Little Switzerland, Inc.

2001–2002

In the spring of 2001, Tiffany & Co. announced it intended to buy 45 percent of Little Switzerland. As part of the transaction, Tiffany agreed to invest roughly $9 million to purchase newly issued shares of Little Switzerland and promised to provide debt financing of up to $2.5 million. The ties between the two companies grew closer during the ensuing months, as Little Switzerland began stocking merchandise from Tiffany & Co. and Tiffany & Co. steadily increased its stake in Little Switzerland. Little Switzerland opened its first Tiffany Boutique in Barbados in December 2001 and several months later began stocking a small assortment of Tiffany & Co. merchandise in two other stores. In late 2002, Tiffany & Co. greatly increased its investment in Little Switzerland, obtaining 98 percent of the chain.

With the help of Tiffany & Co. and a new merchandising strategy that introduced a bevy of new products, Little Switzerland began to effect a turnaround. The company posted a profit of $165,000 for the three-month period ending in February 2002, the first profitable quarter for Little Switzerland after 15 consecutive quarters without showing a profit. As the company prepared for its second decade of independence, further expansion outside of the Caribbean seemed likely. Little Switzerland opened two new stores in Alaska in May 2001. In 2002, the company opened its third outlet in Key West, Florida.

Little Switzerland, Inc. is a specialty retailer of luxury items that operates 20 retail stores in the Caribbean, Alaska, and Florida. The company's stores, most of which are duty-free units located in the Caribbean, sell jewelry, watches, china and crystal, fragrances, and other accessories. Little Switzerland carries such well-known brand names as Rolex, Baccarat, Lalique, Waterford, and D'Argenta and in some cases controls the exclusive rights to selling a brand in its markets, targeting cruise-ship passengers and hotel guests as its customers. It also carries merchandise from Tiffany & Co., which owns 98 percent of Little Switzerland.

Origins

By the mid-1980s, Town & Country was generating roughly $100 million in annual revenue, a total produced by manufacturing plants in the United States, Hong Kong, and Thailand.

1955–1987

Although the majority of Little Switzerland's business is conducted overseas, the company's ties to the United States are extremely close. Little Switzerland began as the retail arm of another company, Chelsea, Massachusetts-based Town & Country Corporation. Town & Country was a homespun business that developed into a formidable competitor, a company founded by a teenager who spent four decades building his enterprise into a giant in the U.S. jewelry industry. C. William Carey started Town & Country in 1955 in his basement. Carey was 17 years old at the time and was able to finance the start-up of his enterprise only after his mother offered the Carey family home as collateral for a bank loan. During the ensuing decades, Carey cobbled together numerous jewelry manufacturing concerns, turning his basement workshop into an international conglomerate.

By the mid-1980s, Town & Country was generating roughly $100 million in annual revenue, a total produced by manufacturing plants in the United States, Hong Kong, and Thailand. Town & Country manufactured a wide range of jewelry items. All the merchandise manufactured by the company was sold to retailers, including massive chains such as Sears, Roebuck and Co. and small, independent retail operators. Carey also had started a small retail operation as he aggrandized his manufacturing might. In the Caribbean, he opened several stores whose purpose was to sell jewelry and gift items primarily to U.S. tourists. Travelers arriving in certain parts of the Caribbean could save between 20 percent and 40 percent at Carey's duty-free stores. The company paid no import taxes and enjoyed low tax payments, enabling it to offer a broad selection of merchandise at prices far below those advertised in the United States.

The Little Switzerland stores benefited from other advantages than just low prices. Unlike its parent company, which manufactured private label merchandise, Little Switzerland sold brand name jewelry items and accessories. In some cases, the company was the only retailer authorized to sell certain brands in the markets in which it operated. Little Switzerland sold watches, jewelry, crystal, china, fragrances, gifts, and accessories bearing the most coveted brand names in the world. Brands carried in the company's outlets included Rolex, Tag-Heuer, and Cartier watches; Antonini, DiModolo, and Aaron Basha jewelry; Baccarat, Lalique, and Wedgwood crystal and china; Mont Blanc, Cartier, and Waterman writing instruments; and fragrance lines produced by Yves Saint-Laurent and Christian Dior.

Within the structure of Town & Country, the Little Switzerland organization sprang from a subsidiary named L.S. Holding, Inc., which was incorporated in July 1980. A chain of stores developed from Little Switzerland's flagship store in St. Thomas, U.S. Virgin Islands. By 1987, there were nine Little Switzerland stores in operation on eastern Caribbean islands. The chain by this point had the exclusive Caribbean rights to prestige brands such as Rolex watches and Baccarat crystal. In October 1987, L.S. Wholesale, Inc. was incorporated to purchase inventory for distribution to L.S. Holding's retail stores, the Little Switzerland outlets that dotted nine islands. The following year, a ten-year franchise agreement was signed with Solomon Brothers Limited, a Bahamian company involved in the wholesale and retail distribution of jewelry, gift items, and consumables in the Bahama Islands. Under the terms of this agreement, Solomon Brothers began opening stores under the name Little Switzerland in the Bahamas.

1991–1994

Little Switzerland Gains Independence in 1991

By the end of the 1980s, Carey's collection of jewelry manufacturers represented a more than $400 million-in-sales business. Little Switzerland was benefiting from a 20 percent increase in tourism in its Caribbean markets. The increase in tourism fueled the chain's expansion, and the number of its stores nearly doubled during the late 1980s. By the beginning of the 1990s, Carey had decided to spin-off his retail operations as a separate, publicly traded concern. The entity that emerged on its own was named Little Switzerland, Inc., which was incorporated on May 23, 1991 as a subsidiary of another Town & Country subsidiary named Switzerland Holding, Inc. At the time of Little Switzerland, Inc.'s incorporation, all the assets of L.S. Holding, Inc. and L.S. Wholesale, Inc. were transferred to Little Switzerland, Inc. In July 1991, Town & Country, through Switzerland Holding, Inc., sold 68 percent of Little Switzerland, Inc. to the public. The initial public offering (IPO) of stock, consisting of 5.7 million shares sold at $12 per share, marked the beginning of Little Switzerland's independence, although Town & Country held onto 32 percent of its former subsidiary until divesting its interest in 1994. All the proceeds from the IPO were given to Switzerland Holding, Inc.

When Little Switzerland completed its IPO, the chain comprised 17 stores. In the years immediately following its independence from Town & Country, the company expanded at a measured pace. The success of Little Switzerland was based on the performance of its stores and where it chose to expand rather than a large number of new store openings. Although recessive economic conditions in the United States during the early 1990s delivered a blow to tourism in the Caribbean, Little Switzerland fared well during the downturn. Within a year of its IPO, the company added two new stores, one on St. Thomas and another on St. Kitts, helping it to generate $63 million in sales in 1993.

Little Switzerland made its boldest expansion move of the 1990s in 1994. The company diversified its geographic presence dramatically by opening a store in Ketchikan, Alaska. Little Switzerland's president at the time, Kenneth Watson, explained the move in an April 25, 1994 interview with Travel Weekly. "With the redirection of large numbers of ships to [Alaska] during the summer months," he said, "we are capitalizing on [our] international name recognition in the Pacific Northwest, which has been enjoying steady growth as a tourist destination." With the establishment of a store in Ketchikan, Little Switzerland positioned itself for a substantial amount of new potential business. Ketchikan served as a stopping point for numerous cruise ships traveling to Alaska. An estimated 380,000 passengers arrived in Ketchikan between May and mid-September, brought by more than 450 cruise ships. Aside from introducing the chain into a vast, new market, the establishment of the Ketchikan store gave Little Switzerland business to offset the seasonal cyclicality of its Caribbean business. In Alaska, the peak selling season ran during the spring and the summer. In the Caribbean, the peak selling season ran from late fall through spring.

1997–1999

Little Switzerland performed well during the mid-1990s, aided by a return to more prosperous times in the United States. By 1997, the company operated 27 stores, which generated $88 million in sales. Although the company stocked a wide variety of merchandise, it was reliant on the sale of watches for the bulk of its sales. In 1997, watches accounted for 44 percent of the company's total sales, with Rolex watches accounting for one-quarter of total sales. The watches sold by Little Switzerland ranged in price from $50 to $30,000. The second most significant product line was jewelry, which included rings, earrings, bracelets, necklaces, pendants, and charms. Ranging in price from $30 to $5,000, Little Switzerland's jewelry line accounted for 27 percent of the company's total sales in 1997. The third most important product category was Little Switzerland's selection of crystal, china, gifts, and flatware, which sold for between $20 and $3,000 and accounted for 17 percent of 1997's sales. Fragrances, which sold for between $15 and $150, and accessories such as leather goods, sunglasses, and writing instruments accounted for the remainder of the company's sales in 1997.

Little Switzerland Falters in the Late 1990s

The end of the 1990s represented a time of change at Little Switzerland. Another economic recession in the United States loomed, the onset of which delivered a much more painful blow to the chain than the weak economy of a decade earlier. The company also gained new leadership at this time. Robert L. Baumgardner was appointed president and chief executive officer of the company in August 1999, taking control just as Little Switzerland was set to endure the most difficult years in its history. Before joining Little Switzerland, Baumgardner held senior management positions at Zale Corporation, an operator of a chain of retail jewelry stores, and at Tiffany & Co., the famed New York City-based jewelry store operator. Under Baumgardner's watch, Little Switzerland experienced both highly profitable periods and low periods when it recorded significant losses. It also forged a significant partnership with an esteemed member of the jewelry community.

As Little Switzerland neared the completion of its first ten years as an independent company, it began to suffer profound financial losses. At the end of the company's fiscal year in