IDEX Online Research: Sales Forecast Reduced as U.S. Jewelry Sales Weaken
November 19, 07After posting solid gains for most of 2007, demand for jewelry in the U.S. market weakened dramatically in September 2007. While total U.S. jewelry industry sales were up very modestly, specialty jewelers’ sales declined slightly during the month. Trends in the U.S. market are very important to the jewelry industry, since about 50 percent of all jewelry sold globally (by value) is consumed by Americans.
- Total U.S. jewelry sales in the U.S. market during September rose by a very modest 2.2 percent versus the same month a year ago. For the first eight months of the year, jewelry sales had been on track to increase by 4.0 percent-to-4.5 percent, so September’s slowing growth represents a substantial departure from trend. Further, total U.S. retail sales were up by 2.8 percent in September, so jewelry lost market share.
- U.S. specialty jewelers experienced a very modest sales decline of 0.6 percent in September versus the same month a year ago, based on preliminary figures from the U.S. Department of Commerce. This was down dramatically from the August sales gain of 4.2 percent.
The table below summarizes sales trends for the past three months.
Source: Various
On a year-to-date basis, total jewelry sales in the U.S. market are up about 4 percent, while specialty jewelers’ sales are up about 3.5 percent.
Sales Weakness Creeps to Higher Price Points
Demand for jewelry in the U.S. market has been bifurcated during 2007. Mass market jewelers have barely been able to remain even with last year; on the other hand, guild jewelers have been posting solid sales gains. In general, we have seen weakness among jewelry customers buying sub-$500 average ticket merchandise, while jewelry sales of goods with a much higher average ticket have been strong.
However, there is some evidence that demand is weakening for jewelry merchandise priced at $2,000 and below. Birks and Mayors recently noted that it felt some temporary sales weakness in the September quarter, even at its highest price points.
Jewelers continue to report solid demand for branded jewelry. In addition, designer goods and one-of-a-kind merchandise is selling well. Diamond sales also remain strong, though colored gemstone demand is also solid.
While prices for jewelry in the U.S. market are up due to two key factors – rising precious metals prices and a weaker dollar – there does not seem to be significant price resistance to higher retail jewelry prices. Rather, store traffic is flat or down. Thus, jewelers have fewer opportunities to sell their goods. In the face of declining traffic, those jewelers who are reporting improved sales say that their average ticket is rising; this means that their sales people are doing their job well.
2007 Jewelry Sales Forecast Cut
In the face of a sharp decline in the rate of growth for jewelry sales in the U.S. market, we have cut our jewelry sales forecast for 2007. We are now forecasting a holiday sales gain of 3.0 percent, down from our former 4.0 percent point estimate. For the year, we are reducing our total jewelry sales forecast to a more modest gain of 3 percent or so, down from our prior forecast of 4.4 percent.
Like peeling back layers of an onion, the deeper we dig into the sub-prime mortgage mess in America, the more rot we find. This rot has affected the stock market, and has curtailed lending liquidity among banks. While we take the optimistic view most of the time (that’s the only way to survive in retailing), we believe there is a greater risk of a recessionary environment in 2008. It will be interesting to see how the U.S. Fed deals with the situation in the context of the global market.
September Jewelry Demand Weakens Sharply
Demand in the U.S. market for jewelry softened notably in September. This followed significant volatility in the financial markets in August. We believe that the uncertainty in the financial markets may be causing consumers to review their spending plans for discretionary merchandise such as jewelry. History would suggest that this is only a momentary pause in demand, but it is unclear how long the current pause could last.
The graph below compares specialty jewelers’ sales trends to total jewelry sales in the U.S. market. As the graph shows, jewelry demand began weakening in the late summer, based on revised data just released by the Department of Commerce.
Source: U.S. Dept of Commerce
Specialty Jewelers Lose Market Share
Specialty jewelers not only lost market share to other retailers who sell jewelry during September, but they also lost market share to virtually all categories of retailers. In other words, jewelers lost a notable “share of wallet” during September.
Total retail sales rose by 2.8 percent in September, while total personal consumption in the U.S. rose by about 5.4 percent in September. Personal consumption includes goods and services; retail sales include only retail items.
The graph below illustrates sales trends for all retail goods, excluding food and automobiles (black line) versus specialty jewelers’ sales (red line).
Source: U.S. Dept of Commerce
Consumer Spending Numbers Steady, But It Doesn’t Feel That Way
The U.S. Department of Commerce tells us that consumer spending in the U.S. remains fairly solid. But it doesn’t feel as strong as the numbers suggest. If you go to any mall or shopping center, there are fewer cars, fewer people and fewer packages than we would expect. Retail sales and jewelry sales are softening, according to the numbers. This suggests that Americans are spending their money on other things, such as higher health care premiums and more expensive energy.
The graph below summarizes trends in American consumers’ total spending (blue line), spending on all retail goods (black line), and expenditures on jewelry (red line).
Source: U.S. Dept of Commerce
Specialty Jewelers Report Mixed Third Quarter Results
Sales results from the publicly held specialty jewelers reflected a mixed bag for the third quarter. While most of the companies reported reasonably solid gains in the face of a tough retail environment, sales declined at Zale, a trend which has been ongoing for three quarters. Even before sales began to decline in 2007, Zale’s revenue gains in 2006 were very modest, and reflected loss of market share.
The table below summarizes sales tends for those publicly held jewelers who have reported revenues for the third quarter. Some companies will report third quarter sales later this month or early in December.
Source: Various
Outlook: We’re More Pessimistic
Ben Bernanke, chairman of the U.S. Fed, is an academician at heart. He doesn’t get emotional; he lets the story of the U.S. economy emerge from the numbers. In many ways, we are the same: the numbers tell us the story. In addition, we temper our forecasts with reports from jewelers. Through early September, the numbers most jewelers – especially AGS jewelers – were reporting were generally solid. By late September, there were some signs of weakness, but nothing alarming, in our opinion. However, the numbers that were just released by the Department of Commerce indicate otherwise.
We don’t think these latest industry numbers represent an anomaly. As a result, we have cut our jewelry sales forecast for both the holiday selling season and for the full year. Our new holiday jewelry forecast calls for sales to rise by 3.0 percent, though this could be optimistic. For the full year, jewelry sales are likely to rise by about 3 percent, based both on our mathematical model and conversations with jewelers.
The graph below summarizes our new 2007 jewelry sales forecast for the U.S. market.
Source: U.S. Dept of Commerce, NIPA |