What Makes TIFFANY & Co. a great BUSINESS? 💎
Tiffany & Co. is one of the largest jewelry companies in the world with a market cap of around $11 billions. What makes it so great? It is not the diamond, it is the experience.
First of all, it is important to understand the structure of the business. They have the flagship store on Fifth Avenue in New York City next to the Trump Tower which accounts for about 10% of the sales. The store is also the place where professional jewelers are making these jewelries. You can be sure that if you are buying a piece of jewelry from Tiffany's, it doesn't come from sweatshop in China or being by children in Pakistan. However, it is important to note that they are a net exporter and, therefore, they are better off with a weak US Dollar $USDOLLAR and the US Dollar is very strong right now, hence reducing their margins.
Is the current market cap of $11 Billions expensive considering that the book value is only $3.1 Billions? Not really since book value or net tangible assets doesn't into considerations intangible assets and they have a very powerful and valuable brand. They also own a trademark on the Tiffany Blue color. You can paint your house this color but you are not allowed to paint your jewelry store that color and that color is a very important for the brand. How do we put a price on a color?
The success of the company is also the reason why it cannot grow much. They only have about 300 stores in great locations all around the world. They can't put a store in every street corner. This will take away the value of the brand. Compare Pandora $PNDORA.CO with Tiffany & Co., which one has the most valuable name? There is no movie called "Breakfast at Pandora's" but there is "Breakfast at Tiffany's" although Pandora is bigger.
So what's the secret of Tiffany's success? Leveraging these intangible assets. Take for example, Coca-Cola $KO, the brand name is worth much more than the assets of the company. Same for Apple $AAPL which have a brand name twice as valuable as the book value. In our age, intangible assets are very important. Look at Facebook $FB, one of the largest companies on Earth without any products that you can touch.
Tiffany & Co. have been leveraging their intangible assets for more than a century. They have the brand name, the color, they sell emotions more than jewelry. It is hard to put a price on all these things. But as an investor, you should try. It won't be easy but investing was not supposed to be easy, otherwise everybody would have been billionaires.
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