Small Is Profitable? A former Tiffany's store manager takes her Fifth Avenue experience to Main Street as the company tests stores designed to appeal to more casual shoppers. Can it work?

As famous stores go, Tiffany and Co.'s flagship store on Fifth Avenue has few peers. It's a retail legend, the place where Audrey Hepburn's Holly Golightly famously visited to calm herself down whenever she was feeling anxious.

But Tiffany executive vice president Beth Canavan, who managed the store for two years, understands that it can also be a little daunting. There are the doormen, the hushed atmosphere, the scores of glittering diamonds locked in glass cubes and guarded by salespeople. "Our Fifth Avenue store is fabulous, but it's intimidating," says Canavan. And that's been the collective vibe of all Tiffany stores-until now.

On Friday, Tiffany will open its first "small-format" store, with about half the square footage of its typical stores, in a retail-residential complex in Glendale, California. It's the first of up to 70 such stores the jeweler hopes to eventually roll out in a bid to make its merchandise more accessible and widen its appeal to women shopping for themselves. Instead of marble and chandeliers, the stores will feature plasma TV's and groves of dangling lights. Jewelry will be merchandised out in the open, so that shoppers can touch and try on pieces without assistance. Canavan will bring her Fifth Avenue experience to Main Street-or, some slightly higher-end version of Main Street.

For the company, it's a dramatic departure from its century-old sales strategy, the pillars of which have been large stores that echo the flagship's majestic feel. And the timing may seem odd, too, as the weakening economy and cratering financial markets send aftershocks through all sectors of industry. Same-store sales growth at Tiffany has been flat or even declining so far this year, while the company's main bright spot-European sales-are likely to dim as well as the impact of the credit crisis expands.

But last year, Tiffany began shaping a bit of a new profile: In addition to the small-format stores, Tiffany also announced a 20-year manufacturing and distribution deal with Swatch, and has already opened a Patek Philippe salon inside the company's Fifth Avenue store.

The company's plans, first announced in October 2007, call for eventually opening up to 70 of the new stores, but Tiffany did not say what its time frame would be for rolling out the rest, and it's likely they'll be waiting to see how initial stores perform before deciding to expand, especially considering their launch date has happened to come at a time when retail spending has fallen for the third month in a row. The stores will mostly be based in small-city markets like Glendale (pop. 197,000) and will be stationed relatively close to flagship stores in case people prefer to shop at one of those.

Some analysts suggest the move to these more casual, smaller stores could diminish Tiffany's well-known brand that allows it to charge such a healthy premium for its merchandise. "Brand dilution is evident everywhere in the new Tiffany strategy," read a February report from Gerson Lehrman Group. Canavan doesn't see it that way. "We're strengthening our offerings, not diluting them," she says.

It's not an easy position to be in, but as she opens Tiffany's first foray into this new market today, experts are agreeing with her-cautiously. "This is a way to get Tiffany to many parts of the country that just couldn't handle a flagship store," says Standard and Poor's analyst Marie Driscoll. "Good retail space is becoming available, so there will be nice locations for them." Some of the space opening up is being vacated by hometown, family-owned jewelers, which have had an especially tough year. Kenneth Gassman, head of the Jewelry Industry Research Institute, says that whereas 500 such establishments might close in an average year, the number in 2008 will likely be closer to 1,000.

Gassman says Tiffany's strategy may not tarnish the company's brand-as long as the company doesn't start dropping prices and trying to go mass-market.

"If they start bringing price points down, if they start carrying what we would call commodity goods, they will destroy the image they have created over the last hundred years," says Gassman, who estimates that the new stores should be able to do better than the approximate $2.5 million in annual sales of the typical high-end jeweler and the $1.5 million in annual sales of the average mass-market jeweler. "Having said all of that, the aggregate sales from these stores will not be meaningful for the first few years." Indeed, Tiffany's 2007 net sales were $2.9 billion.

Over the last two years, Canavan and her team have been creating and tweaking the design of the new stores in a New Jersey warehouse. She says the primary advantage of the more casual setup is that women will be exposed to more products than they would in the traditional store formats. "There, we merchandise our product by metal type," she says. "So a woman might come in for a pendant, and she might see that it comes in silver, buy it, and leave. She might never travel through the store to find out that it comes in yellow gold or could be adorned in diamonds." In the new stores, products will be grouped by style, and "sales stylists" will be on hand to make sure a customer sees all the available options.

One option that won't be available is the Tiffany diamond engagement ring. The absence of the brand's longtime hallmark is the most notable difference between the traditional and small-store formats. This was one of the tenets of the shopping experience Canavan dreamt up for "a fashion-forward woman-a woman of many ages-shopping for herself." In other words, a woman browsing for herself isn't in the market for a proposal-worthy rock-so why have them around?

"The truth is, we all love diamonds, so I don't think engagement rings get in the way," Canavan says. "But in this new environment, there's no distraction. They will be uninhibited. This store is there for women. There's many men in our stores and we love that, but it's going to be a place first and foremost that a woman loves to shop."

It's all very fashionista-empowering, but what about the woman who wanders in to browse engagement rings-or the man who's prepared to buy one? How does Canavan want the new concept explained to them? She pauses. "I'd want to tell them, this is a new store for Tiffany, and it's focused on our more contemporary collections. If someone says, 'I'm here to look at engagement rings-I can't believe you don't have any,' we'll say, 'No, we don't, but our Pasadena store is very close, may we have someone take you there?' We'll make sure that we have a car service at our access."

"What we won't do," Canavan says, "is apologize for not having them there."