How Tiffany's Took The Tarnish Off

Chaney restored the brand's cachet and widened its reach

William R. Chaney, the understated chief executive of Tiffany & Co., has spent 12 years cultivating the Tiffany brand with a slow but steady hand. In a business full of glitz and glamour, he prefers to let results do the dazzling. "We've had a very consistent direction and strategic plan," says Chaney. "It's Business 101."

That's a course that seems to work. Over the years, Chaney, 64, has increased the New York-based retailer's presence, polished Tiffany's image, and launched aggressive marketing campaigns to broaden the appeal of Tiffany's blue box beyond blue-blooded shoppers. With much of the retail sector still in the doldrums, the benefits of Chaney's steady efforts are shining bright. Despite a shaky retail environment, Tiffany's sales in U.S. stores open a year or more grew 12% last year and jumped another 20% for 1996's first quarter.

Although the early 1990s recession and a costly buyout of its Japanese partner caused a $10 million loss in 1993, Tiffany has been sparkling ever since. Aided by a rebound in the luxury-goods market, sales hit $803 million for the 1995 fiscal year ended in January, 1996, a 65% gain over the year ended in January, 1993. Tiffany's operating income tripled, to a record $80 million, for the same period, and Oppenheimer & Co. analyst Dorothy Lakner thinks it will hit $102 million this year.

MAIL-ROOM START. Investors' results are also gleaming. After lagging around 15 for most of the early 1990s, Tiffany's split-adjusted shares have more than doubled, to around 34 1/2, since mid-1995. "Chaney has expanded around the world, merchandised correctly, managed the financials, and he's a nice guy to boot," says Douglas C. Eby, portfolio manager at Robert E. Torray & Co., which owns 1.3 million shares.

Now the trick will be keeping up the sterling performance even if the U.S. economy slows. But that's a challenge Chaney, who led a leveraged buyout of Tiffany from Avon Products Inc. in 1984, relishes. He began his 28-year Avon career as a supervisor of the Kansas City mail room. Chaney soon jumped to sales, and by 1984 he'd landed the chairman's job at Tiffany. It was then an unprofitable eight-store chain with a small Japanese wholesale business and a tarnished image. Avon had acquired the publicly traded company in 1979 and neglected the now 159-year-old brand by skimping on customer service. Seeing a diamond in the rough, Chaney got backing from Investcorp, a Bahrain-based investment bank, for the LBO. It took Tiffany public again in 1987.

Chaney's first move was to restore Tiffany's luster. Increased staffing improved customer service, and he then began more frequent inspections of merchandise for quality. Recognizing Tiffany's overdependence on the New York store--which contributed roughly 40% of total revenues in 1988--Chaney launched a worldwide expansion. In 1993, he took control of the Japanese operation, now Tiffany's most profitable area. Today, Chaney presides over a network of more than 100 Tiffany shops in 16 countries and wholesales its products in 30 others. The U.S. contributes 62% of sales and 47% of profits before corporate expenses.

TRICKY. Chaney's trickiest challenge has been maintaining Tiffany's elite image while trying to draw a wider array of customers. To do so, Chaney has launched ambitious marketing campaigns, with such offerings as "How to Buy a Diamond" and "Pearl Authority." His goal: convince buyers of Tiffany's quality and make it seem attainable. "We have a democratic vision," says President Michael J. Kowalski, who is Chaney's heir apparent and the man behind the marketing push. "We want people to aspire to be a customer, but never to feel excluded."

Keeping snobbery in check has proven lucrative. The average retail transaction in fiscal 1995 was a relatively reasonable $256. Indeed, less than 5% of Tiffany's sales come from items costing $50,000 or more. Even competitors are fans. "Tiffany is first-class," says Francesco Trapani, CEO of Bulgari Group. "They maintain the balance between availability and scarcity."

Typical of the newest customer is Joseph Day, a New York optician who bought a $54 silver Tiffany "bean" necklace for his girlfriend. "There are things for a million dollars and things for $20," he says. He's right: Products range from a $15 box of playing cards to a $1.85 million triple strand of South Sea pearls. Tiffany now rolls out at least three new lines a year. One recent hit was the Atlas Collection, a watch and jewelry line with prices ranging from $95 to $15,000.

With such moves bringing a steady stream of new customers, Chaney says there's demand for at least 20 more domestic stores, up from the current 22. He's already invested capital in smaller suburban sites, but much of the spending and growth will occur overseas.

Yet no matter how well Tiffany is managed, it faces major risks. The uptick in consumer spending on luxury goods has boosted Tiffany's business, and a slowdown could hurt. Although the U.S. economy may be gaining a second wind, some worry about the expansion. Let's not forget that this is a cyclical business," says Richard G. Phillips, a portfolio manager at Suffolk Capital Management Inc., which recently sold all its Tiffany shares.

HEAVY BET. Chaney says Tiffany's diversification will protect it against recessions and that Tiffany can increase profits by 15% to 25% a year for the "foreseeable future." Yet with more than half of operating earnings coming from Japan, Tiffany is betting heavily on conditions improving there. And foreign growth has hardly been trouble-free. Its London store is the only profitable one of six European retail outlets opened since 1986. With competition from established local rivals such as Bulgari and Cartier and an ongoing economic slump in Europe, it's been rough going.

Still, most observers think the world is Tiffany's to lose. "There is magic in that little blue box," says Henry D. Jackson, a principal at Peter J. Solomon Co., a New York-based retailing investment bank. For Chaney, it's about substance as much as it is about style.

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