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The New York Times

October 16, 1983, Sunday, Late City Final Edition

AT TIFFANY, A TROUBLED TRANSITION

BYLINE: This article was reported by Leslie Wayne and John Duka and written by Leslie Wayne.

SECTION: Section 3; Page 1, Column 2; Financial Desk

LENGTH: 2438 words

THE store sits like a crown jewel on Fifth Avenue. Tiffany & Company, which made its name catering to the carriage trade, is a storehouse of luxe. Its cavernous main floor - with imposing teak and marble walls - is filled with precious gems and ornate gold jewelry. And its upper floors carry even more riches for the rich - exquisite crystal, delicate china and sterling silver flatware.
These days, however, all that glitters at Tiffany is not gold - or even silver. The store that offers ''Diamonds-By- The-Yard'' and boasts of the $12 million ''Tiffany Diamond'' has been facing tough times ever since its 1979 acquisition by Avon Products, the $3 billion cosmetics giant. Profits have tumbled - Tiffany is still earning less than it did in the late 1970's when it was an independent company. And, this week, one of Tiffany's premier jewelry designers, Angela Cummings, whose sales totaled $12 million in 1982, announced she was fleeing Tiffany for Bergdorf Goodman, just across the street.
At the same time, Tiffany is struggling with a more important concern: How to transform itself into a modern retailer without losing the panache that for 146 years has made it special, and successful. Prior to Avon, Tiffany was run for nearly a quarter century as a one-man operation under Walter S. Hoving, who turned the store into a landmark of top design and an arbiter of good taste. Now, Avon is seeking to take Tiffany another step and bring it into the modern age - rapidly opening new stores, expanding its direct mail orders and streamlining ts back office operations.
''One has to hope that they don't destroy the image - there's no way of putting a price on that,'' said Brenda Lee Landry, an industry analyst at Morgan Stanley & Company. ''They've added new stores and there's a lot more they can do. But one has to question whether Avon understands the strange idiosyncrasies of the carriage trade. You don't want to turn Tiffany into just another upper middle class store - then you'll have trouble.''
But Tiffany clearly thinks it can elude this danger, even if broad expansion means selling in greater volume. ''There is still a feeling that quantity reflects on quality in this country,'' said John Loring, Tiffany's design director, who has been with the store for five years. ''But machines are often more perfect that handworkers. There is too much of that 19th-century romantic feeling for signed objects and limited editions. Its a very silly 19th-century romantic idea and has very little to do with our lives in the 20th century.''
Still the troubled history of other once- independent jewelers is a haunting one. Said Anthony D. Ostrom, Tiffany's president and a 23-year veteran of the store: ''My concern in general is that we will see an evaporation of fine jewelry companies across the country and that's a problems for everyone and could be a danger for Tiffany.'' Such fine jewelers as J. E. Caldwell in Philadelphia and Shreve's in San Francisco were bought in the late 1960's by the Dayton Hudson Corporation, the Minneapolis-based retailer, only to be sold again in 1982 when they failed to meet Dayton's profit requirements.
So far, Tiffany has been a lackluster performer for Avon, which paid about $104 million for the jeweler. Last year, Tiffany had pretax profits of $6.7 million on sales of $115 million - or an operating margin of about 5 percent. In 1978, the year before its sale to Avon, Tiffany reported a pretax income of $12.6 million on sales of $71.7 million. These pre-acquisition days were somewhat rosier for Tiffany. In 1977, for instance,buy cheap tiffany, Tiffany reported a $6.9 million pretax income - about the same amount as in 1982. But this came on sales of $47.8 million, giving the company a much healthier 14 percent operating margin. ''At best, Tiffany has been a mediocre acquisition for Avon,'' said Deepak Raj, a cosmetics industry analyst at Merrill Lynch & Company. ''There is no way they could get $100 million if they tried to sell it today, and it doesn't fit into the kind of retailing that Avon does, where the average customer is earning $15,000.''
INDEED, there has been little integration of Avon and Tiffany. Originally, many analysts speculated that Tiffany might have added a touch of upscale glamour to Avon's decidedly middlebrow image - Avon is the nation's largest door-to-door seller of moderately priced cosmetics - but Avon has kept the identities of the two companies distinct. ''We're not going to blend the two images,'' said William R. Chaney, executive vice president at Avon. ''Tiffany is not a mass marketer and will never be.'' Indeed, Tiffany is small change for Avon, which itself has suffered a steady slide in earnings. Last year, Tiffany accounted for only 4 percent of Avon's $3 billion sales and less than 2 percent of its $415 operating profits.