Jewelry industry consolidation accelerated in the second quarter of 2005 as major chain jewelers posted sharply higher sales gains than independents.  The disparity between the chains’ performance and the independents’ performance was at record levels in the three-month period ended June as the graph below illustrates. 

 

Second Quarter 2005 Sales Trends Who Gained or Lost Market Share? Total Revenue Percent Change Year-over-Year Source: Company reports, DofC, ICSCN

 

Total U.S. specialty jewelers’ sales were up 2.1% in the second quarter (see graph above); this statistic includes the sales of all specialty jewelers – each mom-and-pop store up to the largest chains such as Kay and Zale.  Among the chain jewelers, every publicly held merchant except Whitehall posted a solid sales increase.  In contrast, independent jewelers’ sales were about flat in the second quarter, based on estimates by IDEX research. 

 

Chain jewelers, with their heavy advertising power and superior sales training, are rapidly taking market share from independents.  Further, chain jewelers are increasing their presence in malls as independents are being pushed out by mall landlords who want credible jewelers with strong finances.  Finally, with a highly mobile society, jewelry shoppers want assurance that the ring they bought on the west coast can be serviced across the nation, no matter where the consumer’s next job might be located.  

 

As the graph below illustrates, chain jewelers have been taking market share from the independents for several years.   

What drove sales for the major chain jewelers in the second quarter?  The following is a summary of factors which company management mentioned as sales boosters.

 

• Zale Corporation – In general, Mother’s Day sales were strong, but the balance of the quarter was weaker.  Total sales in the quarter were up 3.7%, while same-store sales were nearly flat at +0.1%. 

o       Zale division – New merchandise, upgraded assortments, and new collections helped boost sales.  However, a weak in-stock position, caused in part by flood-related shipment disruptions from India, hurt.  Marketing spend was up slightly for Zale brand stores. 

o       Peoples (Canada) – Diamonds, especially diamond solitaires, were strong.  The company introduced ear piercing in Canada; this helped drive sales of earrings.  The average ticket dropped 23% at Peoples because the company introduced carts in malls; these carts sell a preponderance of low-ticket merchandise. 

o       Piercing Pagoda – Sales were driven by body jewelry and gold earrings.  Further, while demand for Italian charms may have peaked, sales remained relatively strong.  Semi-precious stone jewelry and diamond accented jewelry also helped drive sales in this division.

o       Bailey Banks & Biddle – The average ticket rose sharply due to more upscale merchandise.

o       Bridal and wedding jewelry was strong at all brands.

o       Zale’s corporate-wide average ticket edged up marginally.  The table at right summarizes the average ticket by brand. 

 

• Sterling – The U.S. division of Signet Group PLC reported the strongest sales gain of any store-based public company.  The total sales gain of 12.6% was driven by strong same-store sales of +7.9% as well as a 4.7% increase in new space.  The average selling price rose in the first half of the year due to expanded diamond jewelry selections (mostly in the Leo brand) as well as strong demand for Swiss watches in the Jared division.  Management noted that it is selling more higher-priced high quality diamonds. 

 

• Finlay Enterprises – Total sales at Finlay were up 5.9%; same-store sales were up 0.1%.  This was slightly below the weak performance experienced by most of Finlay’s host department stores.  Virtually all of the total sales gain came from the acquired Carlyle stores.  While leased departments in Federated units showed gains, softness in May stores hurt results.  Strong products included silver with diamonds, circles in every fabrication, right-hand rings with diamonds and semi-precious stones, moissanite, diamond earrings, and single-stone cocktail rings. 

 

• Tiffany & Co. – In the U.S. division, total sales rose 8% and same-store sales were up 6%.  Sales in the New York Fifth Avenue flagship store were up a modest 3%, while New York branch stores posted a 10% sales increase.  U.S. branches posted a 6% sales gain.  The average ticket was up and the conversion rate was up, despite a decline in store traffic.  Strong categories include engagement jewelry, core fine jewelry, Celebration rings for self-purchase and gifts, statement jewelry with colored diamonds, fashion gold jewelry, silver jewelry, and some collections such as Hearts, Jazz, Voile, and Rose.  Watch demand was soft.  Tableware and silver gift jewelry were also soft.  All price ranges experienced higher sales, but Tiffany’s sales were strongest in two retail price ranges:  $3,000 to $10,000 and above $50,000.  Tiffany’s e-commerce and catalog sales rose by only 5%, somewhat below plan.  In its international division, several categories drove demand:  fine jewelry, collections, new diamond and platinum jewelry, engagement jewelry, band rings, and fashion gold. 

 

• Mayor’s Jewelers – Total sales were up 11.7%, with same-store sales up 11.5% in the June quarter.  Sales were driven by an increase in the average ticket, an increase in high-end sales, and strong results from annual marketing initiatives such as the spring catalog. 

 

• Movado – Movado, the watch producer and marketer, currently operates 27 Movado Boutiques and 28 outlet stores; it was the 21st largest U.S. specialty jeweler last year with sales of $74 million.  Not only do the Movado stores sell watches, but a large portion of their sales are generated from fine jewelry.  In the second quarter, three product categories drove sales in the Movado Boutiques:  1) fashion diamond jewelry; 2) yellow gold jewelry; and 3) collections.  Total sales for the 27 Movado Boutiques rose by 21.4% while total revenues for all 55 Movado stores (boutiques and outlets) rose by 14.1% in the second quarter.  Same-store sales in the Movado Boutiques rose by 2.3%; same-store sales in the outlet division rose by 9.3%. 

 

• Blue Nile – Blue Nile’s total sales advanced by a robust 25.1%.  The average ticket rose by 10.1%; total orders increased by 12.9%.  Three product categories drove Blue Nile’s sales:  1) engagement rings; 2) diamond jewelry; and, 3) loose diamonds.  Further, the company was able to raise diamond prices enough to help catch up for prior price increases over the past 12 months. 

 

• Odimo – Total sales at Odimo rose by 11.3%.  Total orders were up 12.2% while the average ticket was flat.  Revenues were driven by higher diamond sales and more demand for jewelry.  Luxury goods demand and watch sales both declined in the quarter.  Virtually all of the sales gain came from the company’s diamond.com website. 

 

The bottom line trends:  luxury jewelers generated the best results because big, flashy diamonds and jewelry sell to American consumers.