JCK 2007 Holiday Jewelry Retail Report

For many retailers, the 2007 holiday selling season was not especially jolly—and jewelers were among those taking a hard hit to the cash register as consumer spending tightened up significantly from the previous year.

But not all was doom and gloom, as a significant number of jewelers reported holiday sales either on a par with—or significantly up from—2006 figures. Others, meanwhile, registered a decline in 2007 holiday sales but acknowledged that it was coming off a record season in 2006.

“I feel real fortunate this year,” says Becky Whelan, owner of Cecil’s Fine Jewelry in Little Rock, Ark. “Christmas was very good. We did not surpass last Christmas, but for the year, we did well. We sold a ton of diamond studs, mainly half-carat to one-caraters (t.w.). We had to re-order several times. We had steady traffic throughout. No last minute rush. And we did a lot of bridal this Christmas. And it’s going to continue into Valentine’s Day. We had a lot of familiar faces return this Christmas. We’re very pleased with the stability of the season, and looking forward to a good January.”

In a JCK staff survey of jewelers across the United States, some common themes emerged:

* The ultra-rich kept spending, but the merely affluent reined in. Jewelers catering to top tier customers reported a very strong holiday, with big stones and ultra high end watches being favored selections. Said Matthew Bogosian, vice president of Matthews, A Jewelry Store in Studio City, Calif., “The customer who used to have $10 million now has $20 million, but the customer making $100,000 is no longer coming in.” He reported typical sales between $20,000 and $30,000.

“We’re selling to high net worth [individuals] and focusing on the high-end bridal market where $50,000 is nothing. But what middle-class person is jumping up and down to spend $4,000 to $5,000?” he adds.

Gary Gordon, president of Samuel Gordon Jewelers in Oklahoma City reported selling several large stones, including a five-ct. princess cut F/VS1, a 1.5 ct. fancy pink, and a four-carat round, F/VVS1. David Fineblit, president of Pearson’s Jewelry Inc. in Manchester, N.H., reported high-end Swiss watches such as Patek Philippe and Corum as his best-sellers, while John P. Kuehn, owner of John P. Kuehn Fine Jewelry, Morgantown, W.Va., said, “The rich were spending money; the poor weren’t. The little guys who spend $300 to $600, only half of them came in. The number of bigger items [sold] was the same but [the items] cost more. Overall, he estimates his holiday sales fell about 30 percent from last year, though business through October 2007 was strong.

Indeed, jewelers aren’t alone. Many other luxury labels whose mainstay is the “striver” level of affluent consumers, also took a hit this holiday. For example, leather goods maker Coach expects its smallest fourth-quarter sales gain of the past six years, and upscale department stores like Saks Fifth Avenue and Nordstrom both saw sharp cutbacks in spending. The robust sales growth Saks had enjoyed throughout the year slowed dramatically in December, while holiday sales at Nordstrom declined 4 percent. Even Starbucks, whose pricey lattes are touted as a poster child of “little luxuries” anyone can afford experienced a slowdown in spending. And American Express—whose cardholders tend to skew affluent—said in a Jan. 14 New York Times article that overdue payments are rising, even among its toniest cardholders who charge, on average, up to $12,000 a year on their cards.

Jewelers catering to the aspirational consumer also struggled. Both Tiffany and Birks & Mayors reported comparable-store sales declines for the holiday season. At Tiffany, comparable store sales in its U.S. stores declined by 2 percent, although total U.S. retail sales for the season rose 4 percent and international sales rose 18 percent, for a net increase of 8 percent over 2006. According to a report on its investor-relations Web site, in the United States the firm saw fewer transactions but an increase in spending per transaction.

Meanwhile, Birks & Mayors, a 68-store chain with headquarters in both Montreal and Florida, saw a 10 percent decline in its American stores and a 5 percent decline in its Canadian stores, for a net decline of 7 percent over 2006 holiday sales.

Among jewelers who reported a strong holiday season, virtually all attributed it to either increased advertising and promotion or a more proactive approach to selling—or a combination of both.

Britton Moseley, co-owner of Galloway & Moseley which has two stores in South Carolina, reported increased sales in both locations. “The reasons why they’re not down is just the fact that we worked and marketed the best we could.” he said. “You cannot sit back in this economy and think it’s going to come to you. You have to work for it.”

And Dale Ferber, owner of Ferber Jewelry in Jackson, Miss., attributes his 30 percent sales increase to both online selling and more advertising. In addition to having three online sites, the jeweler increased his advertising spend in cable television, newspaper, “quite a bit” of radio, and direct mail.

* The media didn’t help. Good news may not sell, but bad news clearly doesn’t help anything else sell, as jewelers across the board said the continued onslaught of negative reports about the economy instilled fear into their customers and drove demand down.

As Caroline Hill, manager of Van Scoy Jewelers in Reading, Pa. put it, “I think the economy hurt sales. Gas prices were shooting up right before Christmas, and it didn’t help that every time you turned on the news all it was gloom and doom about retail.” At her store, sales came very late. “The Saturday before Christmas was probably the biggest day we’ve ever had,” she said.

But it wasn’t enough to offset the rest of the season, and the store posted a 19 percent decline over last year’s holiday sales. Best-selling price points this year were modest: under $500, with silver and basic diamond stud earrings and solitaire necklaces being the best-selling items.

* There was no set pattern to when holiday sales came in. One trend of note: many jewelers reported good sales through November, with a sudden sharp decline in December. Trey Bailey, director of operations of Bailey’s Fine Jewelry, a three-store operation in North Carolina, said business was humming along until December.

“We have three stores in three different markets,” Bailey said. ”We had a great year and December slowed us down.”

Bailey was still working on final figures for the season, but he said the company’s flagship store in Raleigh was up 20 percent for the first 11 months of 2007 with December up by five to 10 percent. Its store in Greenville was up 30 percent through November, but December was so slow that he thinks it will end up breaking even for the year. He said December sales at its Rocky Mount location were flat compared to the prior year. Still, he said, he fared very well compared to his peers in a jewelers’ group, many of whom were down this year.

Apart from that, some stores reported holiday sales came early—particularly Hanukkah-driven sales—while others such as Van Scoy reported a last-minute surge, and still others, such as Marc Aronstam, owner of Aronstam Fine Jewelers in Indianapolis, reported a strong start, a weak middle, and a stronger finish to the season.

Chains down, online up. This was a tough holiday for the majors. Sterling reported an 8.1 percent decline in holiday sales, while Zale reported a 9 percent drop. Sales in the upscale Bailey, Banks & Biddle division—which was sold in November to Finlay Enterprises—were excluded from comparison in both years. At regional chain Ben Bridge Jeweler, the Seattle-based retailer with 79 stores in 12 states, the holiday started off “great” in November. “We were very encouraged,” said Steve Devolt, vice president of marketing. “Then in December it slowed down and we didn’t meet our expectations.”

Based on his firm’s observation, sales were hurt by electronics. “If it had a battery, it was selling well,” he jokes. “Laptops, iPods, HD TVs, BlueRays, all of those type of things were in demand. That affects everyone—like travel, automobiles, retailers—who are competing for that discretionary gift dollar.”

Devolt has a point. Electronics, especially GPS navigation devices and flat-panel television sets, were one of the bright spots in consumer spending for holiday. Both categories saw a sharp increase in sales over the past three months, prompting some economists to suggest the slowdown in spending is not purely economic.

Stephen Baker, vice president of industry analysis for NPD Group, a research firm, said in the Times article that the robust sales of these items suggest there still is enough purchasing power for consumers to acquire what they really want. If economics were the overriding issue, he said, even those sales probably would not have occurred.

Indeed, if there was a bright spot for jewelry sales, it came from the Internet. Sales at fourth-quarter revenue for online retailer Blue Nile rose 24 percent, the company said in a statement released January 14.

In the statement, Mark Vadon, Blue Nile CEO said, “2007 was a great year for Blue Nile, and the holiday quarter was no exception. While we have not previously released our fourth quarter sales results in advance of our earnings announcement date, we felt it was important to share this information given the industry data that has been released recently.”

Even some independent jewelers found the Internet to be a saving grace. Isaac Gottesman, owner of Chicago-based Dimend SCAASI, said, “In-state sales declined 8 percent but out-of-state sales increased 10 percent, due to a process I’m patenting that enables live diamond sessions magnified 300x. Customers log into our server and have a ‘live’ session on their browser. This boosted sales and helped us reach remote areas outside of Chicago. The last quarter of ‘07 was not glamorous to us, but we were able to keep sales stable. We’ve already seen an increase for sales in January.”

And while increased advertising helped, jeweler Dale Ferber attributed his firm’s 30 percent holiday sales increase largely to online sales. The firm operates two e-commerce Web sites and has a store on eBay—which in total, account for about 15 percent of sales.

“Our online business just amazed me,” he said. “All three of those sites did exceptionally well.”

Sidebar:

The best sellers
According to JCK’s survey, the following were mentioned most often as best-sellers:
Diamond studs
Bridal jewelry
David Yurman
Mikimoto
Large diamonds (two carats and higher)
Earrings
Tag Heuer watches
Hearts on Fire
Colored stone fashion jewelry

Also mentioned were:
High-end bridal
Rolex
Patek Philippe
Corum
Slane & Slane
Simon G.
Pandora

Not a best seller in 2007:
Journey diamond jewelry