Tiffany sales are tanking -- and the real reason why is worse than the company claims

Tiffany & Co. was once a go-to for luxurious jewellery.

But the retailer’s sales are down following a rough holiday season. 

Comparable sales for the luxury retailer fell 5%.

The retailer attributed the decline to a strong United States dollar and a decline in foreign tourism.

But these dipping sales are only one part of the puzzle.

“As it did throughout 2015, Tiffany has pinned the blame for its sales declines on the strong dollar. There is truth in such an assertion, although it is not the whole truth,” Neil Saunders, CEO of research firm Conlumino, wrote in a note to clients. “This is evidenced by the fact that even on a constant currency basis worldwide sales still fell by 3% in total and by 5% in comparable terms.”

One big reason for the decline? A major shift in the way Americans spend their money.

“One of the factors at play, at least in the United States, is a shift in holiday purchasing,” Saunders wrote. “Prior to the economic downturn of 2008, the period between Thanksgiving and Christmas was key for jewellery buying. Today, while it remains the single most important period for purchasing, it accounts for a much smaller share of annual sales than it once did. Jewellery is no longer at the top of the Christmas list. For a brand like Tiffany, where lavish gifting is an important driver of buying, such a trend is distinctly unhelpful.”

“As important as this factor may be, it is exacerbated by the more competitive environment for jewellery and the rise of other brands. Against this backdrop Tiffany has lost some of its relevance, especially to more moderate spending shoppers,” he wrote. 

Saunders pointed out to Business Insider that “this holiday season consumers were interested in luxury/premium clothing (note, not everyday clothing as this fared badly because of the weather), products for the home, and electronic devices like wearables and smart watches (which may have had a slight impact on jewellery sales).”

“There was also a trend to spending less on product and a bit more on experiences such as dining out, trips, etc,” he wrote. 

The category isn’t entirely dead, though. “Jewellery is still a key gifting item, but it just isn’t as big as it used to be during the holidays,” Saunders wrote to Business Insider.

Additionally, another luxurious category is fading: the handbag industry. It’s faltering in comparison to other categories  — such as cosmetics and athletic apparel, according to a recent study executed by Goldman Sachs and Teen Vogue. More of the fashion-forward young women (ages 13-29) surveyed said they preferred athletic wear brands and beauty companies to handbag brands.

Young people in particular spend less when they can and prefer functionality over something traditionally cool.

“Millennials love brands that are useful — and some of these brands have strong usefulness in terms of their design and functionality, and millennials also love things that are [a] good value, off-the-beaten-path kind of stuff. Some of these brands have that going from them.” Jeff Fromm, president of millennial-focused marketing-research firm FutureCast and author of “Marketing to Millennials,” explained to Business Insider in the fall.

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