(IDEX Online) – Retail jewelers ask us why their suppliers keep raising prices. Are the suppliers taking advantage of the retailers? Or is there justification for the sharply higher wholesale prices of jewelry?

 

The simple answer is this: commodities that are used in jewelry – such as polished diamonds, gold, silver and platinum – have soared in price over the past five years, despite the intervention of a deep recession.

 

However, suppliers’ prices have not risen as rapidly as the underlying commodity prices. Worse, though, is the fact that retail jewelry prices have risen at only about half the pace of supplier price increases, as the table below illustrates.

 

Jewelry Distribution Level Price Inflation 2007-2011 Retail Jewelry Prices +20% Wholesale Jewelry Prices +37% Key Jewelry Commodities* +44%   *Key jewelry commodities include gemstones and precious metals.     Calculation based on sales-weighted average.

  

What does this mean? Very simply, margins at all levels of the jewelry distribution chain are being squeezed because of higher costs.

 

How Retailers Can Fix The Margin Problem?

Here are some margin-building strategies and tactics implemented by some jewelers:

 

·        Reduced store-level discounting

·        Increased sales mix of proprietary, non-comparable merchandise

·        Increase sales mix of brands

·        Increase add-on sales of merchandise and warranties

 

Long Term Outlook: Higher Inflation

Over the past 25 years, jewelry prices have risen 2-3 percent annually. We believe that those very low inflation rates are ancient history. Our inflation forecast calls for jewelry prices to rise substantially more rapidly than in the past, with spikes perhaps into the low double-digit range.

 

What are the key long-term drivers of jewelry price inflation? Gold prices are expected to continue to rise as investors seek a “safe harbor” in uncertain economic times.

 

Diamond prices will rise, since the supply is expected to be roughly flat while demand is projected to increase. Platinum demand will increase as the global economy expands; silver usage is also projected to increase. Consumer demand from new emerging middle and upper class shoppers in China and India will drive jewelry prices higher.

 

In addition to implementing margin-building programs, retail jewelers should consider adding goods to their inventory now while prices are still relatively reasonable. Longer term, jewelry prices are headed higher.