PANDORA WINNING MODEL
To become the world’s most loved jewelry brand…
Pandora is one of the most successful stories of the past decade in jewelry and this success can be explained by their strategy and operating model to grow up to this point. The company’s vision is ambitious and, as highlighted by Deutsche Bank, needs attentions to keep delivering today’s results. I would like to focus on the aspects that contributed to reach today’s baseline.
“To become the world’s most loved jewelry brand” 
In 2014, PANDORA’s total revenue was DKK 11.9 billion. The company is headquartered in Denmark and started as a family business in 1982. Now it is publicly listed in NASDAQ Copenhagen stock exchange.
Value Proposition: PANDORA designs, manufactures and markets hand-finished and contemporary jewelry made from high-quality materials at affordable prices. Their product portfolio offers women around the world the opportunity for personal expression by focusing in charms/bracelet (core business), rings, earrings and necklace categories. Their main products are made of silver. Their DNA is defined by: affordable luxury, personal storytelling and contemporary design. PANDORA business model up to now, was a top-line growth, designated to maximize return on capital employed.
PANDORA’s business model is vertically integrated. PANDORA control the entire value chain: design, production, distribution and sales. This model allows PANDORA to benefit from scalability and flexibility, maintain a clear and complete overview of operations, and develop products and activities to match changing market needs.
To deliver its DNA, PANDORA provide a high-quality consumer experience through materials and craftsmanship, stores environment and global audience. This is possible because of:
Manufacturing facilities/Labor and quality
Every piece produced by the company is hand-finished by experienced and skilled craftspeople. More than 70% of their employees are located in Thailand, their manufacturing site. According to PANDORA, to produce 91 million jewelry in 2014, they combined a standardized and scalable modern production techniques with centuries old craftsmanship. Because PANDORA craftsman pieces rely on a labor intensive production it is crucial that they be installed in a country with lower wages such as Thailand. Also, the country’s tradition with silver also facilitated manufacturing know-how.
Because PANDORA is in the affordable jewelry business and because of the vertically integrated supply chain, volume purchases of commodities gives PANDORA a cost advantage and operational leverage. PANDORA also receives returns that are melted down to produce faster-moving and more productive inventory. Deustche Bank estimates that “re-melting fashion jewelry products could cost up to 5% of the product price, which is irrelevant when compared to the dilution that would derive from aggressive discounting and clearing of inventory”.
PANDORA is sold in more than 90 countries through approximately 9,500 points of sale, including more than 1,600 concept stores. They became one of the largest distribution presences worldwide for a jewelry brand. This was possible given their expanding structure of low capital intensity through wholesale. PANDORA operates through retail, franchisee model and also owned and operated branded stores. For the past few years, PANDORA focused in gradually improving the branded sales versus unbranded wholesale point of sales. They also worked in re-balancing their unbranded stores to a more healthy balance and design their concept store.
In 2012, PANDORA developed an in-house data system that enable them to monitor sales-out to end-customers on a daily basis at the SKU level. The system is working for PANDORA Concept stores and expanding to other stores. Because the company is vertically integrated, PANDORA can quickly use this system to be more consumer oriented and to be more efficient: product portfolio, inventory management, production and distribution can be adjusted to match consumer demand. This full integration is the key element of success of PANDORA. Accordingly to PANDORA annual report, they “continually gather and analyze data from different parts of the value chain to ensure our organization remains efficient”.
The development of new products and new categories is also important to sustain sales momentum (top-line growth). PANDORA established a target of seven annual product launches to the stores. This allow stores to have new products assortments to cover events and drive traffic even in low peak periods. New products and categories helps the company to diversify the purchasing portfolio and attract more customers even when their sales became saturated.
 27 July 2015, Initiation of Coverage from Deutsche Bank Market Research in 2015
 6 December 2015, http://www.pandora.net/
 2014, PANDORA Annual Report 2014, http://investor.en.pandora.net/
Student comments on PANDORA WINNING MODEL
Thanks for the interesting posting, Pandora is one of my favorite jewelry brand! It is interesting to know that the manufacturing facilities are outside of Europe and more than 70% of employees are located in Thailand. Because of its origin and brand image, I always thought it was made in Sweden or somewhere in Europe. Although I understand that they are putting efforts on standarization and modern production techniques, I still think one of Pandora’s competitive edge is the innovative, creative quality of the product. How does Pandora put effort to maintain this quailty? (e.i. manage the quality of craftmanship?)
I searched a lot about how they keep their quality, but couldn’t find any substantial information about it. I’m guessing they are keeping it a secret. I found a interesting video on youtube about their manufacturing process. All hand finished jewellery.. (https://www.youtube.com/watch?v=onFPhphf_yY&list=PLze-PWxh3GmmItV4uIvgANfSfpl9TBB7Q)
Very interesting post Fernanda,
So interesting that I have few follow-up questions for you:
1) I really appreciated the point about the crucial importance of picking the right location for production (tradition, expertise, low cost…) and very much appreciate the idea of re-melting unsold inventories – however could you please, maybe provide some more insight on the consequences of the ongoing country’s development (probably leading to increased wages ) and the potential threat it might represent for the medium term sustainability of their business model. (Difficult to relocate ? Higher production costs? …)
2) Do you by any chance have some insights on their procurement and/ or logistics system? Indeed it feels like they rely on a single metal, which is an important part of the value of the good, however having production located in Thailand, though Thailand isn’t a major producer of Silver, and having end-consumer spread around the globe must represent quite a challenge in terms of costs containment. In addition they must be highly sensitive to any variation in raw material supply/ price – do you know if this is hedged and / or could represent a competitive advantage / threat?
3) Finally I have the feeling the model heavily relies on one main product: i.e lucky charms silver bracelet, if so what are the real growth opportunities for the group ? (assuming, maybe falsely, that new products ranges are more incremental) – Do you see any major development areas they could envisage (e.g new metal…non-jewelry types of silver products…) or is the overall model capped from your perspective?
Many thanks again, very interesting
1) Yes, this is a risk. But in 2014 their gross margin was of 70%. And from their annual report my estimation is that only 3% of their COGS is due to labor cost. So the commodities are more relevant to this analysis than labor.
2) I guess Thailand is a good choice because of labor skills than actual silver production. For silver though, Pandora can probably buy from “relative” close countries – Australia, China, India.. (I didn’t find the exact location from where they buy their silver). They also have benefited from a low silver price (past 10 years). But of course, Pandora is highly affected by this raw material’s price fluctuation and this will affect their margins.
3) I believe than definitely need to diversify their portfolio. I mentioned a few examples on Yasmin’s posts. Regarding their expansion opportunities with current categories, charms sales grew 26% in the past 5 years. According to Deutsche Bank, a few markets are becoming saturated (like USA) but they still have space to grow like Europe and Asia.
Thanks for the interesting post and detailed discussion on the benefits of a vertically integrated model. I’d be interested to hear what their competitors are doing and why no one else has moved into or been as successful in the “affordable luxury” jewelry segment. Perhaps it’s their continual design process and the unique charms that build on each other and more or less forces customers to keep buying PANDORA for their jewelry?
Thanks so much — great post and enjoyed reading about this! I was thinking about how the “Charm” bracelets provide an avenue for recurring purchases from customers at Tiffany’s. Do you have a view on whether this is the case at Pandora as well? It’s a great product to receive as a gift or buy for one’s self, but also very enjoyable to plan to purchase further charms.
That being said, I wonder if the brand will be challenged since “Charmed” bracelets may have lost their popularity in the past years and the Pandora brand is so tightly affiliated with this particular look.
One of the opportunities for the increase growth of Pandora is actually diversify their portfolio (so they will became less dependent of the charms). And they started investing already: other bracelet styles, earrings and necklaces. Also bringing new materials such as gold and their “pandora rose”. The charm market is a risk because can go out of fashion and also don’t offer good price elasticity.
To compete to Tiffany’s directly, I believe Pandora will need to invest in diamonds (I believe Pandora launched 2 rings with tiny diamonds on it, and no more). Deutsche Bank’s initial coverage suggests that Pandora’s key competitor today is Signet (Kay Jewelers and others), because they are a more “midrange jewelry market” and they highlight the fact that they prefer “diamond vs. charms”. They also mention Tiffany as an interesting peer, but more for a benchmark approach since they have different positioning and target costumer.