Consumers do not buy jewelry from big trade companies any more, while record prices for gasoline and food make them seek cheaper goods. Over the year, gold went up in price 47%, platinum went down 1.2% followed by silver – 6.8%. Gold import in India, the biggest consumer of this metal, dropped 68% in June. India’s demand remains weak due to the lean market and high prices making domestic population shy away from new purchases, Jon Nadler of Kitco writes. July is not likely to look much better for buying gold in India since farmers, who account for 65% of the country’s gold demand, are more concerned with their fields in the monsoon season.
In the United States analysts and politics differ in their estimates of spending power of a statistically average consumer generating about 70% of the GNP. Government statistics show that wages go upwards and contest arguments that this country is hit by recession.
One more aspect is related to the tax rebate program developed by G. Bush’s administration. The majority of mass media analysts believe that tax rebate checks could be a factor facilitating upward movement of retail sales in June.
“Certainly the stimulus checks gave consumers additional money to spend,” Britt Beemer, chairman of America’s Research Group, said. “Consumers are buying the deals. If retailers offer consumers great deals, they’ll go out and shop. If they don’t, consumers won’t.” The data provided by Wal-Mart, the largest U.S. retailer, prove that consumer animation in June was spurred by rebate checks. However, a closer look reveals that jewelry and household goods were among the worst sold inventory. People were brisk to buy grocery and health products. Retailers specialized in clothing, jewelry and household commodities spotted an average 5-percent drop in same-store sales in June. More or less positive news for the jewelry segment was produced by the only retailer, Saks Fifth Avenue. Saks’ same-store sales grew 2% and jewelry sales score was not at all bad, but the company warned that its Q2 results would be generally negative.
Jeff Miller writing for diamonds.net says the rebate program makes him very doubtful if $600 per individual (or $1,200 per family) may influence any trade segment, except those which sell foods and consumer commodities (gasoline, electric power, etc.) to average buyers.
Jay Macintosh of Ernst & Young LLP predicts that the forthcoming Christmas season will not be too favorable for jewelry sales due to rising prices for food and gasoline.
Ernst & Young LLP warned that food prices will be ahead of the cost-of-living index. An analysis of cost-of-living index growth for three years (inclusive of December 2007) revealed that food prices are now going up faster – 5.9% for three months (inclusive of May 2008) as compared to the total 4.9% index growth.
Goldman Sachs refutes the popular assertion about top price segment retailers being immune to recession. The company’s analysts believe that Tiffany & Co. stock will remain a good investment tool in the long term, but the company will run into a series of difficulties in the current year and in the next year. Consumers’ confidence and spending in the top price segment of the U.S. market turned slack, which threatens second semester figures. In the opinion of analysts, negative factors of the domestic market will outweigh the positive effect the company is gaining internationally and the increased foreign buyers’ foot traffic to Tiffany’s flagship store in New York.
We believe that it will be difficult to balance negative phenomena with positive global growth, Goldman Sachs says in its analysis adding that due to this they lower their forecast related to the company’s stock earning power in the 2008 fiscal year from $2.88 to $2.75 and in the 2009 fiscal year from $3.28 to $3.14.
According to analysts, the so-called “Eight-Figure Independents,” an elite club of American jewelers doing $10 million or more in a single store (provided they don’t own more than seven stores, with one or two exceptions), are on the whole a successful market segment.
The quintessential luxury consumer is, by all accounts, still investing in watches and fine jewelry. According to a recent survey of 627 affluent individuals commissioned by the Elite Traveler Magazine, 80% of super-rich consumers (defined as those worth more than $30 million) and 58% of rich consumers (defined as those worth between $10 million and $30 million) anticipate an increase in their luxury goods spending in 2008.
That sentiment was borne out by sales over the 2007 holiday season, which saw a combination of higher-ticket sales and reduced store traffic. “Where we’re seeing decreased volume is in the middle-price-range shoppers looking for gifts in the $750 to $3,500 range,” says Michael Finn, co-owner of Boston’s E.B. Horn.
While sales of high-end watches and designer jewelry remain buoyant, it would be naive to suggest that America’s wealthiest consumers are immune to the seesawing economy.
”The better off you are, the better you’re doing,” says Milton Pedraza, CEO of the Luxury Institute in New York. “But there is some softening at every level. Even the guy with the $100 million yacht can postpone the purchase, and some have.”
According to diamond suppliers, prices on stones of five carats or more have increased about 20% over the past six months, causing sticker shock at the retail level.
“Sales of bigger diamonds have completely dried up,” echoes Denis Boulle, owner of deBoulle in Dallas. “A 10-carat diamond for $700,000? A five-carat for $300,000? It’s crazy.”
However, the madness shows no signs of slowing. In fact, diamond industry analysts are convinced that a graph plotting large diamond prices into the next decade will show a line pointing straight into the upper right-hand corner.
One bright spot of rising prices, at least in the watch business, may be the willingness of some consumers to buy pieces now to avoid paying even more later on.
There is a core belief among America’s jewelers: When it comes to overcoming the uncertain economy, offering consumers unique products is the only viable solution. For most eight-figure retailers, that means a selection of designer brands from vendors who offer regional exclusivity or, better yet, a private-label collection that exists nowhere else.
“While everybody’s moaning or groaning, there are some jewelers posting double-digit increases,” says Ken Gassman, a jewelry industry analyst. One-carat diamonds, reduced to commodities, now sit on shelves, he adds.
“Consumers want to spend money on something that’s different. It’s an ego-driven thing,” Gassman says. “Jewelry has always been used to denote power and status, and that’s true for today.”
One thing most eight-figure independents won’t be cutting back on is marketing, citing an economic downturn as the perfect time to gain market share.
For the past two years, E.B. Horn, in conjunction with public relations agency Conover Tuttle Pace, has sponsored a citywide scavenger hunt called “The Great E.B. Horn Diamond Hunt.” Advertised through the jeweler’s Web site and local media, the event has 200 teams of two searching the Boston area for a $25,000 diamond.
“The people who participated became E.B. Horn fanatics,” Finn says, adding that the winning couples from each year have used the two-carat E.B. Horn diamond prize to become engaged.
Alfredo Molina, founder of Phoenix-based Molina Fine Jewelers, attributes the success of his business to owning large diamonds and impressive colored stones, aggressively marketing his store and creating a sense of urgency among his clientele by focusing on one-of-a-kind pieces.
“The baby boomers are in their peak spending years,” Molina says.
