Business Forecast: To The Optimists Will Go The Spoils

Jewelers are in a positive mood going into the second half of the year. They’re looking for solid gains in sales and profits and they plan to advertise and promote actively to reach their goals. Many will stress the sale of better-quality diamond jewelry – and their expertise in this merchandise – and many also will put new emphasis on staff training.

Overall, more than 40% of the independent stores and jewelry chains polled for this report say that business prospects for the rest of 1995 are either “excellent” or “very good.” A critical factor in realizing sales and profit goals will be the business owner’s attitude, say many jewelers.

Computers will play a newly-important role in quite a few stores. They’ll be used to get and keep a better handle on inventory, to sharpen up mailing lists and to help in various cost-cutting programs.

Independent stores polled for the report, all members of JCK’s Retail Panel, see second-half sales going up a median 5% from last year, though one in six expects to top 1994 results by more than 20%. A score of jewelry chains, which together have close to 2,000 stores, forecast a 6% sales gain for the second half. Like the independents, most of them are planning aggressive promotional activities. In addition, a number of sizeable chains will focus on extracting the highest possible sales from their best-performing units.

To improve profits, many independents will stress cost cutting. Quite a few will turn more purposefully to custom-design work and others will work hard to increase markups across the board – or, as some realists put it, at least try to discount less. This may be difficult. As a group, six panelists in ten say their customers are more price conscious now than they were a year ago.

The chains are more optimistic on profits, with those answering the poll projecting a median 10% gain over the 1994 second half. Like the independents, they’ll mix a program of cost cutting and margin improvement to reach their goal. They’re also committed to the formula that more advertising will bring more traffic which, in turn, can be translated into more sales and higher profits.

Confusing signals: As the industry enters the prime summer show shopping season, there are some very contradictory buying messages coming from retailers. For example, one third of the panel members say their cultured pearl jewelry inventories are low – but less than one in ten plans to buy heavily to replenish stock. In karat gold jewelry, by contrast, 27% of the panel members say their inventory is too high – yet 36% plan to buy heavily. In the biggest contradiction of all, 65% of panelists say platinum inventories are low, yet only 8% plan to buy heavily.

The unavoidable feeling has to be that, in too many cases, the jeweler’s open to buy doesn’t affect very directly his intent to buy. For supplier firms what’s really important now is the intent-to-buy – and both independents and chains send fairly clear messages on what they have in mind.

For the independents the priority buying list includes, in order of number of votes for “buy heavily,” karat gold jewelry, loose diamonds, diamond jewelry, “bread-and-butter” jewelry and, some distance behind, colored stone jewelry. “Bread-and-butter” jewelry is the clear favorite for the chains, followed by diamond jewelry, loose diamonds, karat gold jewelry, colored stone jewelry and, some distance behind, watches.

Platinum jewelry still is being treated with caution, in spite of widespread evidence that it is winning new converts among both manufacturers and retailers. Eve Alfille, who runs a retail business under her own name in Evanston, Ill., may sum up what many feel when she says that she will increase purchases of the metal only lightly this year because she’s “still testing.” Thus 52% of independents and 59% of the responding chains say they will buy platinum jewelry “lightly” this year.

A diamond year: The chains clearly are pinning much of their success in the second half on business at the diamond counter. They plan to buy both mounted and loose goods strongly. Independents may not forecast quite such bullish buying but they, too, are putting a lot of faith in diamonds. Consider these four comments, all in response to the question, “What is the single most important action you will take this year to increase sales?”

  • “Concentrate more on certified diamonds – to counter the junk selling at the malls, department stores and catalog showrooms.” John K. Godfrey III, John K. Godfrey Co., Battle Creek, Mich.

  • “Promote diamond engagement rings. I choose this category because it guarantees a customer for life; 95% of my diamond engagement ring customers have remained customers for birthdays, Christmas, anniversaries, etc.” Susan Johnson, Either Ore Jewelers, Virginia Beach, Va.

  • “Plan loose diamond promotions to set off my store and its products from the chain stores and discounters in our area.” Ken Flaks, Yakima Diamond Center, Yakima, Wash.

  • “We are going after the sales of diamonds of 1/2 ct. and larger. We are the only people in the market who carry better qualities and have the ability to sell them.” C. Clayton Bromberg, Underwood Jewelers, Jacksonville, Fla.

Sellers of karat gold jewelry should get good orders at the summer shows. The jewelry chains, always strong in this merchandise, will be big consumers; almost six in ten say they will buy “heavily.” More than a third of the independents also say they will make strong buying commitments.

The chains also will be the leaders in watch purchases; more than 20% will make heavy commitments. Once again, the independents say they’ll be less active but most still indicate they will have watches on their summer shopping lists.

Sales builders: In addition to putting a greater stress on diamond business, jewelers will use a variety of ways to increase store volume. There’ll be a lot of inventory fine-tuning, along with more targeted marketing. A number of jewelers are redecorating or remodeling to attract new customers. Almost across the board, there’ll be a willingness to advertise improvements widely.

Peter Indorf, who operates a fine jewelry store under his own name in New Haven, Conn., is forecasting a 30% increase in second-half sales over last year. The single biggest reason? “We moved our location. The consultants at GIA ARMS told us we needed to move.” He expects profits to be up 10% – “because we’ll buy smarter.”

Jennie Lee Ellis of Ellis Jewelry in Gunnison, Colo., is another jeweler who believes physical improvements will help sales. She’s just redone her store front exterior, a step she hopes will improve the store’s image and add more traffic. Her sales forecast: up 10%. She’s also projecting a 10% increase in profits “by restructuring pricing policies to try and increase volume of lower-margin items.”

A Southern California jeweler is taking a different tack; he will introduce a new compensation plan as a route to better profit – for this year a forecasted 10% increase. “I’ve been steadily going downhill as far as profitability is concerned,” this jeweler reports. “My sales volume is close to what it’s been in the past, but I’m showing a loss because my payroll is killing me.” Together with the new compensation plan, there’ll also be some inventory changes with the addition of new high-design lines.

Other jewelers making inventory changes primarily seem to be looking for lines that provide higher margins, with estate jewelry and custom-made merchandise their favorites.

The people issue: One of the more ambitious business projections comes from Arthur Sockolof of Simms Jewelers in Bedminster, N.J. His principal action to boost second-half sales by 20% is the inception of a year-long sales training and “attitude enhancement” program. It’s being done in conjunction with what he describes as a structured marketing program with an ad agency. Even more ambitious is Sockolof’s projected 100% increase in profits. This will be achieved primarily because the firm has put in place “a line-by-line P&L based on an analysis, invoice by invoice, of last year’s expenses.” He’s projecting the current year based on this plan “with a vow to God Almighty to live by it.”

Concern about having a well-qualified sales staff is a recurring theme. Dale Briman of Briman’s Leading Jewelers in Topeka, Kans., is committed to more sales training. “We’re being killed by unprincipled chain competitors with ‘Regularly $6,000, now $2,995,'” he snaps. Terry Chandler of Michelson Jewelers in Paducah, Ky., also is stressing the training and motivating of his staff. “None of our ‘smart’ operations and merchandising plays are effective without qualified, trained and motivated associates,” he says.

Another Kentuckian, William E. Brundage Jr. of Brundage Jewelers in Louisville, says simply, “We’re going to be more aggressive in asking for the sale. Why? Because it won’t cost us anything to enact.”

Having a well-trained, responsive staff tied with “your own outlook on life” as the #1 factor – out of 10 – which panel jewelers identify as most likely to have an impact on their business during the rest of the year. The other main factors, shown in the accompanying chart, are consumer confidence, advertising and exciting new products.

While the two factors tied for #1 in the list both scored a median 9 on a 1 to 10 scale (where 1 was unimportant and 10 was very important), the issue of the jeweler’s own attitude actually scored a few more 10’s than did the well-trained staff. In short, an awful lot of jewelers believe that the business goes as the boss’s attitude and mood go. With that in mind, consider these comments from Patricia Berning of Berning’s Fine Jewelers in Tempe, Ariz. She had just returned to her store from the early April American Gem Society conclave where, among other things, she heard Mark Moeller of R. F. Moeller Jeweler headquartered in St. Paul, Minn., give a stirring address on “How to separate baby boomers from their money.”

“I want that business out there,” she declares. “I’m going to upgrade my image as part of 1995-1996. Not be my old past. I’m going to change my inventory, have a blow-out or break down old pieces. Maintain markup, do more custom, charge more for repairs, have customers actually pay the cost of doing business.

“The conclave was great, promising us the future. I’m willing to work for it. I need to make a living, folks!”

PROFIT FORECAST: Looking Healthy

% increase or decrease % of panelists making forecast
20% and over 13%
10%-19% 27
0%-9% 22
No change from 1994 33
Decrease 5

Median gain: 5%

% forecasting increase: 62%

% forecasting decrease: 7%

% forecasting no change: 31%

Jewelry chains’ median sales gain forecast: 10%

Source: JCK Retail Jewelers Panel poll

SALES FORECAST: From modest to bullish

Median gain: 5%

% forecasting increase: 71%

% forecasting decrease: 6%

% forecasting no change: 23%

Jewelry chains’ median sales gain forecast: 6%

Source: JCK Retail Jewelers Panel poll

OVERALL BUSINESS PROSPECTS: High readings for “excellent” and “very good” combined for the rest of 1995

Source: JCK Retail Jewelers Panel poll
% increase or decrease % of panelists making forecast
20% and over 16%
10%-19% 29
0%-9% 27
No change from 1994 24
Decrease 4
Rating % of Panelists giving this rating % of chains giving this rating
Excellent 7% 11%
Very good 36 37
Good 32 36
Fair 21 16
Poor 4 0

THE IMPORTANCE OF ATTITUDE
How Panelists rate the impact of various factors on their business for the rest of 1995(Rated from 1 [“very little”] to 10 [“great”])

Source: JCK Retail Jewelers Panel poll
Factor Panel rating % of panel rating this factor
Your own outlook on life 9 44%
Well-trained, responsive staff 9 43
Consumer confidence 8 32
Your advertising 7 19
Exciting new products 6 8
Lower interest rates 5 12
Price-off competition 5 11
Higher interest rates 5 9
National political developments 5 3
The weather 4 6

AT THE TOP OF THE SHOPPING LIST: KARAT GOLD
Panelists’ rating of their buying plans for the rest of the year
% of Panelists giving the following rating:

Source: JCK Retail Jewelers Panel poll
Product category Buy heavily Buy lightly Buy none
Diamond jewelry 23% 66% 11%
Loose diamonds 25 60 15
Colored stone jewelry 12 72 16
Cultured pearl jewelry 8 63 29
Karat gold jewelry 36 57 7
Platinum jewelry 8 52 40
Watches 9 67 24
High-fashion/high-design jewelry 5 61 34
“Bread-and-butter” jewelry 23 64 13

CHAINS FAVOR ‘BREAD-AND-BUTTER’ JEWELRY
Jewelry chains’ rating of their buying plans for the rest of the year
% of chains giving the following rating:

Source: JCK Retail Jewelers Panel poll
Product category Buy heavily Buy lightly Buy none
Diamond jewelry 71% 29% 0%
Loose diamonds 59 35 6
Colored stone jewelry 47 41 12
Cultured pearl jewelry 12 76 12
Karat gold jewelry 59 41 0
Platinum jewelry 6 59 35
Watches 23 71 6
High-fashion/high-design jewelry 6 81 13
“Bread-and-butter” jewelry 82 18 0