Tiffany & Co.'s first quarter report proved disappointing for shareholders as posted sales were lower than expected, weighed down by weak Chinese tourist spending in key markets like the United States, Japan, and Hong Kong. But despite a 3 percent drop in comparable store sales in the Asia-Pacific region—against what analysts expected would be a 1.3 percent growth—mainland China growth proved “strong” for the jeweler as more Chinese luxury consumers are preferring to spend more at home.
The Asia-Pacific region is Tiffany's second-largest market after the United States, and has relied heavily on Chinese tourists shopping in Hong Kong. Many brands have pivoted their focus to local clientele in Hong Kong to make up for the decline in mainland Chinese tourist spending, and Tiffany & Co. is no different.
Analysts attribute the jeweler's overall struggles partly to challenges attracting millennial shoppers who are turning to stylish, more affordable brands such as Danish jeweler Pandora. Hong Kong-based fine jeweler Chow Tai Fook responded to this issue with China's younger shoppers—about half its customers—in 2014 by buying Boston-based Hearts on Fire Co. and opening a new segment of stores carrying designs that would appeal to 20-somethings both in style and price point.
Millennials are key for jewelers in the China luxury market. Research by De Beers SA shows that women aged between 18 and 34 account for nearly 70 percent of diamond sales in China. In the United States, this group accounts for just over 40 percent. These women are making purchases that are practical and showcase “a fashionable mark of achievement instead of a symbol of everlasting love,” Joan Xu, a Shanghai-based associate planning director at ad agency J. Walter Thompson, told Bloomberg.
Not many customers would traditionally associate Tiffany & Co. with notions of practicality and functionality, but the jeweler has been making moves away from its romance-fueled “old-world luxury” image. Earlier this year, the brand let go of CEO Frederic Cumenal and designer Francesca Amfitheatrof and brought in Reed Krakoff, formerly of Coach, as creative director. In another strategy that seems designed to update the brand's image for a more youthful audience, Krakoff has been given an unprecedentedly public profile for a Tiffany & Co. creative lead. The brand has also released more collections highlighting silver and gold designs.
Most of these efforts, though, have been U.S.-facing. It remains to be seen whether in China, shoppers' love for diamonds will continue to boost growth, or whether Tiffany & Co.'s millennial market strategies will also need to translate to the millennial market in China.