U.S. jewellery market bouncing back, but challenges remain

The American retail jewellery market from the lower end of the market to stores with big-ticket items bounced back in 2010. Will the recovery continue this year?

Has the U.S. retail jewellery market bounced back? U.S. retail sales in general are showing healthy rises, and are forecast to increase again this year. And jewellery retailers are not being left behind, with retailers across the spectrum – from Zale Corp and Signet, leading online retailers such as Blue Nile, and high-ticket Tiffany & Co – all report rising sales.

Indeed, rising consumer demand for jewellery sales is widely regarded as providing a confirmation that recovery is underway since, just as jewellery is among the first sales categories to decline when a recession begins, they are the last to rise when resurgence is gaining pace. Rising jewellery sales not only show renewed confidence in the state of the economy, but are also seen as an indicator that consumers have more self-belief in their personal finances.

“There has been a big turnaround in the American jewellery market in the past two years,” said a senior manager at an Antwerp diamond polishing firm. “If you look back to the start of 2009, there was a feeling that a disaster was happening. However, Americans are made to shop. It took them a little while to return to the stores, but they are coming back,” he added.

However, American shoppers have returned to a different shopping environment, with Signet Jewelers Ltd., which owns the Kay Jewelers and Jared chains in the U.S., saying in a presentation to investors in2010 that there had been a 12 percent decline in the number of jewellery stores in the United States since the beginning of 2008.

The type of jewellery being bought has also changed, said the Belgian diamantaire. “We are still seeing downsizing in the diamonds that are being bought, but we believe that is probably also due to the rising price of gold which has led manufacturers to scale back diamond sizes and qualities in order to keep price points realistic,” he added. That has typically meant smaller, lighter items requiring smaller amounts of solid gold, and featuring elements such as twists, lace designs and cutouts. It also means combining gold with silver or other elements.

Belgium’s polished diamond exports to the United States grew during 2010, rising 30.4 percent to $3.1 billion with a slight fall in volume terms of 2.6 percent to 988,376 carats, indicating that American buyers were willing to pay more for fewer goods. That trend appears to be continuing this year, with exports in January rising 24.9 percent to $241.7 million while declining 7.7 percent to 61,229 carats.

Another difference in the outlook of the post-financial crisis American shopper is a focus on value for money and securing a good deal, almost without regard to the level of store at which they are shopping, whether a department store or a luxury retailer.

A report from the Jewelers Board of Trade, based on U.S. Commerce Department statistics, shows U.S. jewellery sales rose 7.7 percent to a record $63.4 billion last year. That came after two straight years of declines, with falls of 2.7 percent in 2009 and 2.4 percent in 2008. And 2011 looks to be getting off to a good start with American consumers forecast to spend around $3.5 billion on jewellery for Valentine's Day, according to the National Retail Federation. That would be a 17 percent jump on the $3 billion spent last year.

The rise in sales is borne out by the financial results of a range of retailers in the U.S. market. Zale Corp. said that sales at stores open at least a year, a critical indicator for the retail trade, increased by 8.5 percent in the combined November-December holiday sales season compared with the same period of 2009 when same-store sales slumped 12 percent.

Reorganisation and tough cost-cutting appear to be the key for Zale Corp, which saw the spending power of its clientele battered by the impact of the recession. Zale was hit hard by the recession due to a toughening up of credit and rising unemployment, leading it to close hundreds of stores and change its senior management. The retailer has shown an improved performance each quarter since it implemented its turnaround plan last February. The third-largest jewellery retailer in the United States, Zale reported revenue for the November-December period climbed 8 percent to $533.1 million from $493.7 million in the same period of 2009.

Meanwhile, the Signet Group, another major U.S. jewellery retailer, posted an 8.1 percent increase on the year in sales for the last nine weeks of 2010. Indeed, its results illustrated the rising strength of the American market because the increase in sales overall was due to growth at its U.S. stores since those at its U.K. stores – H. Samuel and Ernest Jones – declined by 4.2 percent over the same period. Outgoing Signet CEO Terry Burman said the U.S. division saw same-store sales jump by 11.7 percent on the year.

Internet retailers are also seeing rising sales, with Blue Nile reporting a 14-percent rise in fourth-quarter profit with its best-ever Christmas season sales figures. Blue Nile CEO Diane Irvine said the online retailer was in a good position to take advantage of “significant growth opportunities” in the United States and overseas this year. Blue Nile also forecast that net profit and earnings would be in the double-digit area for the full year, in line with analysts’ expectations.

At the higher-end of the consumer jewellery market, luxury jewellery retailer Tiffany & Co. reported better-than-expected sales during the Christmas holiday sales season, with healthy sales of its high-end fine jewellery, diamond engagement rings and fashion gold jewellery in the November-December period.

In an indication of the growing strength of the economic recovery, Tiffany & Co. said revenue was down for lower-end silver, which was strong during the recession as shoppers looked to reduce spending. Tiffany believes revenue for the fiscal year ending January 31 will come in at around $3.1 billion, just above analysts’ expectations of $3.05 billion. Although sales in the Americas region were the lowest in Tiffany’s worldwide markets, it still came in an encouraging 9 percent higher $484.8 million. As with Zale and Signet, revenue at Tiffany & Co stores open at least a year rose 8 percent when adjusted for exchange rates changes.

Although the U.S. retail jewellery market was hit hard following the onset of the financial crisis in the fourth quarter of 2008, some Antwerp firms noticed the decline considerably ahead of that. Raj Mehta, vice president of Rosy Blue NV, said the American market was already moving slowly in 2007.

“There has been a pick-up in the U.S. market, but it is nothing compared to the growth rate in the Far East and price points have gone down,” Mehta told Antwerp Facets. “The United States has a lot of internal issues to deal with. The situation is improving, but the country still has a way to go to get back to its peak.

“The world is adapting to new price levels, but the United States is not. It is struggling to keep up with the new prices. You can see the reduced budgets that are leading people to request smaller and lower-quality diamonds. That is the face of the retail market in the United States now,” he added.

Are U.S. jewellery sales likely to rise this year? Based on predictions of general retail sales, the answer would appear to be positive. U.S. retail sales are forecast to climb by 4 percent in 2011, which would be the largest rise since 2006, according to a report by the widely watched National Retail Federation (NRF). And that despite consumers still being somewhat cautious, the trade group said. That would lead to total sales of $2.47 trillion for 2011. The figures do not include autos, gasoline and restaurant data.

The NRF’s forecast was the result of looking at a range of economic indicators that give an indication regarding consumer consumption, as well as recent retail performance. The upbeat figures follow seven straight months of sales growth, according to government figures, and particularly holiday sales which rose 5.7 percent, the NRF said. However, although the forecast sales figures for 2011 would be better than the 3 percent average annual growth rate during the past decade and higher than the 3.7 percent growth posted in 2010, it would still be lower than the 5 percent rate that the NRF says reflects a strongly growing economy.

"With retailers leading the charge, the economic recovery appears to be gaining some steam," NRF Chief Executive Matthew Shay said in a statement. Meanwhile, NRF vice president Scott Krugman said, "Consumers have a lot of spending power that they have been sitting on, as evidenced in part by the strong holiday sales.” Consumers are also likely to have extra cash due to Social Security tax cuts that started last month. Meanwhile, at the higher end of the market, the rising stock market is creating the wealth and the confidence to buy more.

However, a rise in retail sales this year cannot be taken for granted since a range of factors could affect them. These include high food inflation and continuously rising gasoline prices. In addition, rising prices of commodities, including cotton and other fabrics, and rising manufacturing and labour costs will boost prices of food and clothing. Analysts at Citigroup forecast a rise of 4-6 percent in clothing costs in the first half of this year, and an even more alarming rise of 13-15 percent in the second half.

Facets