Fourth-Quarter Sales: Will the Good Times Hold?

Ask jewelry manufacturers, wholesalers, and watch companies about prospects for the final quarter of 1998, and you’ll get a range of reactions, from guarded optimism to nail-biting uncertainty. One thing everybody agrees on, though, is that it will be hard to match last year’s record-breaking Christmas season.

Orders were strong at jewelry shows through the first half of 1998, a period during which the stock market soared into uncharted territory. But in September, as this issue went to press, unprecedented volatility in the market contributed to growing uncertainty.

At Ambar Diamonds Inc. in Los Angeles, co-owner Israel Itzkowitz reports sales up 15% for the first half compared to the same period in ’97. “Shows were wonderful,” he says. “People are buying. At the wholesale and manufacturing level, sales are very good. But how the jewelry industry as a whole will fare in the final quarter is a shot in the dark. The bottom line is that things could change dramatically overnight.”

Itzkowitz himself expects strong sales in the final quarter, but nothing like last year’s 30% gains. Then again, that’s not a goal for the firm, which manufactures jewelry priced between $2,000 and $400,000 retail. Keeping up with last year’s spike in demand – with additional capital, staff, and manufacturing capability – left Ambar with “stretch marks like when you have kids. It was beautiful, but extremely crazy,” he recalls.

At New York-based Cyma Watch Co., orders through the first half of ’98 were “pretty incredible,” says president Hugh Glenn, though he declines to reveal sales gains. “Everyone was buying. I’ve never seen jewelers so positive. Our business has never been better, and what’s so important is that the jewelers are saying that, too. Let’s just hope it continues.”

At Auragem, a division of Aurafin Corp. that makes jewelry priced between $79 and $399, orders are also up. Though the privately held Sunrise, Fla.-based firm won’t disclose figures, vice president Jack Morris notes that clients placed fourth-quarter orders earlier this year than last. Also, they’re “controlling inventory better than ever with conservative buying and other tactics. That being the case, they’re really promoting the big sellers instead of just buying a little of this and a little of that.”

Prospects for the final quarter also look strong for Lafayette, La.-based Stuller Settings Inc., a privately held manufacturer and distributor. Ray Stroup, vice president of marketing, notes, “Christmas ’97 was so strong that retailers really depleted their inventories. So the replenishment business was exceptional in the first quarter of ’98, and has continued to boom right along since. We expect Christmas to be very good.”

Almost across the board, manufacturers, suppliers, and watch companies note a healthy move upward in price point. At New York-based Frank Mastoloni & Sons Inc., sales were up 15% for the first half of the year, primarily as a result of demand for South Seas and higher- quality cultured pearls. The firm is “very excited about prospects for the fourth quarter,” says Raymond L. Mastoloni Sr., vice president.

Cyma’s Glenn notes that jewelers are ordering more 18k gold watches instead of 14k – which adds $500 to $1,000 to the price tag for a watch. Auragem Corp. has seen sales pick up significantly in its $199 to $399 retail lines. Its biggest volume has always been in the $99 to $199 price range. Auragem is also selling more genuine precious gems as opposed to lab-created gems. And Ambar Diamond sees a dramatic uptick in orders for 2- to 5-ct. diamonds.

Some higher-end manufacturers said they would welcome a correction if it weren’t too severe. “We have a lot of nice orders in house and optimistic feedback from stores, which is realistic because the economy in general is good,” says Robert Chalson, president of New York-based William Chalson & Co. Inc., which manufactures jewelry priced between $500 and $40,000. “The only fear I have is whether money comes loose from the market to buy Christmas gifts. The people making money are so busy making it, it’s a guessing game” whether they’ll spend it. Chalson adds, “If the market slows down, maybe people will decide to spend more. The money is there. It’s just that we have to relocate it.”

Robert Hammerman of New York-based Hammerman Brothers, which manufactures jewelry priced between $500 and $2 million, shares that concern. “The really rich I’m not worried about. It’s that middle-range 45-year-old whose annual income is $1 million who can spend $20,000 to $100,000 on a piece of jewelry. Where is he these days? The people who buy $500 necklaces from Zales are around. That’s doable in a good economy. But that big-decision type of jewelry isn’t happening.”

Gems on the Loose

Jewelers are often at loose ends when planning how to display loose gems.

How do you “romance” the stone when you’re showing it in a little plastic box or mini-certificate laboratory packet that conveys about as much emotion as a plastic toothbrush holder? Scattering them inside your display case or on a piece of open gem paper seems like asking to lose the stones or have them overlooked by your customers.

Yet you want to communicate that you sell loose gems and you want to convey the quality and beauty of your offerings. Pam Levine, founder and president of the New York-based design consulting firm, Levine Design, has developed two acrylic displays that accomplish both goals. Though the displays aren’t commercially available, their design elements may be of interest to jewelers.

The first display features a set of two midnight-blue tiered trays perched on a frosted glass-like wedge. Diamonds rest in a bevel on each tray. Levine designed the display for Only Diamonds, an Ohio chain that was recently purchased by Gross Diamond Centers of Louisville, Ky.

Only Diamonds used the piece to display 7- to 8-ct. cubic zirconias. Why display simulants when genuine diamonds are for sale? According to Patty Light, vice president of marketing and advertising for the chain prior to its purchase, “The size is eye-catching, but we wouldn’t want stones like that in the store out of our inventory control. Also, we decided against displaying them in the case, which tells the client that we have only what’s in this case. There’s more mystique – and security – in having the stones brought out separately for the client to view in private diamond viewing rooms.”

The color of the display, which rests on similarly tinted ultrasuede, combined with its ability to let light through, highlights the clarity and sparkle of the stones. And the text on the display – which reads, “We are pleased to offer an extensive selection of unset diamonds from 1/5 to 5 carats” – prompts sales-oriented conversations with customers, says Light.

Only Diamonds borrowed its approach from another acrylic display Levine had previously designed for the International Colored Gemstone Association (ICA). “They were attracted to the display and saw no reason to reinvent the wheel,” she says.

The ICA design – three clear acrylic trays in a pyramid shape with beveled slots for colored stones – was created for the organization’s year-long ruby promotion in 1996. With beveled edges that suggest the faceting of a stone, the display has been used by the organization ever since.

“When we designed this display, what was being offered to the industry was very standard,” says Levine. “Other displays didn’t allow light to come up from behind the stones and didn’t satisfy the need to put a lot of different sized, shaped, and colored gems together. Our challenge was to make sure that the stones really were the heroes and that the display was invisible to the product.”

While many ICA members – wholesale colored gemstone dealers – continue to express interest in purchasing the display for their own sales and marketing initiatives, it hasn’t happened. The reason: The nonprofit membership organization didn’t think it was appropriate to underwrite the cost of manufacturing the display and to serve as a distribution network for it.

“But, if someone could produce this at the right price and sell it directly to our membership, it would be very useful,” says ICA’s executive director, Maureen Jones.

Sales Rise Through June

Mirroring a robust economy in general, jewelers reported solid gains in sales for the first half of 1998.

A recent survey of more than 100 jewelers nationwide conducted by JCK reveals a median growth in sales volume for the second quarter of 10% and an overall median growth in sales volume of 8% for the first six months of the year.

Budget More for Travel

Buying trips and industry shows will cut more out of your budget in 1999. According to Runzheimer International, a management consulting firm, business travel costs are expected to jump 4.8%.

Higher expenses may discourage some jewelers, but not Kelly Newton, owner of Newton’s Jewelers in Fort Smith, Ark. Newton spends $12,000 to $15,000 annually on buying trips for his $3-million-revenue store, traveling about three weeks every year. “We go to some out-of-the-way places anyway, so we’re used to ridiculous prices,” Newton says. “There’s really no way for us to budget for our travel because we alter our plans as we go – for instance, taking off from Milan into the Italian hillside or going into the mountains near Bangkok – if we hear of a new buying opportunity.”

The rise in travel costs predicted by Runzheimer, which is based in Rochester, Wis., was calculated based on a weighted average of price trends among four categories:

• Air travel – up 5.1%. For routes with little or no competition, fares are expected to zoom up 10%.

• Lodging – up 4.9%. Downtown hotels are expected to raise the tab by 12%. Suburban and airport hotel rates are expected to increase 7%, but more companies are using budget-oriented hotels, pulling down the overall growth rate.

• Meals – up a modest 3.5% because of a shift toward more casual business entertainment.

• Car rental – up 4.8%.

“The advantage of taking buying trips used to be getting lower prices on goods,” says Newton. “Now it’s selection and being able to buy unique things.”

Key Stats

52% – Gross margin for jewelry chain stores in 1996 (most current data available). Gross margin is defined as net sales minus cost of goods sold expressed as a percentage of net sales.

45% – Gross margin for independent high-end jewelers in 1996.

48.7% – Average gross margin for all jewelers for 1996, down from 53.2% a decade earlier.

29% – Current average gross margin for all retail categories compared to 34% a decade earlier.

19% – Average gross margin for consumer electronics stores.

13 years – Period during which luxury goods sales are expected to remain strong as a result of the Baby Boom population reaching peak earnings years (between 45 and 65 years of age).

7 years – When overall retail spending trends are expected to soften for goods across the board.

13 years – Average lease term.

11% – Growth in Waterford collectors club – from 27,000 members in 1996 to 30,000 members in 1997.

105,000 – Number of members in Lladro collectors club – which remained unchanged between 1996 and 1997.

15% – Growth in Walt Disney collectors club – from 65,000 in 1996 to 140,000 in 1997.

12% – Growth in membership in the top U.S. collector clubs, many of which are sponsored by companies. Membership in such clubs grew from 1.4 million members in 1996 to 1.6 million in 1997.

SOURCES

(Numbers represent order of data presented)

1,2,3 1997 edition of Jewelers of America’s Cost of Doing Business Survey; 4,5,6,7,8 G.A. Wright Special Report: Retail Trends 1998; and 9,10,11,12 Unity Marketing’s Market Study of Collector Clubs.