Tiffany & Co. just reported results for first quarter ending April 30, 2017. While worldwide sales rose 1% YoY, sales in the Americas were down 3% and comparable store sales dropped by 4%. These results compare unfavorably to the U.S. retail jewelry market overall, which rose 1% for the first three months of 2017, as reported by the U.S. Census Bureau.

Tiffany’s fortunes depend heavily on the U.S. market. Overall the Americas accounted for 46% of the company’s $4 billion in sales last year, and the U.S. represented nearly 90% of the Americas’ revenue. The first quarter weakness in U.S. sales certainly will be a drag on the company for the rest of the year, as it remains focused on achieving low single-digit growth in 2017, following last year’s 3% worldwide decline.

The company identified four key initiatives to drive topline growth this year:

• Enhancing global distribution with plans to renovate, relocate and in some cases close some of its 310 stores. In the U.S. the company did a makeover to its San Francisco flagship store, which is located in one of the most affluent communities in the country.
• Client telling and CRM strategies to drive store traffic and increase customer conversion rates. With just under 100 U.S. corporate-owned stores, Tiffany has got the nation’s major MSAs covered, so pulling more people into their stores and converting them once they are there is key.
• Build greater brand awareness via marketing communications, though I’d argue that Tiffany is already one of the world’s most recognized brands.
• Introduce new products at a faster pace. And this is where I pause…

Earlier this year Reed Krakoff, former president of Coach, joined Tiffany as Chief Artistic Director, taking over responsibilities for design of the Tiffany & Co. brand jewelry from Francesca Amfitheatrof. He also is tasked with launching a new luxury accessories, gifts and home decor collection. Tiffany has played in this space before, but the non-jewelry lines accounted for only about 7% of corporate sales last year.

There is no question that the Tiffany Blue Box adds cache to a gift, but I’m not sure a Tiffany-branded line of gifts, home decor and other accessories is going to be the draw the company needs to invigorate sales in the U.S. The gifting market depends heavily on the wedding business, and Tiffany is struggling in the engagement and wedding jewelry portion of its business. In the Americas, 22% of sales are attributed to the engagement/wedding jewelry category, as compared with 28% worldwide. This, no doubt, is a reflection of lower marriage rates in the U.S. and young American bride’s willingness to ignore the tradition of the diamond engagement ring.

Just given Krakoff’s resume, one would assume a major emphasis of the Tiffany luxury accessories line will be leather goods. At Coach Krakoff’s touch was golden up to the recession, but then things started to go south. He left Coach in 2013 to launch a namesake brand, but eventually closed shop in 2016 as sales didn’t materialize.

Frankly, I don’t know what Tiffany brings to the already over-crowded handbag market. Sure, Tiffany will probably sell some, but not enough to turn its business around in the U.S. Not to mention, whether the company can recoup the investment it will need to make to advertise and promote a fledgling leather goods fashion brand.

Then there is Tiffany’s fashion jewelry, aimed at the lower-end of its range, though quite luxurious when compared with other silver fashion jewelry lines. This is the workhorse for Tiffany in the U.S., accounting for 34% of sales in the Americas, but which it seems hesitant to exploit to its full potential.  Being ‘mass-luxury,’ it is feared to threaten Tiffany’s ‘true’ heritage luxury position. This is a challenge common to many luxury brands that few have been able to successfully navigate, but Tiffany’s future will depend upon it learning how to coexist in both the mass and true luxury markets.

Fashion jewelry is Tiffany’s path to the next generation of luxury customers, who today are young HENRYs (high-earners-not-rich-yet).  Its new fashion collection, called HardWear, launched with Lady Gaga, shows early promise to appeal to the luxury-aspiring, young affluent professional woman it targets.

Lady Gaga may not yet have the icon status for this generation that Audrey Hepburn did for the Baby Boomers back in the 60s, but she has definitely matured from her early pop-star exploits to become a highly respected artist, not to mention this girl can sing! Tiffany’s fortunes may well be written in this star.