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CURRENCY PROBLEMS UNSETTLE INDUSTRY

A new round of world currency fluctuations has put the jewelry industry in a spot.

First, the rising Japanese yen sent pearl prices up 30% or more. Then, the free-fall of Russia’s ruble caused some frantic gold, platinum and diamond sales. Now the devaluation of Mexico’s peso has raised havoc, causing many of that country’s jewelry retailers to close shop temporarily, dampening business for U.S. manufacturers who serve them. It has even started to cut into business for some U.S. jewelry stores with Mexican customers who cross the border to shop.

Mexico’s currency took a nosedive just before Christmas when newly elected President Ernesto Zedillo announced the peso would be devalued against the U.S. dollar. The peso lost nearly half of its value against the dollar; the exchange went from 3.4 pesos = $1 to about 6 pesos = $1 almost overnight. Soon after, the Mexican stock and bond markets began a rapid decline.

The sudden devaluation doubled the price of gold for Mexican consumers who couldn’t pay with U.S. dollars, says Danny Rubinstein, president of Prisma Inc., Los Angeles, Cal., a gold jewelry manufacturer with a large clientele in Mexico. That virtually stopped all cash flow between the two countries.

“Mexican retailers buy from me in dollars and their customers buy from them in pesos,” says Rubinstein. “Since the devaluation, people have to pay double for the same thing, so they don’t buy at all. In turn, the retailers don’t pay me or they send things back.”

Even customers willing to pay twice as much for the same piece of jewelry aren’t especially welcome. The reason: many Mexican retailers believe the peso will fall even more and are loathe to accept a currency that could drop in value before they can pass it on.

In fact, some manufacturers have gone looking for business north of the border. Teresa Saldivar, owner of Teresa’s Jewelers in Santa Ana, Cal., says two gold jewelry manufacturers from Guadalajara, Mexico, brought goods to her because their domestic retailers had stopped buying. “They were offering gold at a dollar per gram less than the least expensive supplier in Los Angeles, so it was an advantage to us,” she says.

The export market can see big companies through the crisis, says Guadalupe Bustamante, marketing manager of Technica Italiana of Mexico City, one of Mexico’s largest manufacturers. But smaller ones have problems.

“The effect is devastating to small manufacturers, many of whom will likely close because they depend only on the domestic market,” says Bustamante. “Larger producers can look to export markets such as the U.S., Canada and Europe. Also, we are eligible for bank credits that may not be available to smaller producers.”

Most who do business in Mexico believe the situation will ease because the peso eventually will float at a certain level and because President Clinton authorized a loan and loan guarantee package to stabilize Mexico’s economy.

“Eventually everything will straighten out,” says Rubinstein. “People will adjust to things and learn how to do business just as they have done before.”

But solving Mexico’s problem could cause another one for the jewelry industry. The announcement that the U.S. and Canada would support the peso sent both countries’ currencies into decline against the yen and other Asian currencies. If this persists, pearl prices could rise an estimated 5%.

GOLD JEWELRY SALES CONTINUE TO RISE

Gold jewelry sales increased for the 12th consecutive quarter in the third quarter of 1994, says the World Gold Council. They rose 3.2% in dollar volume to $5.7 billion and 5.4% in unit volume to 62 million.

While gold jewelry sales were below total non-auto retail sales growth (which rose 6.2%), council executives are still pleased about the outlook for gold jewelry. “Gold jewelry sales continued to increase throughout 1994, and this trend is extremely positive for jewelry retailers during the upcoming season,” says Michael C. Barlerin, WGC chief executive.

Third-quarter sales were up in all types of retail stores. Discount stores outpaced other retail outlets with a 14.9% dollar increase compared with the same period of 1993. They were followed by chain jewelry stores, +3.2%; independent jewelers, +3%; department stores, +2.6%; and catalog showrooms, +2.2%.

Sales of gold neckchains, the largest classification of gold jewelry, increased 3.4% in dollar volume. But earrings and charms continued to lead the sales growth with increases of 5.9% and 6.4%, respectively. Bracelets, the third largest category, posted a 5.2% increase, gold rings (excluding wedding rings) were up 5.5% and gold wedding rings rose 1.1%.

The statistics are based on sales reports from more than 4,000 retailers in all major classes of trade selling gold jewelry. The reports measure sales of jewelry in which gold content provides the primary value.

IMPORTS, EXPORTS INCREASE

The U.S. imported and exported considerably more finished jewelry and precious-metal giftware and tableware in the first half of 1994 than in the same period of 1993, according to the U.S. Department of Commerce.

The import value of these items totaled $1.9 billion, up 12%, while exports totaled $444.2 million, up 9%. (The tabulations exclude timepieces, loose stones and jewelry findings and mountings.)

Italy, as usual, was the biggest source at $582.5 million. Precious-metal jewelry accounted for nearly 99% of these imports; the rest were stone-set and costume jewelry and precious-metal giftware and tableware.

Thailand was next at $162.5 million. These imports included precious-metal jewelry (89%), costume jewelry (7%) and stone-set jewelry.

(Argentina, not considered a major jewelry source, earned a third-place ranking largely through its export of precious-metal giftware and tableware.)

Meanwhile, Switzerland claimed the biggest share of U.S. exports at $72.6 million. The items were fairly evenly divided between precious-metal jewelry and stone-set jewelry.

Japan was the second biggest export destination at $57.6 million. About 20% comprised costume jewelry; the rest was fine jewelry, giftware and tableware.

U.S.TRADE PARTNERS FOR FINE JEWELRY, GIFTWARE AND TABLEWARE
(value in millions of dollars, first-half 1994)

TOP DESTINATIONS FOR U.S. EXPORTS TOP SOURCES OF U.S. IMPORTS
Switzerland $72.6 Italy $582.5
Japan $57.6 Thailand $162.5
Canada $45.6 Argentina $150.9
Hong Kong $37.5 Hong Kong $139.5
Mexico $22.9 Israel $102.8
Germany $18.6 South Korea $93.8
Thailand $17.9 India $93.7
U. Kingdom $16.7 China $65.2
France $15.2 Dom. Republic $50.7
Israel $11.9 Peru $48.8
Other $127.7 Other $508.6
Total $444.2 Total $1,999.0
* Tabulations exclude timepieces, loose stones and jewelry findings and mountings. Source: U.S. Department of Commerce.