Tiffany Sings Brick-and-Mortar Blues

Brick-and-mortar retailers are sinking into a quagmire – even luxury retailers, like Tiffany and Company.

So, sure, they’re still looking pretty good when compared to the oil and gas industry, which is in a depression, laying off well-paid people, from director-level engineers to roughnecks. Contractors are out of work. Revenues are plunging. Losses are piling up. Cash is running out. Bankruptcies and debt restructurings are now a common occurrence. The junk-bond bubble that funded the US drilling boom is imploding. Banks are starting to recognize losses on their loans. But the sector has been through this before. It’s temporary. When the price of oil rises again, the survivors and new players will thrive, hire, and expand.

That’s not the case with brick-and-mortar retailers.

But it’s a slow process. Some bigger operations have already gone bankrupt recently or have defaulted on their debts. Junk bonds that fund much of the industry are swooning. Liquidity is drying up. And many private equity firms that bought these retailers during boom times and loaded them up with debt are now stuck with them [Defaults and Restructuring Next for Retailers].

Among the list of brick-and-mortar retailers to warn of crummy holiday sales is luxury jeweler and specialty retailer Tiffany and Company. It reported this morning that sales during the holiday period fell 3% on a constant-currency basis: 5% in the Americas and 6% in the Asia-Pacific region. Sales at stores that were open at least a year dropped 5%. And it lowered its guidance.

So it will do what American companies do best: There will be an undisclosed number of job cuts, and there will be “occupancy reductions” at its corporate office. This cost cutting will cost the company about 4 cents per share in the current quarter.

Shares fell 5.1% today to $64.22. They’ve plunged 41% from their all-time high of $108.68 at the end of December 2014.

Scrambling to not fall too far behind reality, analysts unleashed a hail of downgrades, including Cowen & Co. which slashed its price target from $90 to $75 and Nomura which chopped it from $100 to $90.

Tiffany is selling to the privileged, to the beneficiaries of QE’s “wealth effect” in the US and around the globe. It’s selling to people who benefited from the astounding debt-funded booms in Asia and elsewhere over the past few years. Has the recent stock market rout dented their purchasing power, or their willingness to splurge?

Tiffany blamed the “pressure from the strong US dollar”; it blamed “foreign tourist spending” at its stores in the US; it blamed “restrained consumer spending tied to challenging and uncertain global economic conditions.”

But this has been Tiffany’s song and dance for a while. A year ago, on January 12, 2015, Tiffany’s shares plunged 14% and three days later hit the $85-range, down 21% from their all-time high two weeks earlier.

The problem back then? It had reported  lousy holiday sales; it had lowered its outlook; it had blamed “significant headwinds from the stronger US dollar” along with “other global economic pressures.” Copy and paste.

But wait… Stock markets were booming back then. The China bubble was in full swing. Asian millionaires were printed on an hourly basis. European stocks were on steroids. Even the S&P 500 was still trudging toward its high.

But it’s been getting tougher for brick-and-mortar retailers, and a slew of them warned since November that holiday sales would be crummy, and some warned more recently that holiday sales were in fact crummy. Some, including Gap and Wal-Mart, are shuttering some of their stores.

Tiffany faces some jewelry-industry issues: “Jewelry is no longer at the top of the Christmas list,” Neil Saunders, CEO of research firm Conlumino, wrote in a note to clients, cited by Business Insider. “For a brand like Tiffany, where lavish gifting is an important driver of buying, such a trend is distinctly unhelpful.”

There are Tiffany-specific issues, including that it faces a “more competitive environment for jewelry and the rise of other brands,” Saunders said. “Against this backdrop Tiffany has lost some of its relevance, especially to more moderate-spending shoppers.”

Then there are issues all retailers struggle with: Millennials, the largest demographic these days, tend to spend more on experiences and less on things, including expensive baubles. And retailers are facing strung-out American consumers. But Tiffany isn’t actually targeting strung-out consumers. It’s targeting the wealthy.

And here’s the problem for all our beleaguered brick-and-mortar retailers: online sales this holiday season jumped 12.7% to a record $83 billion, Adobe Systems reported today. And when push came to shove right before Christmas, with delivery perhaps uncertain, the buy-online-pick-up-in-store option kicked in. So it’s not like Americans have stopped shopping. They might shop a tad less, but they’re shopping increasingly online.

That’s a structural problem that is gnawing its way into all retailers’ earnings reports. It will never go away. It will only get worse. So they drag out the “strong dollar,” “global headwinds,” “warm weather,” or whatever other less indigestible excuses they can find. And companies can simply copy and paste last year’s excuses into the next earnings warning rather than admitting that online sales are gradually but relentlessly eating their lunch.

So with impeccable timing – the very morning the Commerce Department reported declining retail sales – Wal-Mart Stores disclosed in an SEC filing that it was “committed to growing,” but was “being disciplined about it.” Read… Wal-Mart Rubs Salt on Deepening Retail Wounds

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  33 comments for “Tiffany Sings Brick-and-Mortar Blues

  1. BradK says:

    Holly Golightly, where are you when we need you?

  2. Michael says:

    All they have to look forward to is “hope and change…………”

  3. BTilles says:

    The last time I checked, the average customer receipt at Tiffany’s was far lower than I expected. It suggested an aspirational purchase for a middle income consumer not baubles for billionaires. Now, cool stuff for the younger generation probably has more lithium ion content than gold or silver.

    • Jonas says:

      You captured the spirit of that place exactly!

      Now a real luxury retailer would be something like Holland & Holland which makes / sells hand built guns. The starting price on those beauties is over 100.000, and business there is booming.

      Another tell that the luxury segment is doing well is the growth of maid services. Does anyone know of a publicly traded company focusing on house cleaning? Their performance would be an interesting indicator for a number of things, at least until public research makes robotics good enough to make those jobs and yet another wave of workers jobless and enriches the small clique of people who own the final robotics company. .

      • polecat says:

        you just can’t replace a Merry maid !

      • Nicko says:

        Even Yacht companies are going out of business out there. Perhaps the .01% are getting thrifty after all.

        • d says:

          There is a message in that,

          The 1% you keep slamming, are sick of it, what they are doing, is taking themselves, and their money, to friendlier places.

          You keep slamming them for wearing Rolexes, result, they stop buying them. And the clothes to go with them, as those clothes make them a criminals target. in the streets they cant even walk down with their children any more..

          I deal with a lot of “Boat Owners ” you would classify as 1 % their developing attitude is.

          &*)%# you.

          You keep hitting on me for successfully working, treating me like I am your charity entity and garbage, . I will go and spend my money, where I and it, are welcome. Which is not in this town.

  4. walter map says:

    BricknMortar stores have doubtless suffered from competition from online retailing, which is perfectly plausible for common consumer items. But do people really buy even expensive jewelry online? Or am I just being so extremely skeptical that I’m failing to fully appreciate the realities?

  5. Californiawoman says:

    Tiffany’s needs an attitude adjustment among many other things. Snottiest salespeople I have ever encountered.

  6. Jonathan says:

    It’s always the weather that is to blame.

  7. Spencer says:

    …”The wealth of the 1% richest people in the world amounts to $110tn (£60.88tn), or 65 times as much as the poorest half of the world, added the development charity, which fears this concentration of economic resources is threatening political stability and driving up social tensions.”…

    Screw Tiffany, and screw the Fed.

  8. David says:

    And through all of these luxury retailer misfortunes, Thrift stores, Goodwill, Ross Dress for Less, Kohls, Big Five, Burlington Coat Factory etc. will flourish even more in the future. Online retailers have their place but I don’t buy clothes or shoes online and no one in my family does either. I go to a store and try them on and then purchase them. You can be frugal and get great deals at these places. One of the reasons Mens Warehouse is going by the wayside is because their merchandise is expensive and they made some bad business decisions. But I can look just as good in a 50% marked down suit from JC Penney.

    • d says:

      one of the things many of the unfairly maligned 1% who do not have a high profile have learnt from the survivors of the french revolution, and possibly Muslims, is DONT LOOK WEALTHY, it makes you a target.

      These days the poorest looking people in the place, frequently are anything, but poor.

  9. Keith says:

    “When the price of oil rises again, the survivors and new players will thrive, hire, and expand.”

    Investors will be a bit more cautious next time when they know the Saudi’s can open the taps and wipe them out whenever they choose.

    • d says:

      They are moving in and waiting, perhaps this lot are a bit early and may be paying to much. This can only leave space for the more astute, who have already picked their targets..

    • CrazyCooter says:

      Gail Tvberg nailed this one a year or two ago (not bothering to dig for source) when she commented we are likely at peak oil production – but qualified that sentence.

      Oil and gas projects (e.g. a new well) typically take 7 years to go from start to finish. Only existing, producing wells can “turn on the taps”. The easiest to produce oil is produced first. Oil fields, if managed properly (lots of capital invested – not always a given), tend to decline at 5% to 7% annually.

      While I don’t have data, I think demand is collapsing faster than supply and that is what you are seeing broadly in the global oil market. This has been going on for a while – thus all the inventory builds and relentless collapse in price … that hasn’t seemed to bottom yet.

      Demand is collapsing because real wealth producing activity, not this fake monetize-cat-turd central bank magic tricks, is collapsing (i.e. building stuff, trucking stuff, using stuff, making stuff). Demand will continue to collapse until such a time as all the dead wood has been burnt up and real, organic, productive growth starts.

      At that time, you can start the clock on new oil projects of size (5 to 7 years). These are the projects it will take to attempt to add back the production required. Prices will start to head back up, as demand picks up, supporting new projects at higher prices all the way along.

      The last piece that has to be understood is the RATE at which we are discovering new, economic oil fields. Wiki broadly cites this as 1965 as the year the most oil was discovered. NOTE: There is an important distinction with oil fields, which might have oil, but may not be economic to recover. Just understand folks can game this number a lot of ways.

      But, the point is, we are steadily discovering LESS oil globally every year, as a trend, since the 60s.

      So, if we know how existing fields decline, and we know new production is forestalled because of low prices, and we know that won’t recover until after the depression is really over, we know that production is going to decline because new projects are going to be shut down.

      When that bottom finally happens, production doesn’t have the new discoveries necessary to rise back to the current plateau, due to the time lags of new production and the decline rates of existing production.

      My point is that Saudi Arabia isn’t what it used to be … and is increasingly less relevant in the future. Their main field, the Gahwar, was discovered in the 40s. It is old and it is showing it. They still keep in the top 3 of oil producing nations, but it won’t stay like that. Same applies to Russia. And to the US.

      Curiously, on this note, one of the largest super-giant oil fields ever found (the biggest of the big) is in … Iran. And the discovery was made in …. the 80s.

      Sometimes I wonder if the US (foreign policy) didn’t toss the girlfriend (SA) and grab a younger one (Iran). And do realize that as far as “terrorism” goes, there really isn’t a big difference between SA and Iran – there are no choir boys in that church.

      So, keep that in mind when considering what a recovery might look like down the road.



  10. Julian the Apostate says:

    Did you feel something hit your back as you walked out of the store? That was your change.

  11. MC says:

    Gucci opened a new and huge store right in front of my bank last year. My bank is located in what the Chinese would call a third-tier city, not exactly a hub for high living.
    I have never seen a single customer in there and the personnel always looks bored out of its collective skull.

    It would tempting to say other luxury stores are doing great and this just an unfortunate accident resulting from too enthusiastic explansion plans, but I’ve seen exactly the same thing at work at Zurich. The luxury stores on the Bahnhofstrasse are always depressingly empty, a far cry from 2013 when people (chiefly of Asian origins) flocked to them. Apart from the usual handful of Japanese collectors looking for particularly rare watches (a fixture since the late 60’s), business is as slow as it hasn’t been since the 1997 Asian Crisis.
    I am sure these stores run no immediate risk of going under. But business has gone from ebullient to flat in just two years, and without anybody screaming “Recession!”. I’d say it’s like somebody flicked a switch and put luxury retailing to sleep for the night.

    Now, the super-rich have always existed and will always exist. But they are few in numbers and, as rich as they are, they can only buy so much.
    From what I’ve seen this luxury market decline is chiefly tied to that segment of nouveau riches which made its fortune (directly or indirectly) from loose monetary policies in the past decade or so. Chinese upstarts are the first to come to mind but they exist everywhere.
    While super-rich people have no need to flaunt their wealth because everybody knows who they are and how much they are worth, nouveau riches tend to flaunt their wealth to advertise their success.
    It’s them who drove luxury retailing over the past years. Chinese and Brazilian upstarts became legendary for their buying binges abroad but Europeans and Americans haven’t held back.
    Now that monetary policies have run out of steam and the alphabet soup of interest rates has stopped working, that new wealth is drying up. And in a globalized economy the consequences are truly far reaching.
    Exhausted European consumers start reducing their purchases of imported goods. In turn this forces the German or Italian upstart running the import business to cancel orders in China and scale back his lifestyle a notch or two. No new Maserati this year. In turn reduced orders squeeze the Chinese contractors to cut their prices even more, as they are already dealing with massive overcapacity. This year the wife will get a single Louis Vuitton handbag instead of six. In turn Australian and Brazilian commodity producers have to deal with both reduced orders from China and a massive glut in supply of their own making. This means no new Rolex watch this year.

    Ironically enough that exhausted ordinary consumer luxury manufacturers could not care less about is dragging down the whole edifice with his “inability” to consume more and hence fuel the various layers between himself and the rarefied world of the true super-rich which have made the true fortune of luxury brands.
    All eyes are now on the almighty American consumer (as proven by monetary policies aimed at thrashing currencies relative to the US dollar) but the true question is how many goods can he absorb? Everybody wants a piece of the action: Chinese garment manufacturers, Swedish home appliance manufacturers, Japanese electronics manufacturers, German power equipment manufacturers, Gulf oil producers… the question is how long before the market is truly saturated and the Deflationary Furies, already hissing and shaking their spears, will cause a massive bloodbath.

  12. rich says:

    Speaking of Walmart and brick and mortar deaths, the little Victorian town of Oriental, the sailing capital of NC, has just suffered a great retail loss, thanks to Walmart. The town, which is the home far more empty yachts than people, lost its Town and Country grocery store, a store that had served the isolated population for four decades.

    A year and a half ago, the County Commissioners rolled out the red carpet for Walmart to build a Walmart Express about 300 feed away from the Town and Country market. For a small town store, the Town and Country had reasonable prices, but Walmart came in with prices so low, that it put the local market out of business. Now Walmart has shuttered its new store, along with 16 other less than two year old Walmart Express stores in NC. This leaves the people of Oriental having to drive ten miles to a nasty PIggly Wiggly.

    Oriental is a retirement town with many folks who are just too old to drive. Now those retirees will no longer be able to walk into the village for their groceries. So thanks to Walmart, Oriental just became a failed town, where rich folks park their boats for the winter, before heading back to their big city homes, and where retirees, living on shoestring budgets, will have an even harder time making ends meet..


    And here are some of the opinions of the local citizens. Too bad this story won’t go national:

    • CrazyCooter says:

      I live in a small town in AK and we lost our Walmart too. We have four other grocery stores (ours was not an express – but wasn’t managed well and thus not profitable enough), but Walmart consistently provided competition and lower prices. Perhaps our situation isn’t as messy as yours, but there are products I will have to buy elsewhere that are literally twice as expensive.

      We will definitely feel the loss of competition as the remaining stores gain pricing power.

      Hopefully an entrepreneur steps in and fills the gap, but these are difficult times to be starting a business. Maybe a guy and his sons can do a grocery delivery business for your older folks. But, that model hasn’t really worked anywhere either.

      On that note, stores up here do shuttles. We get a lot of cruise ship employees who want to shop plus some tourists or kids working the summer without cars. The store provides the shuttle, designated times, and manages the stops to pick up and drop off to keep them utilized. Think one of those short school buses or equivalent vans. If the store y’all prefer could be persuaded, your older folks could get picked up in a common location (e.g. church parking lot), shuttled to the store for shopping (store eats costs or charges a modest fee – and gets the business), and brought back to the church for unloading. They do it all summer up here.

      You might even get a school bus company to pick up the routes during school hours when their assets aren’t being used. Managed properly, it seems to work.



    • Sandy B says:

      The real fault is the city council, mayor and other “insider planners” for not seeing the reality of Walmart. Too bad for them folks who caved and went to Walmart. I live 4 minutes from a super Walmart I will never enter. Maybe the Millennials will figure out how to restart stores from scratch. The mayor can now organize city paid buses to takes those old folks to the store 10 miles away.

  13. Gee says:

    Uh, high end discretionary? When the global economy is sinking and stock markets plummeting, and high end real estate teetering toward what could be a significant reversal? As Colbert would have once asked “is this a great time to buy Tiffany jewelry, or the greatest?”

  14. Ptb says:

    Maybe it will finally realize Hollys dream and become a breakfast joint.

    • TheDona says:

      Actually that is a genius idea Ptb!

      Reminds me of the Abercrombie and Fitch name being sold eventually. And I remember being awestruck at the original sporting goods stores with $1,000 safari picnic baskets.

  15. TheDona says:

    Just look at their website. It is like thy never moved past the 80s and 90s. Im sure most of those who could afford to buy inherited a couple of those same items…from their Grandmother. LOL Their “name” designers have been there since the 70s. Too much of resting their laurels on the almighty “brand” which is not relevant anymore.

  16. Petunia says:

    The biggest trend in jewelry right now is the smart watch, an area in which Tiffany has no presence. The smart watch is a big problem for luxury retailers because it is the new cool accessory. All the cool people want one, but they don’t want to spend too much on one, because they understand the technology and utility is still evolving. While the luxury watch retailers wait it out they are losing an entire customer base, the millennials.

    The other problem with Tiffany is design. For the money they charge their jewelry is unremarkable and easy to knocked off. You can buy better looking pieces on the tv shopping channels for a fraction of the price.

  17. Peepot says:

    One thing is for sure — Amazon is not eating their lunch …. nobody buys stuff like this from a web site

Comments are closed.