JA Survey: Growth Flat, Profits Down

Jewelry retailers produced mixed results in terms of sales growth, according to the 2008 Jewelers of America Cost of Doing Business Survey.

According to the survey of JA members, there was growth among designer/custom, independent high-end and chain retailers; while mid-range independents saw real declines.

Overall growth for 2007 was essentially flat for the first time since 2001 and 2002, coming in at -0.3 percent on average (down from 4.1 percent in 2006). Designer/custom retailers fared best with a 6.1 percent sales increase over 2006. Independent high-end retailers saw growth of 3.5 percent, but that was down from 2006, when the category was up 7.4 percent. Chain stores experienced 2.5 percent sales growth, while mid-range retailers were down 1.7 percent, compared to 2006 sales.

Profitability was down in 2007, with specialty retailers experiencing a median 4.6 percent net profit as a percent of net sales compared to 5.3 percent in 2006 [See Chart]. Gross margins were 48.7 percent, down from an increase of 49.1 percent in 2006. Results once again varied by type of specialty jeweler, with independent high-end retailers seeing their margins improve slightly to 45.2 percent (versus 42.9 percent in 2006), while chains and designer/custom firms were pressured by lower margins. Gross margins at independent mid-range stores were steady from year to year.

The survey, which has been published annually for 17 years, compiles data from a cross section of jewelers, including independent high-end firms (22.6 percent), independent mid-range firms (36.5 percent), jewelry chains (7 percent) and designer/custom jewelers (11.8 percent).

Share of sales
The JA survey shows that the distribution of sales remained consistent from year to year. Diamonds (loose and set) are still in the majority, with 52 percent of sales, up 2 percent from 2006. The next biggest product categories are colored stone jewelry (10 percent of sales) and karat gold (8 percent). Repair sales continue to be important, bringing in 11 percent of sales, up 1 percent from 2006. Sales of timepieces went from 4 percent of sales to 3 percent of sales, compared to 2006.

High profit vs. low profit stores
The JA 2008 Cost of Doing Business Survey proves that effective management can make the difference between a high-profit and a low-profit firm. While high-profit stores in 2007 did not have greater sales per store ($1,179,108 on average compared to $1,214,544 for low-profit stores), they did have higher sales per full-time employee, with lower payroll and operating expenses. Also, high-profit stores had a 20 percent greater inventory turnover than low-profit firms, according to the survey.

High-profit retailers contained their operating expenses in 2007 by spending a lower percentage of net sales on payroll, occupancy, advertising, and other related expenses. They spent 6.5 percent less on total operating expenses than low-profit companies.

“It is clear that high-profit jewelers do many things just a little better than their low-profit competition,” says industry analyst Ken Gassman, who Jewelers of America commissioned this year to do a supplementary analysis of the survey.

In his analysis, included with the JA 2008 Cost of Doing Business Survey, Gassman observes that while financial results for 2007 were less robust, the business is cyclical.

“It wasn’t a bad year in 2007; rather, it was clear that the industry hit its ‘high water’ mark in 2006, and the tide began to recede in 2007, a trend that continues today,” he says.

Gassman’s analysis not only looks at this year’s numbers, but also offers a historical perspective. Retailers may yearn for the “good old days” of more prosperous times, but he says a look at the JA 1998 Cost of Doing Business Survey (which reviewed 1997 data), reveals a different story. “Ten years ago, jewelers’ gross margins were lower; their stores were large, inefficient…and, sales per store were a fraction of current levels,” he said.

Jewelers of America’s 2008 Cost of Doing Business Survey contains 77 pages of data tables organized by the four categories of specialty jewelers. To order the 2008 Cost of Doing Business Survey, visit www.jewelers.org or call Jewelers of America at 800-223-0673. It is available to Jewelers of America members for $24.95 and non-members for $150.