Tiffany Faces Identity Crisis That Lady Gaga Alone Won’t Fix

(Bloomberg) -- Tiffany & Co. tried to put a new face forward last weekend when the 179-year-old jeweler aired a Super Bowl ad featuring Lady Gaga. But the challenges ahead -- including weak sales, aging customers and its search for a new leader -- are overshadowing the makeover.

When the company abruptly replaced Chief Executive Officer Frederic Cumenal just before the big game on Sunday, it renewed investor concerns about its turnaround plan. The key question: As Tiffany’s core baby boomer customers curb their spending, can millennials take their place? While Lady Gaga’s endorsement may help, the retailer has yet to convince shareholders that it can appeal to the next generation.

The company needs “in-your-face” products that get the attention of shoppers, said Erwan Rambourg, an analyst for global luxury companies at HSBC Holdings Plc. “Tiffany hasn’t been loud enough.”

The Lady Gaga campaign was rolled out to promote a line of fashion jewelry, including lower-cost items that may appeal to younger shoppers. The pop singer’s HardWear collection features bracelets, rings and earrings with dangle balls. The company also has a #LoveNotLike social-marketing campaign that’s meant to help generate buzz with millennials.

But that isn’t enough to turn things around, Rambourg said. Tiffany isn’t connecting with younger customers, who shop on mobile devices and look for unique designs.

Store Traffic

The New York-based company also needs to improve the experience at its brick-and-mortar stores, which have suffered from sluggish traffic, said Oliver Chen, an analyst at Cowen & Co. Lower tourism spending and the strong U.S. dollar have added pressure to get more customers in the door, he said.

“Store traffic is critical,” Chen said. Adding more personalized experiences and limited-edition products -- something LVMH’s Louis Vuitton has done effectively -- could help, he said.

The departure of Cumenal, who ran the company for less than two years, came after disappointing financial results during the holiday season. Cumenal, 57, will be succeeded on an interim basis by former CEO Michael Kowalski, who also serves as chairman.

Adding to the upheaval, top designer Francesca Amfitheatrof stepped down just three weeks ago, and the company hired Reed Krakoff to the new position of chief artistic officer. It also recently brought on Chief Financial Officer Mark Erceg after losing an executive to Newell Brands Inc.

Fashion Pieces

The push to offer more fashion products is the right strategy, said Laurent Vasilescu, an analyst at Macquarie Capital. That category is growing faster than engagement jewelry and wedding bands, and it often carries higher profit margins.

Even so, the push needs more innovation, Rambourg said. Tiffany’s last iconic set of products was in 2014, when Amfitheatrof’s T by Tiffany debuted. The company hasn’t come up with anything of that magnitude since then.

In contrast, Cartier has effectively targeted younger shoppers with the Love, Trinity and Juste un Clou collections. LVMH’s Bulgari has had success with its Serpenti line, and Van Cleef & Arpels has benefited from the Flowers and Alhambra collections.

“A lot of the Tiffany’s products are substitutable: You can argue that you could go to a local jeweler and you’ll get something that would look a bit like them,” Rambourg said. “Luxury is a very crowded market. You need products that are more edgy and fun.”

Tiffany’s stock fell 2.5 percent to $78.49 in the wake of its CEO shake-up and declined an additional 0.6 percent on Tuesday. For investors, the news cast a gloom over the publicity garnered by the jeweler’s first Super Bowl ad. The commercial featured Lady Gaga talking about creativity and rebellion in a black-and-white video. She also performed the half-time show.

One night isn’t going to make a difference in what could be a long turnaround, Rambourg said.

“It’s a completely random isolated event,” he said. “Tiffany needs to be reawakened.”

To contact the reporter on this story: Stephanie Wong in New York at swong139@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net.