The Coming Decade: Golden Times Ahead?

Jewelry sales in the first decade of the new millennium will nearly double, growing at least 7% annually during the next five years and reaching a cumulative growth rate of 197% by 2010. That’s the upbeat prediction of Ken Gassman Jr., a retail stock analyst with Davenport & Co., Richmond, Va., who follows the stock of 20 jewelry chains. His forecast is based on jewelry sales tracked by the U.S. Department of Commerce; that is, jewelry sales at jewelry stores only.

The launching pad for that growth is a strong economy. The nation has enjoyed the longest peacetime expansion in history, which will become the longest expansion ever if it lasts through January. Unemployment has reached 29-year lows, and household income growth has accelerated.

Demographic trends also favor jewelers’ prospects. The 77 million members of the Baby Boom generation (born between 1946 and 1964) reach their peak earning and spending years in the coming decade. They’ll also be celebrating milestone birthdays and anniversaries. Meanwhile, marriage rates among their offspring are expected to peak in 2003 and remain strong until just after the Boomers begin to retire in 2011.

“We’ve not had a Baby Boomer scenario at any other time in our history. And there has never been a group who’s left their footprint more indelibly stamped on the economy than the Baby Boomers,” says Gassman. An unprecedented transfer of wealth is also anticipated during the next decade, as Baby Boomers inherit money from parents and, for the tail end of the Boomer brigade, grandparents. “Between now and 2009, demand for jewelry will be stronger than at any other time in recorded history,” Gassman confidently predicts.

He expects jewelry sales to outpace the projected 5% annual sales gains for all retail sectors (excluding autos) in the next five years. At the same time, he expects jewelry sales to capture a larger slice of consumer spending over the next decade—from 2.2% of total retail sales in ’98 at least to 3%. That may not sound like much, but in a huge economy, it means billions of dollars. One reason: As jewelry chains grow, their mass-marketing campaigns are expected to result in increased per capita spending on jewelry.

Although their projections aren’t as dramatic as Gassman’s, other industry observers also are optimistic about this year’s results and see strong growth potential ahead. The consensus of leaders from Jewelers of America, the American Gem Society, Scull and Co. Inc., and the Jewelers Board of Trade is that ’99 sales would outpace ’98 sales by 10% or 11%. Early indicators from associations for precious metals, pearls, and diamonds point to a similar result.

Some analysts anticipate a 1% or 2% slowdown in 2000, the result of election-year uncertainty and post-millennium celebration fatigue. Their expectations for revenue growth in the coming decade range from 10% (which would quickly be swallowed up by rising overhead costs) to 50%.

Gassman’s rosy forecast comes with a caveat: “More growth will occur among chain jewelers than with independents,” he says. “The chains have the clout to buy better than the independents and therefore keep prices in line. More importantly, chain jewelers are using truly mass media promotions, and the mom-and-pop retailer simply can’t afford the kind of marketing clout that a Zale has. It’s also about branding, which is even more important in the jewelry industry, where people have very little product knowledge—especially given the mobility of the American consumer. The chains become the safe haven for people who are overwhelmed by retail choices.”

The jewelry industry has yet to enter the consolidation cycle that has so dramatically affected other retail segments, including hardware stores, grocery stores, home centers, and furniture stores. The Jewelers Board of Trade has recorded only a 5.6% decline in the number of retail jewelry companies (not storefronts) over the past decade (JCK, December 1999, p. 62). But Gassman argues that the jewelry industry inevitably will evolve toward a situation in which the top two or three chains control at least half the market.

Matt Runci of Jewelers of America also expects some consolidation to take place. “There will continue to be attrition of businesses in the industry,” he says. “But that’s a natural process as people simply close their doors due to the demographics of jewelers [as many approach retirement age], vs. trends in business. There will also be a corresponding increase in new outlets being opened, with further share shift from independents to chains as a result of that phenomenon.”

Small independents, especially those pulling in $500,000 or less in annual revenues, face another risk. If they’re too busy with day-to-day operations and hands-on selling, they won’t have a chance to innovate or develop and implement plans for growth. Joe Romano of Scull and Co., a jewelry consulting firm, worries that such companies will reduce their prices as a response to competitive forces. “In three or four years that means they’ll be working as hard for less money,” he says. “I’m guessing they presume the answer is to get a well-known brand of jewelry or watches. But the greatest assets they should sell are their unique product and expertise.”

Romano says bigger firms may capture the market through sheer marketing clout rather than through acquisition of independents. “It has to do with sales volume, marketing reach and frequency, and public awareness of a jeweler’s brand equity,” he says. “Plus, these [small] businesses are generally built to bring money back to the family, so many family-owned jewelry stores are built to generate income rather than as a business to sell.”