The results of Jewelers of America's (JA) 2010 Cost of Doing Business Report are not pretty, but they are also not surprising, given the economy: 2009 retail jewelry sales fell for the third year in a row, finds the report, released exclusively to National Jeweler.

 

Based upon the results of a survey conducted annually as an industry benchmarking tool, the report showed that the median sales decline was 4.5 percent (see Change in Annual Sales chart below), a decline that came on top of a 3.5 percent drop in 2008 and 0.3 percent decline in 2007, which was the first recorded decline in the survey's two-decade history.

 

"As the report covers financial data from 2009-a year in which the national economic crisis left no industry unscathed-it's no surprise that respondents reported a median overall sales decrease," JA states in a media release.

 

This is the second year JA conducted the survey in conjunction with National Jeweler magazine and its America's Best Jewelers benchmarking program. The survey included responses from 331 companies including: independent mid-range stores (57.9 percent of participants), independent high-end stores (25.8 percent), designer/artist/custom jewelers (13.2 percent) and jewelry chain stores (9.1 percent).

 

The 300-plus participants represent a significant decline in participation from 2009, when 687 companies took the survey and reported their 2008 results. According to the report, some respondents provided complete information, while others provided partial information. One-third fewer firms provided detailed financial information. This year also marked the first year that JA didn't mail a printed questionnaire to all members. Instead, 99 percent of participants completed the survey online.

 

 

Looking at Cost of Doing Business data by store type reveals that 2009 wasn't a year of entirely bad news for all retailers.

 

While sales were down across the board for every type of jewelry store in 2009, designer/artist/custom jewelers experienced a median sales increase of 3.1 percent for the year (see Change in Sales By Store Type chart below), compared to a 0.8 percent decline in 2008. Mid-range independent stores also recovered somewhat, with sales declining 0.9 percent, compared with a 5.5 percent drop in 2008.

 

Chain stores continued to fare the worst, reporting the steepest decline, 13.6 percent as compared to 13.2 percent in 2008. And independent high-end retailers were hit hard, with their sales falling 7.5 percent after recording only a 1.3 percent drop in sales in 2008.

 

Industry profitability was a median 3.8 percent net profit as a percent of net sales, just slightly greater than 2008's 3.6 percent, its lowest recorded level since 1989.

 

 

Perhaps fueled by the uptick in the amount of margin-friendly sterling silver carried by fine jewelry stores or the increase in the number of mid-range independents that took the survey, gross margins for specialty jewelers were up across the board. Independent high-end stores led the way, with margins jumping from 43.5 percent in 2008 to 47.6 percent in 2009. Mid-range stores saw a more modest increase from 50.4 percent to 51.2 percent.

 

Overall, the median gross margin was 49.4 percent up from 48.6 percent in 2008.

 

The Highs and Lows

In addition to detailing sales, the Cost of Doing Business compares the habits of high-profit firms-defined as those in the upper 50 percent of companies as ranked by ratio of earnings before interest and taxes (EBIT) to total assets-to those of low-profit firms.

 

Even though high-profit firms (sales down 0.9 percent on average) and low-profit firms (sales down 7.8 percent on average) both experienced sliding sales in 2009, the report demonstrates that effective management continues to be critical, especially during tough economic times.

 

High-profit firms' total operating expenses were lower than those of low-profit firms, spending less on payroll, occupancy and advertising and promotions. 

 

Firms that boasted high profits also got more out of their employees-averaging sales of $289,770 per employee versus $235,030 per employee for low-profit firms- and achieved gross higher margins (51.2 percent versus 47 percent).

 

"Inattention to operations resulting in small cost increases in a number of areas appears to explain much of the difference between being very profitable and not profitable," the report states. "Low-profit does not mean low sales volume."

 

Interestingly, however, this year's survey showed that high-profit firms actually operated larger stores in terms of square feet than their low-profit counterparts. The average store size for a high-profit firm was 3,124 square feet compared to an average of 2,498 square feet for low-profit firms.

 

Distribution of Sales

As noted in the report, the distribution of sales among specialty jewelers continues to remain relatively stable. While there were some changes, they weren't monumental enough to shift the established pattern. They also weren't surprising, given the state of the economy, the report notes.

 

Diamonds continued to make up the largest percentage of sales for specialty jewelers, though sales of the stones declined for the third year in a row. Diamonds (including loose stones and diamond jewelry) constituted 46 percent of sales, down from 49 percent in 2008 and 52 percent in 2007.

 

Colored stone and karat gold jewelry accounted for 8 percent of sales, and repairs remained important, making up 10 percent of sales for specialty jewelers.

 

According to the report, sales of fashion merchandise spiked 25 percent but the category remains a small percentage-5 percent-of jewelers' sales. Sales of estate/antique jewelry also rose substantially but the category still only accounts for 3 percent of specialty jewelers' overall sales.

 

The report also examines Internet usage among retail jewelers. Though it notes that retailers have become more open to marketing online and connecting with customers via social media, retailers still aren't capitalizing on the Internet's full potential. Notably, last year's report made the same observation.

 

Still, the number of jewelers who said they use the Internet to promote and sell jewelry rose to 37 percent in 2009, up from 28 percent in 2008, and the number of retailers who said they had no plans to use the Internet dropped, from 11 percent in 2008 to only 6 percent in 2009.

 

The Cost of Doing Business report is available on CD or via e-mail. To order, click here, contact JA's Member Services department at (800) 223-0673 or send an e-mail to info@jewelers.org. The price of the report is $24.95 for members and $150 for non-members.

 

National Jeweler will take a more in-depth look at the Cost of Doing Business in its November/December issue.