IDEX Online Research: Jewelry Inflation Flares At Wholesale, But Retail Prices Stable in December
January 24, 10
The margin squeeze continued in December 2009: The margin squeeze was less pronounced for the full year. Wholesale prices of jewelry rose by only about twice the rate of retail prices of jewelry, based on data released recently by the U.S. Department of Commerce. Unfortunately, this has been the trend since mid-summer of 2009. Further, during almost every year of the past decade, wholesale jewelry prices rose faster than retail jewelry prices. December 2009 Inflation High At Wholesale The key jewelry industry inflation statistics for December 2009 are as follows: · Jewelry Producer Price Index (JPPI) = +10.8 percent · Jewelry Consumer Price Index (JCPI) = +1.9 percent The graph below compares the monthly JPPI to the monthly JCPI for 2009.
Source: BLS
2009 Jewelry Price Inflation Moderate
For the full year 2009, the key jewelry industry inflation statistics were as follows:
· Jewelry Producer Price Index (JPPI) = +3.6 percent
· Jewelry Consumer Price Index (JCPI) = +1.8 percent
The graph below compares the annual JPPI to the annual JCPI since 1988. Early in the 1990s, jewelry retail prices rose faster than the underlying wholesale costs. However, for most of the recent decade, wholesale prices of jewelry rose more rapidly than retail prices of jewelry, as the graph illustrates.
Source: Dept of Commerce
Outlook: No Relief from Inflation
As the global economy begins to heat up once again, there will be increasing demand for “hard assets” – specifically commodities including gold, platinum, silver, palladium and diamonds. All of these commodities are major cost components of jewelry.
Until recently, industry labor costs remained modest as producers moved their factories to China and other countries with low-cost labor. However, not only are there no developing countries left with lower labor costs, but labor costs in the Far East are rising. Thus, we expect to see the labor cost component of jewelry begin to rise in 2010 and beyond.
Retailers are faced with a huge dilemma: consumers are seeking a value – better quality goods for a low price – but they are also seeking low price-point merchandise. The quality of merchandise at the “hot” $99 retail price point has deteriorated, and will continue to decline until it becomes junk jewelry. Somehow, consumers will need to be re-educated: you can’t have something for nothing. The industry should explain the value of “luxury” to shoppers.
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