High gold price? What high gold price? Most jewelers polled by JCK in a nationwide survey say the price of gold—the highest in 25 years—has had little effect on their jewelry sales in the past 12 months. Some even turned it into a marketing tool to sell gold jewelry.
Of course, not everyone’s sales were unscathed, and gold’s high price has had some impact on jewelers’ operations. Still, statistics show that 2005 was a year of strong sales of gold jewelry in the U.S. market.
Here’s what U.S. jewelers told JCK about gold’s price and its effects.
GOLD’S PRICE TODAY
The daily spot price of gold—which is based on investors, consumer and industrial demand, and response to economic or political turbulence—reached $580 per ounce in January, its highest since 1980 (when it topped $800), before slipping to the mid-$500s. Yet most jewelers (58.5 percent) polled by JCK said it didn’t affect their business in the past year, and almost half of those who were affected said the impact was minimal. Indeed, fewer than one in five jewelers cited any significant negative effects on business or sales as a result of gold’s high price. (Its constant rise in late 2005, though, did frustrate some who couldn’t change their retail prices fast enough, found catalog prices no longer reliable, or had to requote custom work to keep up with changes.)
One reason for the mild impact is that many jewelers have gotten used to gold’s rising price, which has gone up annually for several years. Most (80.5 percent) will pass their higher costs on to customers, raising prices on gold jewelry when they reorder best sellers or restock, as well as on appraisals and even repairs.
For 35 percent of respondents, the increase in costs is most apparent in gold chains. Twenty-seven percent cited wedding rings, and 17.5 percent named engagement rings as the most-affected category. Less than one in 10 polled had sizable cost increases for everyday jewelry, like necklaces (7.3 percent of respondents), bracelets (5.1 percent), earrings (2.2 percent), and charms (1.5 percent). Cost also depends on how much gold is used. In custom work or finished diamond jewelry, for example, gold represents a small percentage of total cost, so those retail prices are less affected.
CONSUMER REACTIONS VARY
The effect of rising gold prices on consumers seems mixed.
In today’s 24/7 multimedia news culture, consumers “are very much aware of the metals market, so that’s really affecting business,” notes Jann T. Anderson, of Erik Jewelers, Tonawanda, N.Y. Customers are asking more questions, such as why special orders are more expensive than in-stock merchandise. Others experience what an Arizona jeweler called “sticker shock” and thus delay jewelry purchases or buy less-expensive pieces. Many jewelers patiently explain retail price increases to customers, citing the rise in spot gold, their own higher costs, and inflation. Some remind customers that today’s spot price is still less than it was in 1980.
Other jewelers told JCK that reports about rising gold prices helped business. Some, like Robert Dietz, of Dee’s Jewelers, Salisbury, N.C., noted their gold jewelry sold better then usual, while a California retailer said the news drew attention to gold products and boosted sales. William Mosher, Mosher’s Jewelers, Port Huron, Mich., found reports of higher gold helped him sell in-stock merchandise at full price. Consumers are “more aware of gold, and that translates into a sense of increased value,” said jeweler Jed Davis, Nicolson & Ryan, Augusta, Maine.
Agreeing with that is John Calnon, managing director, World Gold Council USA. “The U.S. gold jewelry market, unlike Asia, is an ‘adornment market,’ not an investment culture,” he says. “But now with gold in the news every day for months, its intrinsic value has become more important to the consumer. So, when she buys earrings, for example, she does so not only because ‘I love them, they’re fashionable and look good on me’ but also because—maybe it’s 10 percent of her decision—’They’re a good investment.’”
Most consumers understand that jewelry prices will reflect gold’s price and buy anyway, said jewelers. As Kenneth Burg, Kramer Bros., New York, noted, “If someone wants gold, they’re willing to pay the price for it.”
That’s backed by 2005 data for the U.S. market. Based on WGC surveys of key retailers for the first nine months, year-to-date trends, and a good holiday season, sales of gold jewelry in 2005 rose 5 percent to 6 percent over 2004’s $17 billion (itself a 4 percent gain). It’s the 15th consecutive year U.S. gold jewelry sales have gone up.
Another revealing indicator is a WGC study of “core target consumers” of gold jewelry (i.e., those who say they find it “more relevant” to them and will buy some within a year). The newest study (2005) finds about 56 million U.S. women have become core target consumers. That’s a 55.5 percent increase since 2002’s 36 million, despite the 60 percent rise in gold’s spot price over the same period.
Much of 2005’s gain was in yellow gold, which Calnon says has become more important to consumers during the last two years. “That’s really kicked in now, and the U.S. consumer is actively buying yellow gold jewelry, especially in the East and West,” he says. Calnon says strong results early this year for the U.S. retailers WGC tracks imply that 2006 will be another strong year for gold.
MARKETING THE RISE
Many jewelers have turned gold’s rising price into a marketing tool, especially for items acquired when the price of gold was lower. “When selling a piece we bought more than a year ago, I emphasize the fact that gold has jumped considerably, and thus, they’re getting a bargain,” said Randy Wohlgemuth, Koser’s Jewelers, Mt. Joy, Pa.
Gary Hill, Leo Hamill Co., San Diego, makes a similar pitch to customers. “Because we purchase all year long, we have pieces at old gold prices, so buy now because prices will go up.”
Jewelers benefited from higher gold prices in other ways. Bruce Gumer, Gumer & Co., Louisville, Ky., re-marked gold chains to a spot price of $600 per ounce and boosted profits 40 percent. Robert Heiser, Crescent Jewelers, Hannibal, Mo., cashed in a three-year accumulation of scrap gold. Eileen Eichhorn, Eichhorn Jewelry, Decatur, Ind., traded back merchandise for better-turning items, sold gold scrap to vendors for credit, and took more trade-ins.
ADJUSTING TO PRICES
Still, gold’s rising price—and subsequent higher costs along the production and supply lines—has made many jewelers adjust operations. One in six (16.4 percent) are stocking less gold jewelry and 14.1 percent are adding more sterling silver jewelry. Surprisingly few (3.1 percent) have added more lightweight gold jewelry as a counterbalance. As one frustrated jeweler noted, “The Wal-Marts are already doing the 10k and hollow stuff.”
The rising price is also encouraging most jewelers—three out of four surveyed—to save more gold scrap from repair, sizing, and custom operations. At the same time, one in four say consumers now ask for that scrap, and jewelers are responding in various ways. Some do so automatically. Others return only significant amounts or leftover pieces (e.g., old mountings), keep the scrap, and offer a cash or credit allowance, or adjust the bill accordingly. A few charge more if clients want scrap returned, or add a fee ($1 to $10) to keep track of it.
Almost one in five (18 percent) are taking smaller margins or holding the line on prices. Many are like Albert Solomon, Solomon’s Jewelers, Plainview, N.Y., which hasn’t raised gold jewelry prices since last summer, or Erik Jewelers, Tonawanda, N.Y., which does mainly custom work and has maintained its prices. “We make less, in order to do business,” said Erik’s Jann Anderson.
Because most of the merchandise sold last year was based on lower spot prices, the full impact of the highest gold price in a quarter-century will only be felt this year, as retailers—especially those who’ve absorbed the rising cost until now—reorder and restock their inventories.