With every company in North America looking to expand beyond its borders, it can be interesting to look at a company that's already made the move. Tiffany (NYSE: TIF ) is a great example of an American brand that, simply put, isn't super-American anymore. The company has delved into the global market, and has found success, especially in Asia.
Last quarter, the company's Asia-Pacific and Japan (which is both Asian and Pacific, but who's counting) regions accounted for 41% of total revenue . America still made up the largest chunk, but it didn't hit 50% of the total. So what does that mean for Tiffany investors, and for the business? And is there anything to be learned from Tiffany's successes and failures?
New money in Asia
"The rise of the middle class in China" is a fun phrase, and economists, investors, and academics love it. A Google search returned over 250,000 hits for the exact phrase, in fact. The huge influx of new money to a middle class market is a gold mine for a company like Tiffany. One of the most important features of the middle class is that it's focused on moving up. That means that consumers are looking for aspirational purchases, and Tiffany is a perfect target.
Tiffany has all the things that make for a great upwardly mobile product. You wear it, so everyone else can see it. It has a strong brand name and style, with its branding alone valued at over $5 billion by Interbrand. And it sells products at an approachable price point. Tiffany has been pushing its average price up recently, which has driven increased sales, but it still offers a wide selection of branded products between $100 and $200 -- accessible, but not cheap.
Other retail companies, like Michael Kors (NYSE: KORS ) and Coach (NYSE: COH ) , are trying to play the same game with China's increasingly capitalized population. Kors, in particular, is having success across Asia. The company increased revenue by 96% in its non-American or European regions. Kors has used many smaller items to drive traffic, and the push is already starting for watches in Asia -- something to keep an eye out for next week when the company drops its next earnings report.
Coach may have put too much effort into its Asian bet, with its U.S. focus slipping in recent quarters. Estimates now say that Japan accounts for as much as 50% of total international sales at Coach. That focus could come back to bite the company, as weakness in the yen means a damper on bottom-line growth.
Tiffany isn't immune to currency fluctuations, and exchange rates put a sizable dent in the company's earnings last quarter. As Europe and Japan jump and fall, the stability of earnings for any company operating overseas is going to be in jeopardy. The best thing those businesses can do is spend that cash in the countries where they make it. That means that the businesses don't lose out by repatriating earnings at a weak exchange rate.
Overall, Tiffany is making good headway in its overseas operations, and it gives other businesses a loose model to follow. While Kors is killing it in the U.S. and Europe, it still has a long way to go to be a truly global brand. Coach has made better inroads, but at the cost of its U.S. business's success. Maybe Tiffany has found the middle ground that both companies are looking for.
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