Surveying the Survey: Business in 2007

A couple of interesting things popped out at me from the Jewelers of America "Cost of Doing Business" study:

- First off, jewelry sales were flat in 2007. No surprise, given last year’s mediocre Christmas. This year, barring a miracle or a big surge in confidence after the election, sales will probably go down. But what’s interesting is that the high-end independent sector (which increased 3.5%) now seems healthier than the chain sector (which increased 2.5%). If I were in business today, I’d rather be servicing "Mom and Pops" than chains. This is quite turnaround from just a few years ago.

“Mid-range” retailers went down 1.7%; that’s clearly the weakest segment of the market.

- The accompanying analysis compares this current survey to JA’s surveys ten years ago. Analyst Ken Gassman notes: "Ten years ago, jewelers’ gross margins were lower; their stores were large, inefficient and located downtown; and, sales per store were a fraction of current levels.”

Since there are fewer stores today than there were then, this shows we are seeing a Darwinian process in action: While the overall number of players has shrunk, the ones that are around are the stronger players and, as Gassman notes, getting a bigger piece of the pie. There have also been technological improvements in the last ten years that have enabled smart independents to better manage their business.  

- Then there’s this:

In 1997, U.S. specialty jewelers reported that loose diamonds and diamond jewelry generated about 42% of their sales; today, the diamond category generates 52% of their sales. The gross margin on diamonds has risen: the gross margin on loose diamonds was 40.0% in 1997; today, it is 40.6%. The margin on diamond jewelry in 1997 was 47.9%; today it is 50.3%.

Given that, in 1997, Blue Nile wasn’t even around, I am surprised that loose diamond margins have not gone down. Any thoughts?