Jewelry market is recovering, but shrinking

Send Date: 2012-02-16 23:21:17

Source: www.nationaljeweler.com

Jewelry market is recovering, but shrinking

By Michelle Graff  

 Year-end statistics from the Jewelers Board of Trade (JBT) paint a picture of an industry that is on the mend but contracting slowly in North America as specialty jewelers lose market share to other retailers, wholesalers get squeezed out of the business and manufacturing continues to drift overseas.

In a sign the recovery is taking root, JBT year-data for 2011 released in late January shows that the industry hit two positive lows in 2011: number of bankruptcies and claims filed for unpaid debts.
 
Industry bankruptcies fell 39 percent between 2010 and 2011, from 71 to 43.

Bankruptcies declined in the Northeast, Southeast and Southwest but increased in the 18 states that the JBT classifies as North and South Central. JBT President Dione Kenyon said weakness in the central part of the country can be attributed to the continuing fallout from auto industry job losses.

Industry analyst Ken Gassman, who worked with the JBT on the figures, points out that 43 is the lowest number of bankruptcies since the agency began tracking such data in 1996. Bankruptcies among retailers, which numbered 33, also hit a 15-year low in 2011.

While many might guess that industry bankruptcies peaked in 2009 or 2010--the low points of the recession--JBT data shows that industry bankruptcies actually hit their highest point in 2005, with 194, including 150 retailers.

They have been declining steadily ever since, save a small spike in 2009 when 74 companies--the equivalent of about 1 ½ every week--headed to bankruptcy court.

“They were good years, certainly, for the jewelry industry but there was a big washout then, when some of the weak players couldn’t compete,” Gassman said. “Those who are left (today) are the savvy players that have figured out how to navigate the recession.”

Claims placed with the JBT in 2011 totaled 1,684 in 2011, down 24 percent from 2,222 in 2010. The average amount of claims placed also dropped, from $7,698 to $6,623, a decline of 14 percent.

Kenyon said the level of claims is half of what it was in 2009.

She attributes the drop to improving sales and an industry that is more cautious about lending money and goods. “We’re seeing less trouble in the industry,” she said. “This is not jewelry specific. This is happening across industries in the United States.”

A slowly shrinking industry
While the overall fiscal health of the industry is improving, JBT data shows that jewelry is not a field that new businesses, including retailers, are clamoring to enter.

The number of new jewelry businesses declined by 3 percent in 2011, with the number of new retailers declining 3 percent and wholesalers down 12 percent. The number of new manufacturers increased 13 percent, from 30 in 2010 to 34 in 2011.

The total number of retailers, wholesalers and manufacturers in North America is down 1 percent year-over-year, from 30,180 to 29,815. That number has steadily declined since 2006, when the industry numbered 32,112.

Gassman said he has additional data beyond the JBT figures that supports the notion that the number of retailers, also known as specialty jewelers, is on the decline. Specialty jewelers are technically defined as retailers that garner 80 percent or more of their sales from jewelry and the remaining 20 percent from china, giftware, etc. This category includes everyone from Tiffany & Co. to the independent, family-owned jewelers all over the country.

“Specialty jewelers are losing market share to multi-line retailers, like Walmart, Costco, J.C. Penney and others who create a perception of value that is greater than the perception of value that specialty jewelers have been able to create,” he said.

What draws in today’s consumer is “Everyday low prices,” not percentage-off sales, Gassman said.

It’s a pricing phenomenon that hasn’t escaped the notice of other retailers. The new initiative launched by J.C. Penney Co. Inc. centers around all-the-time low prices and very limited amount of promotions.

Gassman said while the recession has caused many consumers to “step down” to the next level of retailers, there still are consumers who are willing to pay more for what has been the hallmark for specialty jewelers’ business for ages: quality, personalized customer service.

And it is this service that new retailers entering the business are emphasizing.

Last year, Lancaster, Pa.-based manufacturer Edward J. & Co. decided to branch out into retail, opening La Porte Jewelers in May. The idea behind the store was to bring a fresh concept to the retail jewelry experience, with showcases suspended from the ceiling that are approachable from all sides and the pieces inside draped around antique candelabras and suitcases.

“What made it easier for us is because we know we are a different retail experience,” La Porte Jewelers Vice President of Sales and Marketing Jeff Mitchell said, when asked if there was trepidation about entering the retail space so soon after the recession. “We’re not trying to put people out of business, but there’s a jewelry model the jewelry had in its golden age that it lost.”

For its first holiday season in business, La Porte Jewelers got creative. The store teamed up with the local Prima Theater Company to put on live, original Christmas skits that were silently acted out in the store’s front windows every Thursday, Friday and Saturday from the beginning of December to Christmas Eve. The skits drew 50 to 60 people a night.

He said customers used to come into jewelry stores to admire the craftsmanship behind fine jewelry and to have pieces custom jewelry made that could be handed down from generation to generation. “Even in the down economy, people are still buying those types of pieces,” for anniversaries, births and graduations, said La Porte Vice President of Operations Kim Williams. “People’s budgets just might have changed along the way.”

Now, Mitchell said, there is too much mass manufacturing and too many retailers that want to rush consumers through the shopping experience so they can get to the next person in line. That is the opposite of the experience they have aimed to create with La Porte Jewelers, which he said exceeded sales expectations in its first year.

The retailer also is an example of vertical integration, another trend that is happening industry wide, said Gassman.

Except for the store’s four watch brands, the jewelry filling the suspended showcases at the Lancaster store is all manufactured by its parent company, Edward J. & Co., as are the custom pieces.

Other stores with vertical integration in their retail models include Indian company Gitanjali, which runs the Rogers and Samuels Jewelers chains in the United States, and Tiffany & Co.

Gassman points out that Berkshire Hathaway Inc. Chairman Warren Buffett also is “tinkering” with vertical integration, scooping up manufacturers for the Richline Group to feed jewelry into his company’s two retail chains, Ben Bridge Jeweler and Helzberg Diamonds.

Though it is not happening rapidly, vertical integration is contributing to the dropping number of wholesalers and, to some extent, manufacturers.

JBT data shows that the total number of wholesalers fell 2 percent between 2010 and 2011, from 4,373 to 4,306. That number has fallen steadily since 2007, when there were 4,671 wholesalers.

The manufacturing sector, which is more widely impacted by companies moving overseas, saw its numbers dwindle by 2 percent, dropping from 3,253 to 3,179. Manufacturers also have declined continually in number since 2007, when there were 3,490, JBT data shows.

Ones to watch
Kenyon expects sales growth to continue this year, albeit at the same slow pace it did in 2011. The stock market currently is up and the latest U.S. unemployment figures show a decline in the jobless rate, but global economic events could land economies here in the “muck” again, she said.

She said the pending presidential election also will impact the economy. “That will play a role. What role that plays ... it’s uncertain at this point, and I think that uncertainty does create some hesitation,” she said.

Kenyon said she doesn’t anticipate a large number of failures among independent jewelers in the coming year.

Among the large chains, she pinpointed Zale Corp., which only recently started posting sales gains after a several-year string of losses, The Bon-Ton Stores Inc. and Sears Holdings Corp. as companies to monitor. Last month, Sears was dealt a blow when CIT Group announced it would no longer loan money to suppliers to finance their shipments to the struggling chain.

Gassman predicts that the specialty jewelry industry will continue to contract at the same slow pace in 2012 and that the overall economy will have its up and downs.

“The good times will return and jewelers will get sloppy ... that’s when they’ll start going out of business again and bankruptcies will go up,” he said.

He said one only has to look to history to know that the jewelry industry has not learned any permanent lessons from the latest downturn. And this memory lapse is not just applicable to the jewelry industry; Gassman cites an old Wall Street adage that “Memories are short and hope springs eternal.”
 
“And that well applies to the jewelry industry,” he said.