The Reluctant Entrepreneur: Turning Dreams into Profits

HOW TIFFANY & CO. LOST THEIR EDGE—AND FOUND IT AGAIN

In the late 1990s, the honchos at Tiffany & Co. made the mistake of downgrading their product line to attract a wider audience. They decided to sell inexpensive silver jewelry to take advantage of the booming market for affordable luxury—that is, brand names that middle-class people could afford to buy. “The 1997 introduction of the silver ‘return to Tiffany’ collection, which offered jewelry inscribed with the Tiffany name for just over $100, was a huge hit,” The Wall Street Journal reported.

Sales exploded, earnings more than doubled, and the stock price shot up too. But in the years that followed, Tiffany lost their exclusiveness as their stores became crowded with younger and less affluent people. “I felt like I was in Macy’s,” one longtime Tiffany customer told the WSJ.

Although there was plenty of profit in the low-end jewelry, this sales tactic seriously diluted the Tiffany brand. In 2002, Tiffany leadership finally recognized that and decided to reassert their claim on the luxury corner of their market. They began raising prices on their less-expensive items and, after a lag, sales of those products slowed and their stores became less crowded. At the same time, buying of their higher-priced items started to grow.

Even if it did cost them earnings in the short run, getting out of the middle market was the right move. Tiffany has always had a brilliant selling strategy that appealed perfectly to the sophisticated, high-end ...