Americans went shopping in September. With much lower gasoline prices, consumers breathed a sigh of relief, and treated themselves with a visit to their favorite shopping mall.

 

In September, U.S. specialty jewelry sales soared by 11.3 percent over September 2005. Not only were jewelry sales strong, but most other categories – apparel, sporting goods, hobby, general merchandise drug stores, restaurants, even home supply stores – showed solid gains. We note, however, that comparisons were easy in September versus last year when several tropical stores inundated – and wiped out – much of the Gulf Coast area.

 

Don’t be fooled by the graph below. It shows a dip in retail sales comparisons year-over-year. This dip is due entirely to a 9.3 percent plunge in gasoline station sales. Excluding that decline, core retail sales grew nearly 0.8 percent month-over-month, or in excess of 7 percent at an annualized basis. According to most forecasters, the nation is headed toward an economic slowdown, but someone apparently forgot to tell consumers.

 

Source:  US Dept of Commerce

In part, the strength in jewelry sales is related to relatively easy comparisons with last year. Jewelry demand dipped sharply in September 2005 due to several Gulf Coast hurricanes that nearly wiped out New Orleans and surrounding areas along the Gulf Coast. Americans rallied with aid, and that kept them out of the malls. Further, jewelry price inflation has helped boost reported sales. Retail prices of jewelry are up nearly 4 percent in the U.S. market in 2006, the largest increase since 1992.

 

Luxury Sales Strong

Along with jewelry, Americans’ demand for luxury goods remains robust. Both jewelry and other luxury goods sales rose sharply in September. For luxury goods, the sales gain was the largest gain in the past two years.

 

The graph below compares jewelry retail sales with retail sales of luxury goods.

 

Source:  US Dept of Commerce & ICSC

Mall Jewelry Sales Lag

Jewelry sales among mall retailers continues to lag free-standing jewelers’ sales by a substantial margin.  In part, this is related to strong sales at discount retailers, most of whom have shunned expensive mall locations for free-standing stores elsewhere in suburbia.

 

The graph below illustrates the disparity between mall jewelry sales (through August 2006) and specialty jewelry sales (through September 2006).

 

Source:  US Dept of Commerce & ICSC

Outlook for Retail Sales: Some Slowing Possible

Most forecasters are calling for slowing retail sales over the next few months. Early predictions for the all-important holiday selling season suggest that this year’s retail sales gain will be more moderate than last year’s robust increase.

 

Declining energy prices will help support retail demand, especially for retailers catering to lower income consumers. However, most prognosticators believe that the weaker housing market will gradually take a toll on consumer demand because it will reduce the growth of household wealth. Further, record debt burdens, coupled with a non-existent savings rate, will put a damper on consumer exuberance in the malls.

 

The good news is that the consensus outlook calls for only a slowing economy, not a recession in 2007. Job gains are continuing, even though the pace has slowed. The current low unemployment has created upward wage pressure, meaning that consumers’ paychecks are growing rapidly.

 

IDEX Online Research’s Proprietary Jewelry Sales Forecast Hits New Peak

Forecasts of consumer spending in late 2006 and 2007 have a negative bias. When the negatives and positives are weighed, the scale tips toward a negative outlook. But consumers clearly don’t buy those forecasts.

 

For jewelry, the IDEX Online Forecast Model calls for jewelry sales to rise by about 8 percent for 2006.  This is the largest gain this year, and is an increase from last month’s 7 percent increase that was predicted.

 

Qualitatively, we think that this mathematical model is too optimistic. However, the latest spending trends from the Consumer Expenditure Survey (CES), a government survey of spending in American homes, shows that jewelry sales jumped by more than 13 percent, year-over-year in September. For most of 2006, this indicator has been showing a jewelry sales gain in the low double digit range – +10 percent-12 percent. In other words, consumers are saying that they are spending heavily on jewelry versus the same period last year.

 

If we believe that consumers are telling the truth (when it comes to jewelry, they have been known to overstate its value on the CES form), then it would indicate that specialty jewelers are losing market share to other retailers such as Wal-Mart and department stores such as J.C. Penney. With specialty jewelry sales up 11.3 percent in September and total jewelry sales up 13.4 percent, simple math tells us that jewelry demand among non-specialty jewelers – discounters, traditional department stores, and others – jumped by more than 15 percent. That’s possible due to easy comparisons. That’s also a subject for analysis at year-end.

 

Based on the most recent numbers, it would appear that jewelry sales in America could reach $65 billion in 2006, more than 9 percent above 2005’s $59.4 billion. We had been forecasting about $63 billion in jewelry sales for 2006, a gain of just over 6 percent. As a result of inflation in the jewelry industry at retail, currently running near 4 percent -- far above the level of the past fourteen years – it is possible that jewelry sales could show a large increase in 2006, but unit sales could show only a modest gain.

 

Further, if these sales trends in September continue, the IDEX Online holiday sales forecast for the U.S. jewelry industry could prove to be too low.  We are currently predicting a gain of 3 percent-4 percent. Until we see October figures – due out in mid-December – we will not change our forecast. However, it is subject to revision as new data arrives.

 

The graph below summarizes the IDEX Online Research forecast for jewelry sales in the U.S. market in 2006.

 

Source: IDEX Online Research