While many analysts had predicted “softer” sales for holiday 2007, the numbers posted by major jewelry chain retailers turned out to be positively Grinch-like as same-store sales were down from last year in slides ranging from -2 percent to -10 percent. While some independent retailers painted a more joyful picture of Christmas sales, the numbers for many were due more to larger sales than the increased numbers of sales.
According to Pam Danziger, president of Unity Marketing and author of Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience, her research for the fourth quarter showed that average jewelry spending was down from third quarter 2007. (At press time, actual figures were not available.) A “bad indicator,” she says, as “Normally, you’d expect spending to be up, since jewelry as a category is so heavily gifted.”
DISAPPOINTINGIf there was a common theme in the corporate holiday sales reports from the major jewelry retailers, it was “disappointing.” Arthur E. Reiner, chairman and chief executive officer (CEO) of Finlay Enterprises cited the negative impact of “weak consumer confidence and a difficult retail environment,” while expressing expectations for future profitability to be “significantly” impacted by “recent financing of our revolving credit facility” and focusing on “integrating the recently acquired Bailey Banks & Biddle business.”
Although he pointed out that net sales increased during the fiscal 2008 holiday season, Birks & Mayors President and CEO Thomas A. Andruskevich cited “declines in store traffic patterns that worsened as the holiday season progressed,” as well as a “challenging economic environment” for comparable store sales that were “below expectations.”
Terry Burman, Signet group chief executive, noted it was a “very challenging consumer environment on both sides of the Atlantic,” and that for the U.S. division, Sterling, like-for-like sales performance over the holiday season was “clearly disappointing.”
Tiffany’s Michael J. Kowalski, chairman and CEO, pointed to “a more cautious attitude among customers” while noting that there was” healthy sales growth in the engagement jewelry and silver jewelry categories.”
Zale Corporation President and CEO Neal Goldberg stated that results were “disappointing across all brands.” He mapped out his company’s strategy as focusing on “core mall business,” maximizing “gross margins” and emphasizing a “return on capital,” which he summed up as the “key drivers” that would “generate long-term value for stockholders.”
NO MIDDLE GROUNDIt would seem shoppers who are “merely” affluent are no longer immune from the economy’s roller-coaster ride. Leading luxury emporiums, once unassailable bastions of upper-tier spenders, also saw their holiday numbers take a hit. Nordstrom was down 4 percent and Saks Fifth Avenue was up by only 0.8 percent. On the other hand, Neiman Marcus was up 2.9 percent.
That pattern, says Milton F. Pedraza, CEO of The Luxury Institute, showed that stores like Neiman Marcus, “whose customers are more of the wealthiest people, had some upside, while Nordstrom, which handles the affluent or the merely affluent, was down significantly.”
The downward numbers of luxury brands and stores that target the more aspirational shoppers were not unexpected, says Danziger, who predicted that retailers, like Nordstrom, whose consumer is more the “trading up, lesser affluent,” would have a harder time this holiday that the ones like Neiman Marcus “who firmly have been grounded in those $150,000-and-above superaffluent consumers.”
PUTTING THE NUMBERS IN PERSPECTIVE Looking at the larger economic factors, Scott Hoyt, director of Consumer Economics, Moody’s Economy. com, points to the fact that “house prices are down and the spillover from that into the financial system is taking down equity prices and the wealth-effect spending is not what it’s been the last several years and that’s going to matter, particularly at the higher end.”
“Wealth-effect spending is a bigger deal for higher-income folks,” points out Hoyt. “When all of a sudden their house is worth less than it was before and their stock equity investments are worth less than they were before, maybe they need to save a little more to meet their wealth accumulation goals.”
“Watches and jewelry,” points out Pedraza, “are categories that you can hold back on. It’s really a luxury in the sense of it’s not a necessity whatsoever. And that’s its vulnerability in more challenging times.”
FOCUSING ON THE FUTURE“I think it’s going to be a very tough year for everybody,” sums up Danziger. “The idea of spending money on luxuries, well, you can put that off easily until later. And I think that’s going to be the decision.” In fact, the results of Unity Marketing’s fourth-quarter Luxury Consumption Index, a study of 1,281 luxury consumers whose average income is $155,700, showed 39 percent expected to spend less on luxury in 2008, versus 16 percent who said they would spend more.
“There’s a large set of consumers who need to fix their balance sheets right now,” says Hoyt. “They got overleveraged, particularly on their mortgage side, and there’s not much you can do for them until that gets fixed. On the other hand, lower interest rates, obviously, are going to be helpful to those who have the wherewithal to borrow. Certainly, tax-rebate checks would stimulate some spending, or other forms of fiscal stimulus might, depending on what they are and the timing of it.”
“Of course, this year, particularly in the U.S., you had a more challenging holiday season,” says Dana Telsey, CEO & Chief Research Officer, Telsey Advisory Group (TAG), “from the sense of the American consumer who is more financially strapped. Certainly, both the Europeans and Asians and Russians were still spending out there in the luxury goods marketplace.” Telsey feels that the luxury goods marketplace is continuing to grow, if not at the same level as in years past.
“Right now, the best that anybody can say is that the growth rate has slowed down significantly,” says Pedraza. “Some categories definitely contracted. But in overall luxury, we came off some phenomenal years, so we have a tough comparison. But I think it’s a yellow flag. I don’t think it’s time to raise the red flag.”
Ultimately, Pedraza says, those who cater to the ten-million-dollar-plus consumers may not see the same growth rates as before, but the fact is “people who have high net worth have something to fall back on. And they’re generally older. And they’re not going to stop spending.” The bottom line, Pedraza says, is “people are still going to be having birthdays and anniversaries. So, business will hold up.”
U.S. Same-Store Results November/December 2007STORE U.S. Same-Store Sales
Finlay Enterprises -5.9%
Friedman’s NA
Birks & Mayor’s -10%
Sterling -8.1%
Tiffany & Co. -2%
Whitehall Jewelers NA
Zales -9%
Sources: Company reports
Article from the Rapaport Magazine - February 2008. To subscribe click here.