If American jewelers feel like their sales have been on a roller coaster ride, it is no surprise. Since September 2006, U.S. jewelry sales have shown abnormal volatility, with tall peaks and deep valleys that would be enough to make anyone’s stomach queasy.

 

Worse, this jewelry sales roller coaster shows all signs of slowing, perhaps rapidly during 2007. With the U.S. economy in a slow-growth mode, jewelry demand is expected to slump even further, prior to recovering late this year or early in 2008.

 

Jewelers who have let their inventory get too high are headed for trouble. Not only will their banks be putting pressure on them to monetize their inventory, but they won’t be able to increase their credit line for additional open-to-buy at the annual JCK Las Vegas show in June.

 

The graph below summarizes jewelry sales through March versus all retail sales in the U.S. market.

 

Source: US Dept of Commerce

Discretionary Spending Slows

Surging fuel prices hit consumers’ wallets hard in the past couple of months. In addition, unseasonably warm weather has caused consumers to shop for summer apparel much earlier this year than in prior years. Both of these factors had a negative impact on demand for jewelry in March and April.

 

In addition to these two short-term negative factors, sluggishness in the housing market has increased the “worry factor” among consumers. Those people who were trying to sell their homes have found few buyers. Those people who own homes and hope to sell them one day in the future are worried that their homes would drop in value. In both cases, consumers significantly tightened their purse strings, and cut back on discretionary spending.

 

The only recent good news has been the magnitude of tax refunds: the average value was up about 7 percent over the same period last year.

 

Specialty Jewelers’ Sales Especially Volatile

When compared to total jewelry sales, specialty jewelers’ sales were by far the most volatile, as the red line on the graph below illustrates. Further, while specialty jewelers’ sales rose by 1.4 percent in the first calendar quarter of 2007, total U.S. jewelry sales rose by 2.1 percent. This means that specialty jewelers lost market share to other merchants – such as Wal-Mart, Kohl’s, Sears and others. About a decade ago, specialty jewelers sold roughly 50 percent of all jewelry in the U.S. Today, that has dropped to about 48 percent of all jewelry, a number that continues to decline.

 

Source: US Dept of Commerce

 

Outlook: Cloudy

When April jewelry sales are reported, they are expected to be weak. High gasoline prices, stretched household budgets and unfavorable weather trends in April hurt sales of other categories, and jewelers’ results are expected to echo these broad trends.

 

While wage gains currently remain solid due to a low unemployment rate, the slowing U.S. economy will take its toll on employment levels and consumer spending later this year.

 

As a result of souring demand for jewelry, IDEX Online Research has reduced its U.S. jewelry sales forecast for 2007 by 50 basis points to a gain of 3.6 percent for the year from our earlier forecast of +4.1 percent. The following graph summarizes our current forecast for U.S. jewelry sales in 2007, with prior years’ results shown for comparison.

 

Source: US Dept of Commerce & NIPA

What Should A Retail Jeweler Do?

Jewelers who have not controlled their inventory levels properly will find themselves with dead merchandise and no open-to-buy for new goods. Banks will be putting additional pressure on merchants to pay down their credit lines; line increases will become increasingly difficult to negotiate.

 

The Jewelers Board of Trade, which compiles credit ratings on retail jewelers, reported that the average claim for collection placed by jewelry suppliers against retail jewelers during the first quarter of 2007 rose by a dramatic 17 percent over the same period last year. This is an early warning indicator that a record number of retail jewelers are headed for bankruptcy this year, in our opinion.

 

What Can Retail Jewelers Do?

Inventory over 18 months old must be returned for credit or melted down: that’s a do-or-die decision. So, do it. Go to wholesalers with a sharper pencil. Ask for deals. Don’t take the first or second offer from a vendor. If you aren’t happy with the deal, don’t do it.

 

Besides watching costs, now is the time to ramp up your sales promotion activities. Industry trade magazines such as InStore are loaded with ideas to boost sales and profits.

 

Don’t be one of the 800 or so jewelers which we are forecasting will close their doors forever this year.