The surge in consumer spending seen in the first half of 2010, which seemed to portend bluer skies ahead for the jewelry industry, has flat-lined in recent months with the initial stimulus dollars already spent, and unemployment and housing woes still lingering, Michelle Graff says in an article posted by National Jeweler.
While there is much debate about the technical term to apply to the current state of the U.S. economy—such as whether we will see a "double-dip" recession and whether the country was indeed ever out of the initial recession in the first place—one thing is clear: If this keeps up into the fourth quarter, retailers shouldn't bank on seeing too much sales growth this holiday season.
"Whether it's called a recession or not, the consumer isn't exhibiting any signs of strength and appears to be retreating again, as far as I can see," says Chris Ellis, managing member and president of Consensus Advisors, a boutique investment banking firm that works closely with many major industry players. "There's no evidence pushing them the other way."
It is a disappointing but not entirely surprising prediction. One would only have to scan the latest news headlines to understand what is weighing down consumer confidence: a stubborn unemployment rate and a still-struggling housing market.
The U.S. unemployment rate stood at 9.5 percent in July, unchanged from June. But Ellis says the reality of the out-of-work scene is harsher than that. Factor in those people who have simply quit looking for work and those who are employed part-time, but would rather have full-time work, and unemployment actually stands at 16.8 percent.
That means nearly one in five Americans who are part of the workforce are unemployed or under-employed-a staggering statistic- and almost 50 percent of those actively job-hunting have been out of work for almost six months, he says.
Add in the stalled home sales that resulted from the expiration of the government's first-time homebuyer tax credit, and it makes for one timid consumer at the most inopportune time—heading into the fourth-quarter holiday spending season, a time generally regarded by jewelers as the most profitable of the year.
Fear of the unknown
Pam Danziger, president of Stevens, Pa.-based luxury research firm Unity Marketing, bears similarly glum news.
"Things are going to be kind of soft through the rest of the year," she says.
Unity Marketing's Luxury Consumption Index, which measures consumer confidence among high-end shoppers, leveled off in July at 78.1, after continually rising from its lowest point in the third and fourth quarters of 2008, she says. The baseline for the index is 100, so 100 or anything above would be an indicator of strong consumer confidence.
The latest Unity Marketing tracking study, a survey of 1,349 luxury consumers (average annual income of $306,700) conducted from July 3 to July 8, showed that 36 percent of luxury consumers think the country is worse off now than it was three months ago. Only 31 percent expressed this sentiment in March.
There's also no question of a "double-dip" recession for these wealthy shoppers. According to the survey, three out of four of them say the country never officially emerged from the first downturn.
For the affluent consumer right now, it's not fear of losing their job or their home's value that's gotten to them, Danziger says. It's fear of the unknown.
"The worst of [unemployment] is over for the affluent consumers but they're still getting a lot of mixed messages," she says. "[Consumers think] the prudent thing is to be cautious."
Stocking up after emptying out
Jimmy West, executive director of industry buying group Leading Jewelers Guild (LJG), uses the same word—"cautious"—to describe the mood among the group's retailers. He says LJG jewelers are pulling back their advertising spend in traditional mediums and, if West had to guess, he would bet that spend on direct mail, catalogs, radio and television spots is sinking across the board.
Joe Murphy, chief operating officer of Continental Buying Group (CBG), uses a similar term, "conservative," to describe CBG retailers' attitudes heading into the fourth quarter.
"I don't think anybody's looking for the world to be set on fire," he says.
In terms of merchandise, retailers are sticking with lower price-point pieces and bridal, with many investing in prototype lines, which consist of samples crafted in sterling silver with cubic zirconia or diamond simulants, a trend that Murphy thinks has staying power. These so-called "brass-and-glass" lines allow retailers to expand their selection without sinking a lot of cash into inventory.
Not making the shopping list? High-end fashion pieces.
As Andie Weinman, chief executive officer of CBG, puts it, "Luxury is on a vacation."
For the time being, the affluent are looking inside their jewelry boxes and concluding that, for now at least, what they have is enough.
"My girlfriends, they have their big engagement ring, they have their Rolex watch," Weinman says. "They're not going to buy another one."
Murphy says CBG retailers would be happy to achieve single-digit sales growth over last year.
The one bright spot this year will be that the large-scale bankruptcy liquidation sales that wrecked havoc last holiday season—Bailey Banks & Biddle and Carlyle & Co. were among the higher-profile names to close shop last year—have exited the scene, leaving fewer retail players in the field.
West says LJG members expect sales to be flat or increase 1 or 2 percent. He says LJG retailers are buying inventory only because they can't head into the holiday season with empty showcases.
"People are buying this year because the last couple of years they really concentrated on getting rid of all their inventory," he says.
But just how much of that inventory they'll be able to sell is today's $64,000 question.
"I don't want to cast doom and gloom but I think it's reality," West says. "I think it's going to take another year before we're back to anything that looks like normal."
