Revenue
2008
TIF
NILE
SIG
ZLC
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.
•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.
Predicting the Moves That
Competitors Will Make
Trends
• Developing socially responsible lines of
jewelry
• How competitors deal with economic crisis
• Use of e-commerce in the industry
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
Bulgari
Pandora
Dealing with Economic Crisis
• Focusing on lower-priced pieces
• ShopNBC.com
• Luxury goods tax
• New York
• Buyouts
• Berkshire Hathaway
• Bankruptcy
• Fortunoff Fine Jewelry
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
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
Key Success Factors in the
Jewelry Industry
•Introduction and execution
of e-commerce
•Understanding and
reacting to economic
conditions
•Aspects of consumer
spending
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.
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
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
Conclusions
- This is a favorable industry:
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Can take advantage of market trends
History proves that jewelry is long-lasting
Highly volatile market, highly attractive
Will overcome the economic crisis
Always Remember…
Diamonds are a girl’s best friend!