JCK Forecast

1995 LOOKS GOOD TO JEWELERS

After years of economic uncertainty – and buoyed by a hoped-for GOP sweep in the November elections – jewelers once again are unabashedly upbeat. Eight in 10 predict both higher sales and higher profits this year than last. Most of the hundreds of JCK retail jeweler panelists polled in mid-autumn also expect consumer confidence in their markets to keep growing.

When it comes to buying, more expensive quality goods with sizable margins rather than less-expensive traffic-pullers top inventory shopping lists for 1995. And panelists will do their heaviest buying in karat gold jewelry, which edges out diamonds, diamond jewelry and colored stone jewelry.

Hometown concerns: What a difference 12 months can make! A year ago, many panelists worried that President Clinton’s proposals, especially those for health care, might hurt the economy and their own businesses. This year, with the economy definitely improving and health care and other plans on hold at least for now, only one jeweler in 12 (8%) specifically cites politics or political issues as the major factors affecting their business.

True, there’s still concern about Uncle Sam’s fingers in their pockets. Many say taxes, Federal Reserve policies and interest rates, and inflation could impact on their business this year.

Certainly the GOP sweep in November should have pleased these jewelers, who were surveyed just before the elections. A number of panelists believe a Republican victory is the best way to help their businesses. Typical is this perhaps over-optimistic comment from one Fort Myers, Fla., jeweler: “If the Democrats lose control of Congress, we’ll all start making money soon!”

Still, whatever their politics, most independent jewelers think more about their hometown markets than about national issues. Almost a fifth (18%) worries about the effect of local economics on their business. Their concerns include the job market, opening or closing of local factories and, in farm regions, weather and crop prices.

One fourth of panelists, however, says that government, politics, the national economy or some other outside force won’t be the most important factor affecting their business this year. Instead, it’s what they themselves do to improve it. Customer service, well-trained staffs, store location, the “right merchandise” – in-depth and at the right price – are some of the in-store issues on which these panelists repeatedly say they will focus in ’95.

Upscale quality: One sign of stronger local economies and renewed consumer confidence is that quality, not price, is the single most important issue as jewelers go shopping. Another is that more are seeking items with the potential for higher markup or retailing for $500 to $1,000, rather than focus strictly on price and less-expensive traffic-pullers.

Not surprisingly, panelists plan to concentrate their buying on diamonds and gold. Almost half expect diamonds and diamond jewelry to be their best sellers. But they’ll buy more karat gold goods. While 34% plan to buy “a lot” of gold jewelry for 1995, 22% say that about diamond jewelry and 29% about loose diamonds. When we combine those planning to buy either “some” or “a lot,” the figures become 80% for karat gold jewelry, 72% for diamond jewelry, 68% for loose diamonds and 60% for colored stone jewelry. The healthy buying figure for loose diamonds suggests more custom work, much of it in engagement and wedding rings.

In addition, 45% of panelists expect to buy some or a lot of watches, and 38% say that about designer jewelry. But cultured pearl jewelry and clocks are way down on their shopping lists; 61% expect to buy little or none of the former and 63% little or none of the latter. And while more watch and jewelry vendors are adding pens to their collections, few jewelry panelists expect to buy much.

Eyeing the competition: Though some panelists voice concerns about the impact of TV shopping or discounters, most consider fellow independents their toughest competitors for consumers’ dollars. Three out of five panelists call independent jewelers “strong” or “very strong” competitors; half say that about chain jewelers. (Not surprisingly, a number of jewelers say they consider factors that set them apart from these competitors – such as “exclusivity” or “unusual” or “unique designs,” as well as quality, margin and value – when buying merchandise.)

But on their list of strong or very strong competitors, only 28% include department stores and TV home shopping, while 26% list catalog showrooms. The assumptions about department stores and catalog showrooms may reflect financial problems which have weakened the position of some in the market. The view of home shopping could be a mistake, however. QVC and Home Shopping Network, the two leading TV shoppers, together sell more than $1 billion of jewelry, with two thirds of all TV shoppers buying jewelry.

Jewelers are less complacent about mass merchandisers such as Penney’s, Wal-Mart or Kmart. Together, they sell an enormous amount of jewelry, and jewelers are noticing: Almost half (45%) call these merchants “strong” or “very strong” competitors.

Satisfactory `94: The retail panel’s buoyant view of 1995 follows predictions for a satisfactory 1994. In early November, three fourths expected their year-end sales to top `93’s (by a median 10%); 62% expected higher profits, with more than a quarter (28%) predicting gains of at least 20%. Supporting that optimism were results for 1994’s first nine months (the latest data then available). Sales through September were up a median 9% over 1993 for the full panel; the median increase was 12% for just those reporting gains.

It isn’t all roses, of course. A sizable share of panelists (15% to 25%) forecasts no changes in sales or profits for 1994 or 1995. One in six still expects national economic factors to affect business this year. Only a handful plan to expand or add new stores this year.

But overall, jewelers are downright bullish about the year ahead. Encouraged by stronger local consumer confidence, they are turning their attention once again to strengthening existing businesses and markets and promoting more upscale merchandise.

RISING PROFITS
JCK retail panelists are downright bullish about the year ahead and the one just past.

1995 1994
Sales Profits Sales Profits
% predicting increases 78 % 71 % 71 % 61 %
% predicting decreases 3 5 10 13
% predicting no change 15 19 17 23
No answer 4 5 2 3
Total 100 % 100 % 100 % 100 %
Median change forecast (all) +10 % +5 % +10 % +5 %
Median of those expecting gains +10 % +10 % +10 % +10 %
Median of those expecting loss – 5 % – 8 % -10 % -10 %

Source: JCK Retail Jewelers Panel

WHO’S THE COMPETITION?
Independent jewelers see each other as their greatest competition for consumer jewelry dollars this year.

Very strong Strong Slight Almost none NA
Independents 20 % 41 % 26 % 3 % 10 %
Chain jewelers 9 40 35 5 11
Catalog showrooms 7 19 41 20 13
Mass merchants 12 33 30 16 9
Department stores 5 23 47 14 11
TV home shopping 7 21 37 24 11

Source: JCK Retail Jewelers Panel

STOCKING UP
How panelists plan to buy in 1995.

Merchandise % of jewelers who will buy
A lot Some Little None N/A
Diamond jewelry 22 % 50 % 15 % 1 % 12 %
Loose diamonds 29 39 18 3 11
Colored stone jewelry 12 48 27 2 11
Cultured pearl jewelry 5 22 54 7 12
Karat gold jewelry 34 46 7 1 12
Designer jewelry 8 30 33 14 15
Watches 9 36 30 11 14
Clocks 3 17 29 34 17
Pens 1 9 27 46 17

Source: JCK Retail Jewelers Panel

BULLISH ON BUSINESS
While most chains surveyed had a satisfactory 1994, they expect to do even better in ’95.

Number of chains
Sales Profits
1994 1995 1994 1995
Increase expected 13 14 9 12
Decrease expected 1 0 3 0
No change expected 0 0 1 1
Median change expected +10 % +8 % + 7 % +10 %

Source: JCK chain store survey

RATING THE COMPETITION
Chains, like independents, consider other jewelers their main competitors.

Level of competition
Very strong Strong Slight Almost none
Independents 3 7 3 0
Chain jewelers 3 10 0 0
Catalog showrooms 1 4 7 1
Mass merchants 1 3 9 0
Department stores 1 6 6 0
TV home shopping 0 3 9 1

Source: JCK chain store survey

BUYING FOR TURNOVER
Chains expect diamonds and diamond jewelry to be their best sellers this year and they’re buying accordingly.

Merchandise # of chains who will buy
A lot Some Little None N/A
Diamond jewelry 11 2 0 0 0
Loose diamonds 8 4 1 0 0
Colored stone jewelry 4 8 0 0 1
Cultured pearl jewelry 2 3 6 1 1
Karat gold jewelry 8 4 1 0 0
Designer jewelry 1 5 3 4 0
Watches 3 4 5 1 0
Clocks 0 0 4 8 1
Pens 0 0 7 5 1

Source: JCK chain store survey

BULLISH CHAINS STRESS DIAMONDS & MARKETING

Independent and chain store jewelers may have their differences, but when it comes to business in ’95, they agree on most major points.

JCK again asked a number of leading U.S. chains – including small locals with at least 10 stores, major regionals and nationals – to participate in its business survey. This year, 13 chains, representing almost one tenth of U.S. jewelry stores, agreed to do so.

These firms are even more bullish on ’95 than their independent counterparts. All but one small chain foresee growing consumer confidence and respectable increases in sales and profits, based on a generally satisfactory ’94.

Building up existing businesses and markets is a main concern for these chains. While nine plan to expand, they will do so by only a few stores, and three actually expect to reduce their numbers slightly.

Chain store execs are surprisingly indifferent to the competitive threat of TV shopping shows, mass merchants or department stores. Just as independents rate their fellow jewelers as prime competition, jewelry store chains call other chains their strongest threat. However, hometown independents are a close second.

In this survey, chains differ from independents in their marketing intensity and drive.

· Both segments of the market expect diamonds and diamond jewelry to be this year’s best sellers. However, almost all store chains are buying “a lot” of diamond jewelry to take advantage of that, compared to just a fifth of JCK’s independent retail panelists. Likewise, less than a third of hometown jewelers are stocking up on loose diamonds, while over half the chains are.

As for gold jewelry, most chains will buy heavily in that category, too, compared to a third of independents.

· Most chains will boost their advertising and promotional plans for 1995; none plans to cut back. But, less than half of the hundreds of independent members of JCK’s retail panel plan to increase their ad and promo budgets this year.

ADS & PROMOTIONS
Most chains surveyed will boost marketing budgets.

Number of chains
Plan to increase 9
Plan to decrease 0
Plan no change 4

Source: JCK chain store survey

SHOPPING CRITERIA
Characteristics chains will look for in merchandise in 1995.

Number of chains
Quality 12
Price 10
Potential for higher markup 7
Items retailing $500-$1,000 7
Items retailing over $1,000 7
Items retailing under $500 4

Source: JCK chain store survey

IN DEMAND
Jewelers predict their best-sellers for 1995.

Expected to be top-selling merchandise % of replies*
Diamonds & diamond jewelry 46 %
Gold jewelry 22
Colored gems and gem jewelry 7
Watches & clocks 5
Designer jewelry 3
Other (ie, estate, enamel, antique rings, earrings, necklaces) 6
No answer 17

*Adds to more than 100% due to multiple answers

Source: JCK Retail Jewelers Panel

TO PROMOTE OR NOT TO PROMOTE

Will your ad and promotion budgets for 1995:

Increase: 46 %

Decrease:5

No change: 44

No answer: 5

Source: JCK Retail Jewelers Panel

UPBEAT

Jewelers expect consumer confidence in their markets to rise through mid-year.

Strengthen: 56 %

Weaken: 11

No change:30

No answer: 3

Source: JCK Retail Jewelers Panel

WHAT JEWELERS LOOK FOR
Characteristics jewelers will look for in merchandise in 1995.

Criteria % of replies*
Quality 81 %
Price 56
Potential for higher markup 47
Items retailing $500-$1,000 47
Items retailing under $500 38
Items retailing over $1,000 34
Other (exclusivity, unique) 8
No answer 8

*Adds to more than 100% due to multiple answers

Source: JCK Retail Jewelers Panel

HOMETOWN CONCERNS
Panelists expect these factors to have the single greatest effect on their business this year.

*Adds to more than 100% due to multiple answers
Source: JCK Retail Jewelers Panel
Major factor % of replies*
Store operations 23 %
Local economy 18
National economy 16
Politics 8
Consumer confidence 6
Competition 3
Other 9
No answer 22