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A global luxury slowdown isn't the only thing eating away at Tiffany's revenues — and it's this less-talked-about threat that could have longer-lasting effects on the brand's revenues.
As the luxury jewelry maker on Wednesday , analysts questioned whether its struggles in the U.S. were not only the result of fewer international tourists, but also a lack of interest from millennial shoppers.
Millennials will only become more important to luxury brands as they work their way up into higher-paying jobs.
"We continue to wonder if there is something beyond the macro, and more about the Tiffany brand itself not resonating with certain customers," Citi analyst Paul Lejuez told investors Wednesday.
Sales of Tiffany merchandise that costs less than $500 — a more attainable price for younger millennial shoppers — once again struggled during the first quarter, as did its more affordable silver jewelry. The company has responded to this softness by rolling out new pieces in its less expensive Return to Tiffany and Infinity collections, with management saying on a conference call that it has been pleased with initial reaction to these items.
And last month, the brand began a limited-time partnership with the Net-a-Porter fashion website, in what one of Tiffany's senior vice presidents called an effort to "help ensure that Tiffany's timeless designs reach a new generation of customers."
Some analysts, however, are concerned the company is moving too slowly in its attempts to connect with the millennial generation, whose spending spending power is rapidly increasing. According to a new report by Bain & Company, younger generations already outspend baby boomers in every personal luxury goods category. That includes jewelry. Combined with Generation Z, younger shoppers are expected to account for three-quarters of the global luxury market by 2020, the advisory firm said.
Neil Saunders, CEO of Conlumino retail research firm, told investors that Tiffany's first-quarter sales decline "tell[s] a tale of a brand that is now finding it more of a struggle to connect with consumers in a way that it once did." This is especially true among affluent younger shoppers, who see the brand as "old world luxury," he said.
Yet Tiffany needs to be careful with its attempts to lure younger consumers. In the 1990s, when its less costly silver jewelry took off with teenagers in Japan, the company's older customers were turned off by the brand. To restore its image, the blue-box brand started raising prices on these pieces.
Like other luxury players, Tiffany's first-quarter results were dented by a global slowdown in high-end spending and a stronger U.S. dollar. These trends contributed to its worst comparable-sales performance in nearly seven years. The company expects external headwinds to continue during the second quarter, and as such, slashed its guidance for the period. Management now expects the retailer's adjusted earnings per share to fall roughly 15 percent, compared with prior guidance of a 5 percent drop.
"Management cited 'numerous challenges, including continued pressure for foreign tourist spending,' which makes it difficult to have much confidence in a second-half turnaround," Citi's Lejuez said.