The worst appears to be behind us. The rate of decline in retail sales – and jewelry sales – has slowed. Further, when queried about where we are in the current recessionary cycle, the consensus opinion of most economists, the Fed and the U.S. government is that the worst is behind us.

 

They point to signs such as the following:

 

• The stock market is gaining ground. Historically, the stock market anticipates an economic recovery by six to nine months.

• New claims for unemployment have dropped dramatically.

• Home prices appear to have stabilized, and home sales are picking up in some areas.

• Retail sales are showing life.

For jewelers, the worst also seems to be behind us. Sales comparisons were at their most disappointing levels in November and December 2008, with less onerous comparisons in January, February and March. April’s jewelry sales numbers, while down year-over-year, declined by only 5 percent. Said in a more positive way, specialty jewelers’ sales in April ran at about 95 percent of last year’s levels, after running at about 85 percent for the prior three months. The improvement in trends has been confirmed both by our research as well as other jewelry sales surveys in the industry such as those published by InStore magazine and National Jeweler.

 

The graph below illustrates jewelry sales trends by month for specialty jewelers in the U.S. market.

 

Source: US Dept of Commerce

 

2009 Sales Forecast Revised Upward

Based on the latest data, we believe our prior forecast of a 10 percent jewelry sales decline in 2009 may have been too pessimistic. At the BEA’s current annual “run rate” of $65.4 billion, annual jewelry sales could be down by only 1 percent. It is too early to start celebrating, but clearly the government’s programs to stimulate the economy appear to be having a positive impact.

 

We note, however, that many jewelers reported a very weak Mother’s Day selling period in May. We think there will continue to be periods of weakness in demand for jewelry, but it appears that the worst is behind us.  

 

The U.S. economy is showing some vitality, after significant weakness over the past year. Three factors are having a positive impact on the U.S. economic recovery:

 

• The U.S. government has thrown all of its defenses at the recession early in the economic decline, long before other nations. Unfortunately, some nations around the world are still arguing about what to do – they remind us of Nero fiddling while Rome burns.

• The U.S. economy is far more resilient than most people understand (especially the mass media).

• The Federal Reserve is engineering the stimulus to put the U.S. economy back on track. If there is one thing we’ve learned over the years, it is this: don’t bet against the Fed. The Fed may not be perfect, but overall its success record is enviable.

April Specialty Jewelers’ Sales Far Less Weak than Earlier This Year

Specialty jewelers posted sales of just under $1.9 billion in April 2009 versus almost $2.0 billion in the same month a year ago, a decline of about 5 percent. For the first fiscal quarter of 2009 (February-April), specialty jewelers in the U.S. generated sales of almost $5.8 billion, down from the prior year’s $6.5 billion, a decline of 11.6 percent. Thus, April’s more modest decline is a hopeful sign.

 

Total U.S. jewelry sales – at all merchants, including specialty jewelers as well as discounters, mass market merchants, and others – posted an annual run-rate of $65.4 billion in April, notably above the average run rate in the first quarter of about $64 billion.

 

These figures are below 2008’s total jewelry sales of $65.8 billion, but are showing improvement from prior months’ comparisons. During April, the Department of Commerce made significant revisions to its sales database for the past five years; thus, these numbers may not agree exactly with data published previously by IDEX Online Research. Further, during May, the Bureau of Economic Analysis made significant revisions to its “total jewelry” sales database, so prior published comparisons are slightly different from current numbers.

 

The table below summarizes retail sales and consumer spending trends for total jewelry, specialty jewelers, and all retailers for the past three months ended April 2009.

 

Source: US Dept of Commerce

 

Specialty Jewelers Market Share Almost Steady

After losing substantial market share for the first three months of 2009, specialty jewelers came back strongly in April. Specialty jewelers’ sales were down 5.1 percent, only slightly worse than the 3.1 percent decline in total industry sales of jewelry. As the table above illustrates, prior months’ comparisons showed that specialty jewelers lost market share. In 1972, specialty jewelers had 73 percent of the market; by 2008, their market share had slipped to 43 percent. Unfortunately, specialty jewelers tend to lose market share in recessionary periods, and they never regain that lost market share.

 

The graph below contrasts specialty jewelers’ sales trends (red line) with total jewelry sales trends (blue line) for the past year.

 

Source: US Dept of Commerce

 

Jewelry Demand Outpaces Other Retail Categories in April

In April 2009, specialty jewelers’ sales were down 5.1 percent, while total retail sales, ex-auto and food, were down 7.3 percent. Thus, jewelers picked up market share from other merchants in April. We eliminate auto and food categories because they can distort overall consumer demand trends. Auto sales are driven by the “deal of the day” promotion, while food demand is not discretionary. With auto and food categories, U.S. retail sales were down 9.2 percent in April.

 

The graph below summarizes sales trends for all retail goods (green line) excluding food and automobiles versus specialty jewelers’ sales (red line).

 

Source: US Dept of Commerce

 

Consumer Spending Remains Weak in April

Year-over-year total consumer expenditures are down slightly – about 1-2 percent – due to two key factors: 1) weaker consumer demand resulting from recessionary pressures; and, 2) lack of price inflation. In January, consumer spending was 1.3 percent below the prior year. However, in February, consumer spending dipped by only 0.8 percent from the same month in 2008. In March, revised data shows that total consumer spending was down 1.8 percent. Unfortunately, in April, the downdraft in consumer spending continued: down 2.4 percent.

 

What is behind slowing consumer expenditures? As the graph below shows, total retail sales growth took a dive in the early fall of 2008. Spending on big-ticket durables – often financed on credit – suffered the most. Consumer expenditures on services also slowed modestly.

 

The graph below summarizes trends in American’s total spending (black line), retail sales of all goods (blue line) and expenditures on jewelry (red line). It is clear that dismal automobile sales in the U.S. market are having a dramatic negative impact on total retail sales. Automobile sales in 2007 (a “normalized” year) were just over 20 percent of total retail sales; thus, it is clear why they have such an impact on total retail sales trends. And, it should be obvious why we typically eliminate them, when we analyze U.S. retail sales.

 

Source: US Dept of Commerce

 

Our Forecast: U.S. Jewelry Sales Down in 2009, But Not By So Much

We try to be realistic, but, frankly, we are an optimist at heart. In the U.S., there are signs that indicate the recession is abating.

 

The U.S. regulators and government attacked the economic weakness early and head-on. In our opinion, government intervention was needed to keep this recession from becoming a full-blown depression.

 

Earlier this year, our preliminary forecast had predicted that total U.S. jewelry sales in 2009 would be between about $59 billion and $60 billion, a decline of about 9 percent to 10 percent from 2008.

 

However, based on April figures, the decline in jewelry sales could be significantly less – perhaps down 5 percent or less, depending on how rapidly consumers return to the shopping centers. We are assuming that there will be no major “system shocks.”

 

For specialty jewelers, the 2009 sales decline could be 8-10 percent from 2008, yielding annual sales of about $26 billion. In 2008, specialty jewelers’ sales were $28.3 billion, down 6 percent from 2007’s $30.1 billion.

 

If our forecast of $26 billion for specialty jewelers in 2009 proves reasonably correct, and 2009 is, in fact, the bottom, specialty jewelers will have experienced a sales decline of only 14 percent or so from peak-to-valley in the current recession. This is a far cry from the 70 percent peak-to-valley decline experienced in the Great Depression.