While online jewelry sales grew by a torrid 20 percent pace in 2006, far faster than total jewelry industry sales growth of about 7 percent, the rate of growth for online jewelry sales has begun to slow, a trend which IDEX Online Research forecasts will continue in 2007.

 

As a result of the potential slowing growth of online jewelry sales as well as revisions in total jewelry industry sales forecasts, IDEX Online has revised its online sales projections for the jewelry industry. By 2010, online jewelry sales are expected to represent just over 6 percent of total industry sales, slightly greater than 50 percent of the current market share.

 

Jewelry Online Share of Market Above Average

Despite the idea that jewelry is an emotional selling experience that must be conducted in person on a one-one-one basis by an experienced sales associate, online jewelry merchants have captured a greater market share than the average for all retail categories.

 

In 2006, online sales for all retail categories represented about 2.8 percent of all retail sales, while online jewelry sales reached a 3.9 percent market share. This is due to two factors: 1) a high mix of diamond sales which carry an inherently larger average ticket; and 2) a much higher mix of engagement ring sales which also generate very high average tickets.

 

For example, Blue Nile, the largest online jeweler in the U.S. with sales of $252 million in 2006, generates an estimated 90 percent of its sales from diamonds and diamond jewelry versus a typical specialty jeweler with a 50 percent sales mix of diamonds. Further, about 72 percent of Blue Nile’s sales are engagement rings, more than double the level of a typical specialty jeweler; Blue Nile’s average ticket for a diamond engagement ring is $5,700 versus the industry average for specialty jewelers of about $2,750.

 

Online Jewelry Sales Growing by $1 Billion Every Three Years

While it took seven years – from 1996 to 2002 – for online jewelry sales to reach the $1 billion mark, it took only three years – 2002 to 2005 – to reach $2 billion in total sales. IDEX Online Research is projecting that online jewelry sales in the U.S. will reach $3 billion in 2008, roughly three years after it breached the $2 billion level. However, this represents a slowing growth rate, simply because the percentage gains diminish as the size of the sales base increases (that’s a function of the math). Further, as the online channel of distribution for jewelry matures, new sales will come more slowly.

 

Online Jewelry Sales Forecast: Moderating Gains

The graph below illustrates three forecast scenarios for online jewelry sales: 1) moderating growth (black line); 2) rapid growth (red line); and 3) significantly slowing growth (green line).

 

Internet Jewelry Sales Projections Percent of Total U.S. Jewelry Sales Source:  U.S. Dept of Commerce & IDEX Online Research

 

• Rapid Growth – The red line represents our forecast assuming that online jewelry sales grow at a rate in the low-to-mid twenty percent range for the next several years. This growth rate is in the low-to-mid twenty percent range, an average that includes rapid growth in the very early years of online commerce, and it assumes that a large number of specialty jewelers initiate online commerce over the next few years.

• Significantly Slowing Growth – The green line represents sales growth in the 11-15 percent range over the next few years. This forecast is based on the assumption that the online channel of distribution will mature more rapidly than expected. Further, IDEX Online Research assumes that local governmental jurisdictions will begin to collect sales tax on all online sales; this will help level the playing field and moderate the pace of online jewelry sales growth.

The graph below shows our online jewelry sales forecast, based on “moderating growth” for the next several years.

Online Jewelry Sales Growth Rate Actual & Forecast Source:  U.S. Dept of Commerce & IDEX Online Research

Forecast Revisions

IDEX Online Research plans to review online commerce trends each quarter in 2007, and will issue revised online jewelry sales forecasts as demand characteristics change.