Tiffany Case Hbs Essay

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Key issue: Tiffany and Co concluded an agreement with its Japanese Distributor, Mitsukoshi Limited. Tiffany & Co Japan assumed management responsibilities of the operation of 29 boutiques and was now responsible for millions of dollars of inventory that was previously sold wholesale to Mitsukoshi Limited. Tiffany & Co Japan now faces the risk of foreign currency fluctuations previously borne by Mitsukoshi Limited. Tiffany & Co Japan must now make the decision between basic hedging alternatives: Entering into forward agreements to sell yen for dollars or purchasing a yen put option. Exposure As Tiffany & Co’s receivable cash flows are now denominated in ¥ due at future date the firm now faces the foreign exchanges…show more content…
Analysis External Size-up: The slowing Japanese economy following a boom period of the 1980’s and early 1990’s has resulted in Japanese consumers becoming more cautious about spending, which has slowed demand for Tiffany & Co.‘s luxury items. Appreciation of the Yen/Dollar in the period from 1983-1993 shown in Appendix 1 has now lead to evidence of overvaluation from a purchasing power parity (PPP) perspective of the yen shown in Exhibit 7 of case. The Japanese Jewellery market has a value of $20 billion of which Tiffany & Co. currently has a 1% market share leaving potential growth in market share despite slowed demand. Internal Size-up As part of the arrangement Mitsukoshi would still receive 27% of net retail sales in compensation for providing boutique facilities, sales staff, collection of receivables, and security for store inventory. This will give Tiffany access to Mitsukoshi’s established sales networks although Tiffany & Co. would take over marketing responsibilities in Japan from Mitsukoshi. Mitsukoshi sold Tiffany & Co. merchandise at substantial premium that Tiffany management believe from which a retail price reduction of 20%-25% will likely result in a substantial increase in unit volume of jewellery sales. Due the significant number of Tiffany Boutiques operating in Japan, future openings there were expected to occur at a minimal rate

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