A diamond’s trip down the pipeline can be a long one, with many stops along the way - at the rough dealer, the polisher, the jewelry maker and wholesaler - until it arrives in a store. And while all of theses stages are essential, the final eighteen inches across the retailer’s sales counter to the consumer are the critical stage. If the product fails to move across that final foot-and-a-half, the pipeline grinds to a halt.

 

The following is a recap of news and events in the diamond and jewelry industry which were reported in November, and which IDEX Online Research believes will have an affect on the movement of jewelry across that final eighteen inches from the retailer to the shopper.

 

·        U.S. Jewelry Sales UP – After a year of negative comparisons, specialty jewelers’ sales turned positive in the U.S. market in September. Consumers are alive and spending! Specialty jewelers posted a 0.2 percent sales increase in September. It wasn’t much, but it was positive. The numbers: $1.873 billion this year versus $1.869 billion last year.

Total jewelry sales at all merchants – specialty jewelers and multi-line merchants – rose by 1.1 percent in September. October figures for total jewelry sales just arrived, and they are even more encouraging: +3.3 percent. Best of all, the Department of Commerce pegs the new 2009 annual run rate for U.S. jewelry sales at $60.2 billion; that’s 0.3 percent above last year’s $60 billion sales. October figures for specialty jewelers will be available in about two weeks. While these are all preliminary figures, any adjustment will be modest. The trend is positive.

 

Source: Dept of Commerce

 

IDEX Online Holiday Sales Forecast Unchanged – Based on these figures, IDEX Online Research is reconfirming its U.S. jewelry holiday (November-December) sales forecast for specialty jewelers of +2.8 percent. However, if current trends continue, our forecast could prove to be too low. Our forecast for total jewelry sales remains in the mid-single digit positive range.

 

·        Diamond Jewelry Sales Weak – It should come as no surprise that diamond jewelry sales are weak, for two reasons: 1) they carry an average ticket roughly double the value of other jewelry; and 2) there is no coordinated industry marketing strategy. De Beers has abdicated its position – rightfully – as industry “custodian” and the sole promoter of diamond jewelry. An industry consortium was formed to create a joint marketing effort. So far, all they did was talk. De Beers has developed its Everlon promotion; it’s interesting, but not compelling. And, it is better than nothing, which is what all of the other diamond producers have done – nothing!

 

·        Jewelry Sales Trends: Average Ticket Down / Fashion & Bridal Demand Solid – Specialty jewelry retailers continue to report three key trends: 1) a smaller average ticket as consumers allocate less of their budget to jewelry; 2) a desire for fashion, whether it is custom, estate, colored gemstones, or whatever – anything that’s different; and, 3) continuing solid demand for bridal jewelry, which can represent as much as 40 percent of total sales for mass market jewelers such as Zale and Sterling.

 

·        Specialty Jewelers Report Generally Favorable Results – We shouldn’t be surprised at the jewelry sales trends for the industry.

 

o       Tiffany & Co. reported that its third quarter U.S. sales were down only 9 percent, far less than the year-to-date decline of 23 percent. Further, Tiffany management raised its U.S. sales forecast for the fourth quarter to a decline in the low-teen range; previously, it was forecasting a mid-teen sales decline.

 

o       Sterling Jewelers reported that its U.S. sales were down only 1.7 percent in the third quarter; that’s an improvement on the decline of 2.2 percent for the year-to-date. Sterling management noted that Jared is showing some early signs of a slowing sales decline.

 

o       Blue Nile reported that its third quarter U.S. sales declined by only 1.0 percent (global sales rose by 2.4 percent). This was the smallest sales dip since the December 2008 quarter when sales dropped by nearly 25 percent. Since then, Blue Nile’s sales decline has been decelerating: March quarter U.S. sales were down 12 percent, while June quarter U.S. sales were down 4.3 percent. The trend is improving.

 

o       Zale Corporation reported that its sales for the October quarter were down only 9.6 percent, far less than the previous three quarters. Pretax losses were smaller this year versus the same period a year ago. Zale appears to be delivering on its promises to contain costs and boost margins.

 

o       Birks & Mayors – Like most higher end jewelers, Birks & Mayors’ sales remain under pressure. Its U.S. same-store sales declined by 26 percent for the six-month period ended September 2009. This was worse than the quarter ended March, when the company reported a decline of 19 percent, but it was better than the December 2008 quarter, when sales fell by 28 percent.

 

o       Movado and Harry Winston – Both of these companies will report financial results in early December. Our forecast calls for very weak sales at Harry Winston retail stores; Movado’s retail operation will also likely report negative sales comparisons, though the decline should be less than in prior recent quarters.

 

o       Key Trend: High-End Demand Remains Relatively Weak – In a recession, consumers shop “down” market. That’s why sales at Birks & Mayors and Tiffany & Co. are softer than mass market merchants.

 

·        Swiss Watch Demand “Less Weak” – Swiss watch exports fell by only 23 percent in October versus a year ago, but the total value of the watches rose to $1.3 billion from $1.1 billion in the prior month.

 

·        Are Diamond Jewelry Manufacturers Listening To Shoppers? – At the recent Antwerp Diamond Symposium, we asked for a show of hands of those diamantaires who had spent any time on a retailer’s sales floor in 2009. You know the results: very few. Worse, too much jewelry is designed and produced by men. It is the woman who decides what she wants, especially in the U.S. market. We continue to tell retail jewelers: keep the man out of the transaction!

 

·        New ‘Diamond Suggested Retail Price List’ Should Boost Demand – Diamonds and diamond jewelry are one of the few retail categories without benchmark prices. Since diamonds are an infrequently purchased, big-ticket item, consumers really don’t know how much they should pay. The new Diamond SRP will give them the “maximum” price they should pay. It will increase confidence and transparency, and hopefully move some discretionary spending to diamond jewelry from other luxury categories.

 

·        Retail and wholesale jewelry and watch prices are rising – We may have been in a recessionary environment, but jewelry prices are rising. Keep in mind that those higher prices are not demand-driven. They primarily reflect the rising cost of gold and other precious metals.

 

o       Jewelry & Watch Consumer Price Index On The Rise – After slowing earlier this year, the Jewelry CPI rose by 1.3 percent in October. By category, jewelry prices were up 2.0 percent, while watch prices fell by 3.6 percent year-over-year.

 

o       Jewelry & Watch Producer Price Index Posts Record Rise – The Jewelry PPI popped by a whopping 6.3 percent in October, the largest increase of the year, and more than triple the 2.0 percent JPPI for the ten months year-to-date. Precious metal jewelry prices at the producer level rose by 6.2 percent, also a record level this year. Watch producer prices rose by 2.8 percent, somewhat below the year-to-date average of 3.8 percent.

 

o       Polished Diamond Prices Flat – Polished diamond prices through November have held steady every month since early spring. Precious gemstone prices (flat) do not reflect the same appetite investors have for precious metals (rising). While rough diamond prices continue to rise, weak retail demand is keeping a lid on rising polished diamond prices. IDEX Online Research believes the rough diamond price bubble will burst soon, unless retail demand picks up notably. On a year-ago basis, polished diamond prices were down 15 percent in October and down 10 percent in November.

 

o       Consumers To Pay More For Jewelry – As jewelry producer prices rise sharply, consumer prices for jewelry will also follow. Currently, retailers are feeling the squeeze between substantially higher producer prices and a reticent consumer who is unwilling to pay more. But long term, retail jewelry prices have no choice but to rise, perhaps by a significant level.

 

·        More Jewelers Going Out of Business – So far this year through October, 414 retail jewelers in the U.S. have closed their doors, a 29 percent increase over the same period a year ago. When recessions hit, the weakest fall prey. However, this represents just a 2 percent decline in the total number of jewelry retailers from a year ago. The Jewelers Board of Trade says we had about 22,209 jewelry businesses in the U.S. at the end of October. The number of U.S. wholesalers has fallen 18 percent year-over-year, while the number of U.S. manufacturers has slipped by 3 percent. Not a week goes by without an announcement of another wholesaler, retailer or manufacturer who has filed for bankruptcy. The good news: those merchants who survive will divide a growing market among fewer competitors.

 

·        De Beers Predicts Rise in Diamond Demand in 2010 – De Beers is taking its Canadian Snap Lake diamond mine out of mothballs based on its forecast that diamond demand will rise by 10 percent in 2010. India reported its second consecutive month of rising diamond exports.

 

·        First, It Was ‘Blood Diamonds,’ Now It Is ‘Dirty Gold’ – The world is getting greener, and consumers are more socially responsible. So it was no surprise that someone looking to create “news” would try to position gold as “dirty,” based on irresponsible mining. However, several retailers have pledged support for gold’s Golden Rules which protect human rights, workers’ rights and the environment related to gold mining. The conflict diamond issue had no measurable impact on diamond demand; we don’t think “dirty gold” will have a notable impact on gold demand for jewelry.

 

·        Antwerp Diamond Symposium: Mostly Good News – Speaker after speaker at the Antwerp Diamond Symposium declared, “The worst is over.” That was good news to those several hundred diamantaires who attended the symposium in early November. Further, Russian rough diamond producer Alrosa said it would not disrupt or destabilize the rough diamond market by dumping goods.

 

·        More Moissanite Coming – Two retail veterans have joined Charles & Colvard, the producer of moissanite jewelry. New CEO Randy McCullough has extensive retail experience in stressed companies. Marvin Beasley, formerly CEO of Helzberg Diamonds, has joined the board of directors. Beasley is no shrinking violet, and his guidance will help the company recover. We predict that moissanite jewelry will gain visibility in the industry. The only caveat: can Charles & Colvard last long enough for McCullough and Beasley to work their magic?

 

·        IDEX Online Research – In case you missed IDEX Online Research during the month, here are some of the articles that were published.

 

o       Diamonds Are A Jeweler’s Best Friend – That’s the conclusion of virtually every industry survey: diamonds and diamond jewelry are the largest selling category in a specialty jeweler’s store. Further, the second largest category – which varies, depending on the survey – doesn’t even come close to sales volume generated by diamonds and diamond jewelry.

 

o       Jewelers Advertising Spend Pegged at 4-5 percent of Sales – The typical specialty independent jeweler spends about 4-5 percent of revenues on advertising. However, chain jewelers such as Zale and Sterling spend 5-7 percent of revenues on advertising. If jewelers don’t spend enough on advertising, they are lost in the cacophony of others’ ads.

 

o       Zale’s Woes: A Few Real, Many Imagined – With a “beat them while they are down” attitude, too many people are suggesting the worse for Zale. IDEX Online Research concludes that the company is not in nearly as much trouble as some people imagine.

 

o       Rough Diamond Market Report: Hot, then Cooler Demand - The DTC raised prices and premiums rose with them. However, after the Sight ended, premiums declined by several percentage points. Rio Tinto Diamonds decided to cut its client list by 20 percent.

 

o       Executive Compensation: No Fat Wallets – A study by IDEX Online Research reveals that executives at publicly held jewelry companies are not particularly well-paid, when compared to their counterparts in other retail sectors. Further, bonuses were few this past year.

More Research – Go to the IDEX Online website, click on news, and click on “research” for more diamond and jewelry industry research published exclusively by IDEX Online.