American shoppers were in the malls again in February, and they were buying jewelry. Total jewelry and watch sales for the month were up a very solid 6.5 percent; that’s against a very modest 2.5 percent decline in February 2009. However, while the percentage gains are strong, total jewelry sales measured in dollars still have a way to go before they will be at or above pre-recession levels.

 

The strong jewelry and watch sales gain in February – along with sales gains in most other retail categories – has been somewhat of a surprise to many economists. They continue to cite a slow recovery in the labor markets as a constraint to consumer spending. They have cited winter storms as a constraint; they have cited a weak real estate market; they have cited a variety of reasons, many of which reflect their lack of a fundamental understanding of how the typical American shopper thinks. This is a fact: Americans are born to spend. In America, when the going gets tough, the tough go shopping.

 

For IDEX Online Research, current jewelry and watch sales trends are broadly in line with our forecasts. Forecasts from IDEX Online Research are based on talking with retailers and shoppers across heartland America. We know sales trends long before the government numbers are published. 

 

Love Conquers All: February Jewelry Sales Outpace Total Retail Sales

Jewelry and watch sales gains in February were stronger than total retail sales gains. This is no surprise, since Valentine’s Day occurs during February. Valentine’s is the second most important selling period for jewelers in the U.S. market.

 

While some consumers are still feeling the recessionary blues, they have not forgotten that “love conquers all.” As a result, they celebrated Valentine’s Day with a gift – likely a nice piece of jewelry and perhaps some heart-shaped chocolates – with their loved one.  

 

In the post-recessionary environment of February 2010, total retail sales, ex-auto sales, rose by a solid 5.3 percent. In contrast, jewelry and watch sales rose by a more robust 6.5 percent. A year ago, in February 2009, jewelry and watch sales fell far less – down 2.5 percent – than total retail sales which were down 9.3 percent. Why? Love was in the air during February, and jewelry was the beneficiary, both last year and this year.

 

The following graph summarizes and compares fifteen months of U.S. retail sales trends (green bar) to total jewelry sales by all merchants selling jewelry (red bar) in America.

 

Source: US Dept of Commercce

 

February Watch Sales Trends Show Reversal from Last Year’s Weakness

Watch sales gains of +7.4 percent were stronger than jewelry-only sales gains of 6.4 percent during February 2010, a reversal of a long term trend during most of 2009. Consumers can tell time using their mobile phones and computers, so the need for a watch (or any other specialty timepiece) is not as great in today’s techie world.

 

However, we believe that wives may have rewarded their husbands with a gift of a watch for Valentines in February. It has been a tough period for workers, and the gift of a nice watch acknowledges that the wife appreciates her husband’s hard work.

 

The graph below summarizes jewelry versus watch sales trends for the past fifteen months. The red bars represent jewelry sales trends while the blue bars represent watch sales trends.

 

Source: US Dept of Commercce

 

We note, however, that February 2010 watch sales as reported by the Department of Commerce were somewhat weaker than watch sales reported by the LGI Network. According to LGI, which tallies fine watch sales at specialty jewelers across America, same-store watch sales rose by 14 percent in January. Sales were particularly strong for watches retailing for several retail price ranges: $150-500 and over $5,000. LGI doesn’t report watch sales below $50 retail. We believe the strength of demand for watches in the $150-500 price range reflects gift sales for Valentine’s Day.

 

Specialty Jewelers’ February Sales Lag Somewhat

Specialty jewelers – merchants whose primary business is selling jewelry – posted a moderate sales gain in February: +3.9 percent. Unfortunately, this was below the total industry sales gain of 6.5 percent. Further, it meant that specialty jewelers lost market share to multi-line merchants – primarily discounters – who promoted value-oriented price points for February’s Valentine’s jewelry.

 

The graph below summarizes specialty jewelers’ sales trends for the past fifteen months.

 

Source: US Dept of Commercce

 

Specialty Jewelers Lost Market Share in February

Specialty jewelers lost market share in February, a continuation of a trend that characterized almost every month during 2009. Last year, consumers were on a “value” quest; shoppers hunted hard for the best values. Initially, preliminary figures showed that specialty jewelers gained market share in January. However, when the government’s revised figures were recently published, it showed that specialty jewelers lost market share in January.

 

The graph below shows that specialty jewelers lagged the sales gain for the total jewelry category.

 

Source: US Dept of Commercce

 

Jewelry Sales by Non-Specialty Jewelers Show Solid Gains

In January, IDEX Online Research introduced a new metric for the jewelry industry: sales by non-specialty jewelry retailers. While the name sounds a bit convoluted, this metric measures jewelry and watch sales trends among all of the more than 100,000 retailers in America who sell jewelry and watches, but who are not specialty jewelers. Mostly, these 100,000 doors are multi-line merchants such as Wal-Mart, Kohl’s, J.C. Penney and others.

 

Why are these non-specialty jewelry merchants important? Just over half of all jewelry sold in the U.S. is bought by consumers in stores that are not traditional jewelry stores. Further, specialty jewelers have been losing market share for the past three decades. They held a market share of nearly 73 percent in the early 1970s. In 2009, specialty jewelers’ market share dropped to just over 46 percent. Clearly, they remain an important component of the U.S. retail distribution system, but they no longer have the dominance that they once had.

 

While total jewelry and watch sales in January were up 6.5 percent, and specialty jewelers’ sales were up a more modest 3.9 percent, jewelry and watch sales at all other merchants were up a much stronger 8.7 percent, as the graph below illustrates.

 

Source: US Dept of Commercce

 

Data Summary Table

The following table summarizes the data used to construct the graphs in this report.

 

Source: US Dept of Commercce

 

Outlook: Jewelry Demand Will Continue to Solidify

IDEX Online Research is forecasting that jewelry sales in the U.S. market will continue to strengthen as the year progresses. The percentage gains may remain moderate, but underlying fundamental demand is expected to be solid, resulting in a strong 2010 holiday selling season.

 

In addition to fundamentally stronger demand, we expect jewelry prices to show significant inflation during 2010, led perhaps by diamonds. Sterling Jewelers has already announced that it has raised prices on roughly 30 percent of its merchandise, particularly pieces with a heavy gold content. If polished diamond prices continue to rise, we will expect to see more prices hikes in the coming months.

 

Between increased consumer spending and inflation, we are expecting U.S. jewelry sales to advance by about 4 percent this year to just over $61 billion. This is more or less in line with the current annual “run rate” of $61.7 billion in February.