IDEX Online Research: Third Quarter U.S. Jewelry Sales Robust
December 20, 11(IDEX Online) – Jewelry and watch sales in the U.S. market remained robust in the third quarter, with momentum building during the three-month calendar period. Total jewelry and watch sales rose by 12.5 percent in the three-month calendar quarter of July, August and September 2011.
Here are highlights of jewelry demand in the American market in the third quarter:
· Jewelry and watch sales increased sequentially in all three months – July, August and September – and showed double-digit gains, with the peak coming in September with a 14.2 percent gain.
· Sales drivers were bridal jewelry and fashion jewelry, along with higher average tickets. Shoppers seemed to accept higher prices for jewelry with diamonds and precious metals.
· The outlook for 2011 calls for total jewelry and watch sales to reach $69-70 billion, a gain of 11 percent-13 percent. Sales gains in 2012 are likely to be more modest, assuming that inflation of jewelry commodities moderates.
Shoppers Are In the Malls
Clearly, consumers are in the malls, and they are ignoring a dysfunctional U.S. Congress, an uncertain economy and new unrest in many global hotspots. Once again, Americans lived up to the old adage which has characterized them for decades: “When the going gets tough, the tough go shopping.”
The graph below summarizes third calendar quarter jewelry sales – as compared to the third quarter of 2010 – as well as the same information for the first two calendar quarters of 2011. These quarterly gains are well above the historical annual growth rates of 4-5 percent or so for the U.S. jewelry market. Sales comparisons in 2011 against 2010 were relatively difficult – quarterly sales gains in 2010 were up in the mid-single digit range. Thus, this year’s sales gains are not the result of some mathematical anomaly, but, in fact, represent real gains.
We estimate that about three-fourths of the third quarter sales gain is due to retail price inflation, driven by higher diamond and precious metals prices. The balance – roughly 2-3 percent – is related to higher unit sales of jewelry.
Source: US Dept of Commerce |
Monthly Sales Show Increased Momentum
On a month-by-month basis, jewelry demand momentum increased in the third calendar quarter. However, as the graph below illustrates, jewelry shoppers paused in October, though preliminary data suggests that November jewelry sales gains showed a return to double-digit levels.
The graph below illustrates monthly sales gains for jewelry in the U.S. market. Monthly sales for the third calendar quarter of 2011 are outlined by the red box.
Source: US Dept of Commerce |
Watch Demand Outpaced Jewelry Demand in Third Quarter
While both watch and jewelry demand was robust in the third quarter, watch sales gains slightly outpaced jewelry sales gains. This was a continuation of a trend that began earlier this year.
The graph below shows the comparison between jewelry sales gains (blue bars) and watch sales gains (red bars) by quarter for 2011.
Source: US Dept of Commerce |
Specialty Jewelers Took Market Share
Continuing a trend that began at the beginning of 2011, specialty jewelers in the U.S. market posted slightly greater sales gains in the third quarter than other merchants – discounters, mass merchants, clubs and others – who sell jewelry. However, after the end of the third calendar quarter specialty jewelers lost market share in the month of October. Market share trends in the fourth quarter are far from clear, at this point.
The graph below illustrates quarter-by-quarter sales gains during 2011 for specialty jewelers in the U.S. market. It is important to note that these sales gains are for fiscal quarters in 2011. Except for Blue Nile, all of the other publicly held jewelers operate on a “fiscal quarter” basis. The first fiscal quarter consists of February, March and April. The second fiscal quarter consists of May, June, and July. The third fiscal quarter consists of August, September and October.
Source: US Dept of Commerce |
The following graph confirms that specialty jewelers took market share from other sellers of jewelry in each fiscal quarter of 2011.
Source: US Dept of Commerce |
The following graph shows month-by-month sales for specialty jewelers during the past fifteen months. The third fiscal quarter is outlined by the red box.
Source: US Dept of Commerce |
As we mentioned earlier, we think that October’s relatively weak sales is an anomaly; further, it is based on preliminary data which will be refined in subsequent months.
Public Jewelers’ Results Mixed
While all of the major publicly held jewelers reported sales gains in the third fiscal quarter of 2011, some gained market share and some lost market share.
Harry Winston posted outstanding results, with total sales in its eight U.S. stores up a whopping 44 percent. Its sales per U.S. store were a dramatic $4.1 million for the third quarter; that’s quadruple the average annual sales for the typical U.S. specialty jeweler.
The second largest sales gain was posted by Tiffany, with a 17 percent sales increase in its stores in the Americas. While Tiffany does not report sales for its U.S. stores alone, about 90 percent of the total sales in the Americas group are generated by its U.S. stores. Its New York Flagship store posted a dramatic 24 percent sales gain. Clearly, Tiffany is taking market share in the U.S. market.
Sterling Jewelers, the U.S. division of Signet Group, posted a robust 13.3 percent sales gain. Jared, its upper-end jewelry chain with 181 stores, posted a blowout 18.4 percent sales gain, followed by Kay with a 13.8 percent sales increase. Sales in its regional brands were down by 3.9 percent, but this is misleading since it has been closing stores. On a same-store sales basis, Sterling’s regional jewelry stores generated a 4.3 percent sales gain.
The 27-store U.S.-based Mayors Jewelers division of Birks & Mayors generated a 9 percent same-store sales gain on slightly fewer stores (it had 29 units last year); thus, it is likely that total U.S. sales were up by 2-3 percent or so, based on our calculations.
During the third quarter, Blue Nile underperformed all key metrics when compared to specialty jewelry stores, other merchants selling jewelry (discounters, for example), and online jewelry retailers. Its sales were up a modest 4.1 percent in the U.S. market.
Movado’s retail division continues to struggle. Even though the company closed its money-losing Movado Boutique division last year, the 33-store Movado Outlet stores are barely posting sales even with the prior year. Movado’s expertise lies in watch production and marketing; Movado management would be better off leaving watch retailing to seasoned retail merchants.
The graph below summarizes third fiscal quarter sales results for publicly held jewelers versus the industry averages. The red and orange bars show industry averages, while the blue bars illustrate individual company results.
Source: Company reports |
Drivers of Third Quarter Sales
Publicly held jewelry retailers and independent jewelry merchants echoed the same refrain during the third quarter: the high-end shopper is back. Here are some of the drivers of third quarter jewelry sales.
· Blue Nile, Tiffany, and Harry Winston all said that their strongest categories were price points $25,000 and above. Clearly, the high-end jewelry shopper is back in the market.
· Bridal remains a strong category, with several jewelers reporting that demand for diamond engagement rings – both traditional solitaires and fashion diamond rings – was strong.
· Watch demand picked up momentum in the quarter. Branded watches were particularly strong.
· There was less discounting; thus, there were more dollars flowing through the cash register which boosted sales.
· Multi-national companies such as Tiffany, Harry Winston and Movado noted that demand from customers in mainland China was very strong. A newly rich, rapidly growing middle class of Chinese consumers is ready to shop.
· Price increases at retail stores are “sticking.” Jewelry shoppers do not seem to be turned off by higher prices for jewelry. Perhaps this is because of the mass media’s extensive coverage of sharply rising gold prices. In addition, polished diamond prices are up sharply, but consumers seem to be willing to pay more for them.
· The average selling price / average ticket is up for most jewelers. However, unit sales trends were mixed: Sterling Jewelers, Harry Winston and Tiffany reported that unit sales were up, while both Zale and Blue Nile experienced a decline in unit sales.
Fourth Quarter 2011 Outlook – Bright
With much of the fourth quarter already over, it appears that jewelry demand in the U.S. market has remained strong.
The publicly held jewelers, as a group, went into the fourth quarter with higher than normal inventories. Despite their public rhetoric that they were “cautiously optimistic,” they threw caution to the wind and stocked their stores heavily. It looks like they bet correctly.
In late November and early December, many of the public companies raised their sales and profit outlooks for the year. That says it all.
Why are American shoppers still in the stores buying jewelry? The reasons seem qualitative:
· There is significant pent-up demand for jewelry.
· Consumers are tired of hearing recession rhetoric from the mass media talking heads.
Based on ten months of 2011 sales data, U.S. jewelry and watch sales could be as high as $69-$70 billion for the full year ending December 2011, a gain of about 11 percent-13 percent over 2010 sales levels, based on newly revised data from the Department of Commerce.
Jewelers should enjoy the strong gains of 2011. Our forecast calls for moderating jewelry sales gains over the next couple of years. Assuming that jewelry price inflation moderates to historic levels, we believe that jewelry sales gains will settle in at about 4 percent or so annually.