Tiffany Does Pearls As Diamonds Lose Luster

After 167 years of selling diamond jewelry from its Manhattan flagship and more than 100 boutiques around the world, Tiffany & Company, having crafted a hallowed legacy in diamonds, is charting a future in pearls.

On Oct. 8, Tiffany’s will launch the Iridesse brand of pearl boutiques when it opens its first branch: a 1,300-square-foot store at the Tysons Galleria Mall in McLean, Va. Soon after, on Nov. 12, Tiffany will launch the second Iridesse location with a 1,400-square-foot boutique at the Mall at Short Hills in Short Hills, N.J. Tiffany’s plans are ambitious. In the next five years, according to the company, upward of 20 Iridesse boutiques will fan out across the country, selling more than 400 strands of cultured pearls ranging from less than $100 to $40,000. Tiffany has developed an in-house advertising campaign that will soon roll out in targeted spots including The Washingtonian, Washington Life, New Jersey Life and New Jersey Monthly. With the Iridesse launch, Tiffany will take its pearl line head-to-head with the 146-year-old Japanese jeweler Mikimoto.

“We’ve certainly understood for a long period of time that the pearl-jewelry category is fragmented and underdeveloped. We saw there is an opportunity here,” said Iridesse president Robert Cepek, who most recently was the general manager of Tiffany’s Fifth Avenue flagship and has been an executive at the company for 10 years. “We felt that there is a tremendous potential for pearl jewelry. That was the genesis for the Iridesse concept. We will present the consumer with designs that have never been seen before.”

The Iridesse perambulation is a big move for the storied Manhattan house that traces its origins to 1837, when Charles Lewis Tiffany and John B. Young opened Tiffany and Young at 259 Broadway selling stationery and fancy wares. Of course, for some time now Tiffany has been more a purveyor of knick-knacks like silver pins and gold lockets to father-daughter shoppers and tourists. Nevertheless, it is precisely its wide reputation as a luxury store (thanks, Truman!) that guarantees those brisk sales of low-ticket items.

But for how long? In 2003, Tiffany recorded $2 billion in worldwide sales, a 17 percent increase from 2002, but now, as the company launches its first-ever stand-alone brand, Tiffany continues to navigate choppy financial waters. In its most recent second quarter financial results, Tiffany reported an 11 percent decline in net earnings. Its stock now trades nearly 40 percent below its 52-week high of $49. And according to the Diamond Information Center, worldwide diamond sales are currently declining at the rate of 1 percent per year. The stakes remain high: Pearls are a $900 million annual market, according to the Jewelry Information Center. Could it be, that after more than a century and a half building one of the world’s iconic brands on the allure of diamonds, Tiffany will find its future in pearl baubles?

If so, the business will have to be kept far from the front door of the Tiffany Fifth Avenue flagship. Tiffany’s representatives are quick to point out that Iridesse will be a unique entity; a stand-alone brand that will operate independently of Tiffany and Company. Tiffany, by launching a mid-priced brand, has seized on the marketing tenet that though consumers are locked in the luxury orbit, it’s the everyday sale that drives profits. Iridesse will not be Tiffany’s doppelgänger.

“What defines the Tiffany brand for product design is set; we will not deviate from that,” said Mark Aaron, Tiffany’s vice president of investor relations. “Unlike Tiffany, the Iridesse price point will be much more affordable. There will be a greater fashion element to it,” he said. “We felt there is a lot of business that can be done that is not appropriate to bring into a Tiffany store. With Iridesse, we can bring our expertise as a retailer, as a jeweler and as someone who knows how to market it. We felt pearl jewelry was a category that was very attractive to go after.”

Iridesse (the name was created to invoke a pearl’s iridescence) tapped five designers to create its cultured-pearl offerings: Erica Courtney; Chrissie Coleman Douglas of Coleman Douglas Pearls; Anthony Camargo and David Nakard Armstrong of Anthony-Nak; Christian Tse, and Gabrielle Sanchez.

The Iridesse launch is part of Tiffany’s larger effort to branch out in the jewelry trade. Two years ago, Tiffany developed an internal division to study new retail channels. The first result of this effort was the 2002 purchase of Little Switzerland, a 21-store chain of duty-free stores in the Caribbean that Tiffany bought for $37 million.

“We wanted a presence in the Caribbean; it is an attractive market for Tiffany products,” Mr. Aaron said. Last year, Tiffany’s second expansion came with a $13 million investment in jewelry designer Temple St. Clair. Tiffany executives said more acquisitions could happen, but the company would not grow to become a diverse luxury umbrella on the scale of LVMH, the sprawling luxury company run by Bernard Arnault with a portfolio of 50 brands, from Moët & Chandon to Marc Jacobs.

“We’ll stay close to what we know about. We’ll never go so far afield into something where we have no knowledge that we can bring to the table,” Mr. Aaron said.

But, while Tiffany’s recently acquired brands operate as established entities, Tiffany must build Iridesse from the ground up. For the first time in the company’s history, it must conceive, develop and execute a completely new brand.

As the luxury market matures, many companies, from Coach to Louis Vuitton have had to expand into new territory, hoping to carve out an ever larger bailiwick to drive profits. Hummer now markets a cologne modeled on the brutish strength of its S.U.V.’s. Kate Spade’s handbag empire now encompasses everything from bedding and books to shoes and stationary.

Additionally, specialty retailing has witnessed rapid growth in recent years, as brands such as Sephora have capitalized on consumer’s penchant for individuality, exclusivity, and the perception of luxury. The danger for these firms, and Tiffany, industry experts say, is that by expanding beyond their core competency, they may dilute their brand image, and power.

“When you’re changing the nature of your business, if you wander too far afield, you could end up hurting your business,” Sam Craig, a professor of marketing and international business at N.Y.U.’s Stern School of Business, said. But Mr. Craig noted that by marketing pearls under the Iridesse brand, and not as Tiffany pearls, the company limits its exposure if the venture flops.

“They minimize the danger by using a different brand name. If it doesn’t do well, there’s relatively little damage to the base brand,” Mr. Craig said. “The flip side is, what if they did market them as Tiffany pearls, they would be drawing off one of the marquee brands in the world. Tiffany is one of those unique brands—Rolls Royce comes to mind—that have become more than a brand. It has become an adjective, synonymous with luxury. So in that sense, marketing them as a Tiffany product could increase their market share. But, if it does fail in that case, it tarnishes the brand.”

For Tiffany, the launch of its Iridesse pearl line, in many ways, reflects the vicissitudes of the $45 billion United States jewelry market. The industry is facing unprecedented challenges, from a thriving counterfeit trade (Tiffany sued eBay in 2003 for allegedly facilitating faux diamond sales) to the increasing market share of discount retailers including Wal-Mart and Costco.

The diamond industry has been forced to unleash an entirely new marketing fusillade. DeBeers, long famous for the storied “A Diamond Is Forever” campaign, has had to shift gears. For years, the baubles have been marketed as a product of love, desire and romance; all powerful emotions that have suffused themselves into the collective consumer conscious. This Thanksgiving, DeBeers will continue the “Diamond Is Forever” campaign with a new spot directed by Steven Daldry and filmed in Trafalgar Square in London. But last year, to reverse the downward trend in diamond sales, the industry underwent a seismic marketing shift when the Diamond Information Center, a division of J. Walter Thompson, launched the “Raise Your Right Hand” campaign, aimed at women self-purchasing diamond rings.

“The campaign was the first time we pursued marketing a diamond not as a gift of love. If you look at all of our other advertising, we always had marketing that revolved around a diamond being a gift of love. But this is different,” said Sally Morrison, the director of Diamond Information Center. “A right-hand ring is something that can be bought herself. What’s important is that the woman is defining what kind of ring she wants, not someone else.”

The campaign exploded. The D.I.C. bought pages in fashion books, from In Style to Vogue to Harper’s Bazaar. One recent spot read: “Your left hand says ‘we.’ Your right hand says ‘me.’ Your left hand rocks the cradle, your right hand rules the world.” Celebrities gave the trend a further jolt of media froth. Beyoncé wore a right-hander to the B.E.T. Awards; Halle Berry wore a right-hand rock to the Oscars (the D.I.C also did product placement for Ms. Berry’s Catwoman). And Cameron Diaz, Charlize Theron and Lindsay Lohan have also been snapped sporting right-hand diamonds.

But while marketing right-hand diamonds has been a growth engine for the industry, Tiffany’s expansion into pearls may represent the biggest departure yet for the firm. And they are not alone. Recently, David Yurman, John Hardy and Coleman Douglas have expanded their pearl lines. As a brand experiment, Tiffany will soon learn whether it can replicate the allure that its coveted blue boxes hold (Iridesse will have its own packaging, and no blue boxes).

“Our company has a good understanding of the potential of cultured pearl jewelry,” Mr. Aaron of Tiffany said. “With our expertise, we have enough scope to create a stand alone concept. We understand jewelry retailing and selling products with emotional resonance.”