Will Jewelry Sales Sparkle in ’99?

After a roaring first half of 1998 in which U.S. jewelry sales jumped 9%, many jewelers and manufacturers noted an eerie autumn lull. The drop-off was attributed in part to the shocking stock market plunge, which drained $1.5 trillion in wealth from investors between July and October. Continued economic turmoil overseas may have also hurt sales. By November, however, Wall Street had largely recouped its earlier losses, and consumers appeared to approach the holidays with renewed confidence, ready to spend.

What does 1999 portend? Interviews with dozens of jewelry retailers, manufacturers, consultants, association officials, Wall Street analysts, and bankers drew a consensus of cautious optimism. Minus another stock market swoon or calamity abroad, the call is for jewelry sales to grow 5% to 7% in 1999, at least through the first half of the year.

Where the bulls roam. JCK’s 1999 forecast is based partly on strong consumer demand for platinum, gold, and diamond jewelry. New York-based Johnson Matthey, a primary supplier of platinum to U.S. jewelry manufacturers, projects platinum sales in ’99 will be 25% to 30% higher than in ’98, building on the stratospheric rise in the metal’s popularity. The firm estimated that ’98 sales would be at least 25% higher than ’97’s, which in turn leaped 50% over the previous year.

The World Gold Council likewise predicted that ’98 holiday sales of gold jewelry would be 7% to 8% higher than ’97’s figures, based on a survey of 5,000 retailers. As for ’99, Michael Barlerin, WGC’s chief executive for western markets, said, “There is somewhat of a wait-and-see attitude. Much of what happens in ’99 is based on what happens in the holidays, but right now the holidays are looking solid.” In early November, Stern/Leach, a gold manufacturer in Attleboro, Mass., said orders were up 4% to 6% for the first half of ’99. “That’s a little bit better than last year even though there was a two- or three-week pause when the stock market had fallen,” said Dick Smith, president of the $1 million firm.

As for diamonds, De Beers’ researchers estimate that U.S. sales were up about 11% in ’98, far outpacing the company’s original forecast. De Beers executives declined to predict ’99 sales trends but were confident that sales would remain stable into ’99. The firm’s $3.5 million “Seize the Day” ad program combined with pre-millennium marketing campaigns are expected to counter any negative effects from a potential stock market dip or economic slowdown.

Chuck Lein, president and chief operating officer at Stuller Settings Inc., a privately held manufacturer and distributor in Lafayette, La., predicted “a pretty darn good Christmas that’s going to come late. If that’s the case, it’s going to carry into ’99. We anticipate ’99 will be strong.”

A random sampling of jewelers supports a positive outlook. At Ralph M. Fava Jewelers in Little Falls, N.J., which has annual revenues below $1 million, Ralph M. Fava expected ’98 fourth-quarter sales to come in 20% over last year and projected that first-quarter sales will rise at least 10% over ’98’s results. Bill Archinal, manager of Duncan & Boyd Jewelers in Amarillo, Texas, which has nearly $5 million in revenues, expected a 15% to 25% gain in fourth-quarter ’98 sales and 12% to 15% growth this year owing to the store’s strong marketing efforts and a robust local economy.

Dissipating anxiety. October was “scary,” said Mark Moeller, owner and president of R.F. Moeller Jeweler, a $6 million firm with locations in Edina and Saint Paul, Minn., echoing the sentiments of many jewelers. “We were a little worried. But going into November we’ve had an incredible first 10 days and a lot of early Christmas buying.” He expected the store’s two locations to post 12% to 15% gains in the fourth quarter and 10% to 15% increases this year.

In the high-volume arena, privately held Ross-Simons of Rhode Island, which sells $100 million in jewelry annually (primarily through catalogs as well as at nine retail stores and an Internet site), expected a 10% gain in the final quarter of ’98 and a 10% to 15% jump in ’99. West Chester, Pa.-based television and Internet retailer QVC anticipated jewelry sales for Christmas ’98 to come in 10% to 11% over ’97’s figures and projected growth well over 10% for ’99. John Calnon, QVC’s vice president for jewelry, said, “Clearly, there was cause for concern [in September and October] in terms of consumer confidence, but we really didn’t see a blip in our sales.”

Optimism among bankers serving the jewelry industry is more tempered. Jeff Pfeffer, a senior vice president with the U.S. branch of Israeli-based Bank Leumi, reported that ’98 sales were somewhat lower than anticipated. The bank’s retail clients posted 2% to 5% in same-store sales growth. “I think ’98 is going to be a good year, but not a great year, and the same is true for ’99,” said Pfeffer. “The question is going to be the sell-through for Christmas ’98: Does it all stick or does it come back [to the manufacturers]? All the signs of the consumer economy are good, but there are some clouds on the horizon.”

Portents of promise. Broader consumer indicators also look encouraging. The National Retail Federation’s (NRF’s) retail holiday outlook survey, conducted by Deloitte & Touche, noted that the ’98 holiday season could potentially be the best for retailers since ’94. Consumers said they planned to spend on average $814, or 4.5% more than last year. Retailers surveyed by NRF projected that comparable-store sales would rise 4%, though many expressed concerns about a possible slowdown in ’99.

“Things look good for the economy in general, and it shouldn’t be that hard to make money on jewelry in ’99,” said Ken Goldstein, an economist with the Conference Board, a business research group in New York. The Conference Board has forecasted a slight slowdown in consumer spending – from 4.8% growth in ’98 to 4% in ’99. “The whole point is, that’s not bad,” said Goldstein. “Consumer confidence remains very high. A lot of talk about doom and gloom has been way overblown.” He noted that U.S. consumption tends to track wage gains, which are projected at 3.5% to 4% for ’99.

The Conference Board predicts that spending on durables will slow from 9% in ’98 to 8% this year and that nondurables such as apparel will slow from 4% to 3%. “The real good question is, ‘Where is jewelry in this mix?’ ” said Goldstein, who classifies jewelry as a nondurable purchase. He believes the nondurables numbers are skewed by declines in apparel sales as women are buying a limited number of basic outfits to vary with accessories. “This suggests that women will continue to look for jewelry to accessorize and add excitement to their wardrobes.”

Likewise, George Rosenbaum, CEO of Chicago-based Leo J. Shapiro & Associates, which analyzes trends for retail and fashion clients, said, “If you take all of the wearables, I would bet more on jewelry and shoes than any other clothing item to grow. I think the market for things that last, that you buy for keeps, such as jewelry, will be strong in ’99. However, expensive pleasures of the moment such as a fancy designer [clothing] label will be under real pressure.”

Scary bears. Despite all the optimism, a downturn in jewelry sales in ’99 cannot be ruled out. Laurie Hudson, president of Platinum Guild International USA Jewelry Inc., has developed an early-warning system for detecting slowdowns in the female self-purchase market for jewelry. It’s unscientific, but she swears by it. Simply ask beauty salons how manicures, massages, and facials are selling. “When things are tough, you see slacking off in these kinds of indulgences,” Hudson noted. Based on her queries, “I’m not worried about our market at all.”

Others are not so sanguine. One high-end jewelry manufacturer, requesting anonymity, said, “I am concerned that Christmas will be relatively subdued and that spring will be difficult. Inventory situations can be very dangerous. It isn’t that business is bad right now, it’s just the feeling I get talking to people. People are not wanting to tie up inventory until spring, and if it’s not a terrific Christmas, it’s a wonderful excuse not to buy goods in the spring.”

Similarly, Joe Romano, president of Union City, N.J.-based Scull & Co., a consultant to more than 200 retailers and wholesalers in the United States and United Kingdom, expressed concern about a softening economy. “Jewelers are coming off a Cinderella year with so many people making so much money. I have a basic feeling of discomfort for ’99. Jewelry is still the love business. Couples will still purchase jewelry when they get engaged and get married, and when they have anniversaries. It’s just the second or third sale to that household, the $14,000 to $20,000 sale, that may not happen because the income may not be there to do that.”

Others share that wary outlook. “Jewelry is absolutely going to come to a halt in terms of growth in ’99,” said a retailing consultant with a long list of jewelry clients who asked not to be identified. “Nobody needs 13 jewelry stores in a mall with balloons and 50% off sales. I don’t think the growth in the business will last. I don’t think it will go upside-down, but it will tail off.”

Still, very high-end mall jewelers should hold up fine, according to a mid-November article in the Financial Times. The article quoted Mike McCarty, head of marketing at Simon Property Group, the largest shopping mall operator in the United States, saying that what holds up best in an economic downturn is the highest end of the luxury goods market – Saks Fifth Avenue and Tiffany. “These cater to a consumer with a vast amount of discretionary income to spend,” he said.

Maybe so, but these high-end retailers account for just a small portion of jewelry stores nationwide. Others can only hope that consumer confidence remains high among those with more modest means. Barring some unforeseen economic calamity, that looks like a solid bet.

Sotheby’s and Christie’s October magnificent jewelry auctions in New York came at a low point in the market, and it showed. Compared with previous years, sales fell in terms of both percent of lots sold and percent of presale price estimates achieved. “It was a very mixed and insecure market,” said John Block, vice chairman and director of Sotheby’s jewelry department in North America. “We’re on a roller coaster, and the question is where we are on this curve.”

Continued weak sales at the magnificent jewelry auctions may have some significance for the high end of the retail jewelry sector, according to Block. “If you see a major fall in the top end, you can just predict it will affect the rest of the market. There typically is a translation to retail sales, but only for the top end of the market.”

Though the Sotheby’s Oct. 19-20 sale of jewelry from the estate of socialite Betsey Cushing Whitney was nearly 100% sold by value, an offering of jewels from other owners auctioned by Sotheby’s at the same time was weak. Only 60% of lots were sold and 52% of presale price estimates were achieved. (The chart shows numbers pooling the two.)

At the Christie’s Oct. 21-22 sale, results were even more depressed, with only half the lots selling and prices achieving a mere 48% of estimates. Simon Teakle, Christie’s senior vice president and jewelry director, noted that “the timing of everything

couldn’t have been worse,” alluding to the stock market and weak demand from Asian and Saudi Arabian buyers. “In the past, there was always one part of the world to pick up the ball up when another market slowed down. Each market had different reasons to stand back this time.”

October’s market trends carried over to the Geneva sales in November, where the softness in the high-end auction market appeared again. The mixed-owner segment of the Christie’s sale was 58% sold by lot, reaching 57% of the presale price estimate. This segment of the Sotheby’s sale was 65% sold by lot, reaching 69% of the presale price estimate.“Ours is a business that goes in cycles. Yes, we have to be more careful and selective [in what is offered for sale], but the market will come back,” said Teakle, adding that the results aren’t altogether dire. “With the two auction houses combined, almost $40 million worth of jewelry was sold, which is not an insignificant sum – especially given that certain parts of the world stepped aside. It’s still a big deal, and it’s still real money.”

George Rosenbaum, CEO of Chicago-based Leo J. Shapiro & Associates, sees a silver lining in the stock market instability that surfaced last year after several years of more than 20% returns.

“It is unlikely in ’99 that the market will keep rising as it has in the last three years. This will raise the question among affluent people: ‘What should I do with my money?’ As they look toward fixed income investments such as bonds, they’ll see low interest rates. This will open up more people to the notion of buying fine jewelry, which may have been an impulse squashed or deferred while their money was in the stock market during the boom. Of course, what you get out of jewelry that you don’t get out of the stock market is that you can wear it.”

There are a number of steps you can take to protect your store’s bottom line regardless of the broader economic picture:

  • Be consistent in getting your message out. “The last thing in the world you want to cut back on is marketing,” says Joe Romano, president of Scull & Co. “When you cut back on marketing, that’s like trying to drive a car without gas. Marketing fuels the organization.

  • Emphasize the enduring value of jewelry. “Advertising needs to reaffirm how wise and wonderful it is for people to purchase jewelry,” says George Rosenbaum, chief executive of the market research firm Leo J. Shapiro & Associates. “It’s a way to conserve value and to symbolize the stability of relationships or the building of future stable relationships.” Above all, given the anxiety among some affluent consumers about the stock market, avoid talking about jewelry as a self-indulgent purchase. “Frivolous spending just for kicks is not going to work well in ’99,” says Rosenbaum.

  • Offer basic products at basic price points. “One way you overcome an economic downturn is by meeting the basic needs of customers,” says Romano. “That starts with having the right product at the right price. There are a lot of customers out there who are happy to spend $100 to $300.

  • Manage inventories closely. Carry enough inventory to take care of immediate needs, but replace what was sold immediately. “One of the most powerful profit opportunities retailers have is to aggressively move inventory,” says Chuck Lein, president and chief operating officer of Stuller Settings Inc. “At the very least, move from a one-time-a-year turn rate to a two-time turn rate. That can make the difference between not making money and turning a profit.
    But don’t cut too close to the bone. “The risk of erring on the downside – of having too little inventory – may be greater than the risk of having too much inventory,” says Rosenbaum. “If you have jewelers with cold feet who do not have a good selection, those people will lose what business may be available.

  • Set goals. Sissy Jones of Pine Bluff, Ark.-based Sissy’s Log Cabin, a store with $10 million in revenues, recommends that jewelers monitor sales projections closely and match those projections with sales goals for each month. “If you set a goal, you usually attain it. Everyone should have a plan. It’s people who don’t have a plan who don’t get where they want to go.

  • Hold traffic-generating special events. Lein suggests that you stage such events once a quarter “based on what’s unique to your store and your community.” This way, you’ll generate exposure for your merchandise and build ongoing relationships with customers.