1. Exchange rate point of view.
From the story, Tiffany bought the property and inventory from Japan Mitsukosi. It will expose to the exchange rate translation risk. So it should do the risk management. The analysis structure will be that: (1) Define the risk source: the exchange rate flucturation, the cash flows of different currencies from asset change, account receivable and account payable. (2) Define the scope of risk control: the natural currency settlement hedging, the overflow exchange currency, the future cash flow, the future potential expansion on business. (3) select the hedging tools: forward exchange, options, or futures. What is the portfolio allocation? (4) Allocate the optimal portfolio. It will use the analysis tools. For example, exchange rate with interest rate difference, purchasing powerparity, the option valuation, the forecast of the future trend of exchange rate and the comparison between forward rate and options. This tools are another topics to be discussed.
Why did Tiffany buy the share and operate the business by its own directly? Is there any significant finding and implication for Tiffany? Compare the cost effectiveness of direct channel to indirect channel in luxury business. We may find there are some criteria to be defined. (A) market size, (b)familarity of local market, (c) profit margin, (d) operational efficiency of direct own and indirect. 3. Finance diagnosis.
Why did Tiffany make the decision to buy the share from Japan partner? We may use the finance analysis to find some implication. Dupond Equation:
ROE=profit margin * asset turnover * leverage.
It is a good index to compare the operational efficiency to industry. We can use it to tell the story hidden behind. 4. Luxury business management.
Luxury goods creat inelasticity. Many brands control the sales channels and sales volume so as to raise its unit price. There are many typical cases like DeBeers, LV, Carvin Kleir, and Loraile. It is an art...
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