Tiffany Sees Sparkle in Overseas Markets

CEO Michael Kowalski on Building the Jewelry Giant’s Brand in Asia

By LAURIE BURKITT, WSJ.com 
A fixture on New York’s Fifth Avenue, jewelry giant Tiffany TIF 0.00% & Co. is aiming to improve its luster overseas and particularly in Asia, where demand for gold and gems appears to be insatiable.

‘We’re renovating stores and upgrading the quality in sales professionals,’ says Tiffany CEO Michael Kowalski. Bloomberg News

U.S. shoppers have largely driven sales for the New York-based high-end jeweler, but that picture is changing. For the quarter ended Oct. 31, comparable sales in the U.S.—at stores open at least a year—rose by a modest 1%, with the bulk of sales logged at the New York flagship store, which sells mostly to tourists.

Michael Kowalski, Tiffany’s chief executive, is looking for ways to turn those tourists into regular customers when they return home. Adding to Tiffany’s Japan-based stores, which the company first opened in 1993, the jeweler plans to open in markets such as Russia and in France.

The other target is China, where the company operates 24 stores and plans to open three a year for the foreseeable future, attempting to take on rivals in a competitive market and convince Chinese consumers that Tiffany has the best cuts, designs and service.

Mr. Kowalski recently traveled to China to show off Tiffany’s yellow diamond collection and spoke to The Wall Street Journal in Beijing about plans to build its brand in Asia.

Résumé

  • Education: Bachelor’s in Economics, University of Pennsylvania, 1974; M.B.A., Harvard University, 1977.
  • Career: Began career at Avon Products in 1978, a year before it acquired Tiffany. Avon later sold Tiffany, but Mr. Kowalski remained at the jewelry maker, helping to take it public in 1987. He was appointed president in 1996 and CEO in 1999.
  • Extracurricular: Loves nature, enjoys Chinese food and hates having his picture taken.

WSJ: What are your goals for moving beyond the U.S. in the next three years?

Mr. Kowalski: We do believe there are wonderful geographic expansion opportunities for us. We’ve tried to build a diversified geographic portfolio so that we aren’t dependent on any one region or any one country. We’ve only recently become a stronger presence in the Middle East and we’ll open our first-owned-and-operated store in Russia this spring.

We’re also optimistic about potential in China. Our companywide plan is for Tiffany sales to grow between 10% and 12% for the foreseeable future.

Right now, we have 24 stores and will probably open three to four stores here per year for the future. We certainly want to be flexible and watch how the market develops. That’s our strategic objective. Clearly if we regard China as the fastest-growing market going forward, that implies a growth rate meaningfully in excess of that 10% to 12%. We’re reasonably confident about that.

WSJ: Some luxury companies are wary of China, where an austerity campaign has hit luxury sales. What makes you confident?

Mr. Kowalski: We think the growth curve in China will be something we’ll love in terms of slope. But it’ll also be volatile. In 2011, it was a fantastic year here and 2012 wasn’t so wonderful. [But] 2013 is stronger and we just had a great quarter here.

WSJ: What is behind the volatility?

Mr. Kowalski: It’s driven largely by consumer sentiment and reaction to economic conditions perceived—real or of the moment. Consumer confidence is less volatile in Europe. China is at the higher end, [while] the U.S. is in the middle. I don’t know what drives that, but it’s a continuing challenge here.

WSJ: Consumers are becoming increasingly global, particularly the Chinese consumer. How is tourism changing your approach?

Mr. Kowalski: [The] rise of the Asian consumers and tourism has caused us to change some of our store practices. We accommodate customers who are speaking other languages. It’s a struggle to find Mandarin-speaking sales professionals. We have to work hard to find them.

WSJ: What are you doing beyond language?

Mr. Kowalski: It has caused us to increase our store presence in markets that are heavily visited by Chinese customers. We’re building a flagship store in Paris on the Champs-Élysées.

We are enhancing the store experience in the U.S. and all over the world. We’re renovating stores and upgrading the quality in sales professionals and everything you see in the store.

We’re changing the ratio of selling space to provide more seating space. More casual sit-down environment, more private areas.

WSJ: What are some of the lessons you have learned by doing business in Asia?

Mr. Kowalski: One thing we’ve learned is the need for high standards of service and store experience. We learned that several years ago in Japan and it was critical to our success. Here, we operate in a more intense environment than back in the U.S. and we need even higher standards of service.

WSJ: What specifically have you learned in China?

Mr. Kowalski: We learned we need to be more overt about how we present our brand. A great example would be the store signage. If you were to look closely at the New York Fifth Avenue store, Tiffany & Co. is written in steel letters on both sides of the doors, perhaps two [feet] in length, six inches in height and it’s carved into the granite of the facade. And that’s the only signage there is.

When we first came to China, we were equally discreet and subtle in how we presented the brand and that created a problem. People simply didn’t see or couldn’t see the brand. They couldn’t understand what the store was about. We’ve had to be more direct and less subtle in how we communicate the brand. We need to do a better job of telling brand stories to give a deeper, richer more robust sense of brand. We’ve recognized that while there’s a broad awareness of consumers, we need to work very hard to increase the depth of that knowledge. There is limited understanding of our heritage and that diamonds are central to our business, that we cut our own diamonds. We need to work much harder to communicate that in China than in America or even in Japan.

WSJ: How are you changing your strategy based on what you’ve learned?

Mr. Kowalski: One thing we’ve started to do is use Tiffany blue far more aggressively in the stores and in the facade.

The other thing we’ve done in China is focus on diamonds. We are the world’s authority on diamonds and we’ve emphasized that more dramatically than anywhere else in the world. We’re also speaking more about the Tiffany heritage. We are 176 years old and more longer-lived than many of the luxury brands.

WSJ: You’ve had success in China recently, but what are some of the challenges?

Mr. Kowalski: Diamonds are seen as value items here, which is at the core of their attraction. But one of the challenges with them in China is the bridal tradition, the engagement ring tradition. It has developed some in the last 10 years. But that’s a core part of our business. We’d like to think our presence here is encouraging that development of the tradition.

Write to Laurie Burkitt at laurie.burkitt@wsj.com

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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