Rising Gold Will Affect Jewelry Prices, Marketing

Jewelers are bracing for higher gold jewelry wholesale costs this year following the recent rise in the price of gold—costs they’ll have to pass on to customers.

Though analysts say rising retail prices have little effect on consumer purchases of upscale 18k jewelry and watches, some jewelers told JCK there may be more buyer resistance at the lower end of the market. And while dollar volumes may increase, overall unit sales of gold jewelry might not. That, in turn, may mean greater reliance on marketing and promotions by jewelers to entice buyers.

The price of gold on world markets topped $456, a 16-year high and a 13% gain in value, on Dec. 2, 2004, its sixth consecutive month of gain.

Jewelers can expect to see the effects of higher-priced gold, and the weak dollar, on their own jewelry prices as early as the 2005 spring shows in Europe and America, which begin with VicenzaOro I in January. “We’ll have a better idea then what this means [for business],” says Ed Bridge, president and chief executive officer of Ben Bridge Jewelers, with more than 70 stores in 11 states. But jewelers’ retail prices “will definitely have to go up to cover the added cost.”

A few have already begun adjusting their retail prices, say some reports, by as much as 10 percent to 20 percent. Most adjustments should appear by mid-year or later.

What jewelry is affected and by how much depends on the category and item, says Bridge. For example, the stronger euro means Italian fine gold jewelry could go up sharply. There also will be challenges to some price points and pressure to maintain values offered. Dale Perelman, president of the 51-store King’s Jewelry chain, noted, “We want to protect the basics. We’ll keep margins low and maintain certain pieces to bring in traffic.”

Most jewelers and analysts said the rise in gold—and retail prices—should have little effect on sales of luxury products and more on entry-level gold items. Perelman, for example, is “optimistic this won’t affect demand for mid- and high-end jewelry. Customers of lower-end gold, though, may go to more silver and silver-and-gold.”

Some major jewelers say that a gradually rising gold price actually helps jewelry sales. Indeed, said one, “I’d rather sell gold jewelry in a rising market.” At the World Gold Council, John Calnon, managing director of its U.S. office, agrees.

“The news about the rise in gold price reinforces the fact that in addition to adornment, gold has real intrinsic value and that helps sales,” adding that “there’s has been no sign of consumer pullback” since gold began rising last September.

Perelman concurs. “As the gold price has increased, our jewelry sales have increased,” he tells JCK, “and that tells me what was a recession is now a slowdown, and things will move up a bit.” Gold’s rising price in the past few years hasn’t deterred overall U.S. gold jewelry sales, which rose 2.3 percent in 2003 (topping $16.3 billion) and at press time in December 2004 were up 2.7 percent (over $16.6 billion), making 2004 the 14th consecutive year of gold jewelry sales increases. What spurs sales, Calnon said, is “new and more innovative products, in terms of design and innovation. Our research shows that today’s consumers would buy more gold jewelry if they find commercial product that’s relevant to them.” To that end, the WGC on Dec. 6 launched its second annual “Gold Expressions” marketing program.

Gold has had a roller coaster ride in the past two decades. From a record high $800 an ounce in 1980, it slipped to under $300, then jumped to $400 in 1990 when Iraq invaded Kuwait. It tumbled to a low of about $250 in mid-1999 and then started creeping up again. At the start of 2002 it was $278 an ounce, but by early 2003, as international tensions worsened and major economies sputtered, it hit $381 and has kept climbing.