IDEX Online Research: U.S. Jewelry Sales Strong in February, Outlook Mixed

U.S. jewelers had good reason to celebrate Valentine’s Day; sales of jewelry – especially anything red or heart-shaped – were particularly strong. Merchants’ needed this boost of confidence, after lackluster results for the second half of 2005. In January, U.S. specialty jewelers’ sales rose by 6.8 percent over January 2005, in February during the Valentine’s selling period, jewelry sales jumped 8.5 percent over the same period last year.

The graph below summarizes jewelry sales trends versus total U.S. retail sales. 

Source:  Dept. of Commerce

Mall jewelers enjoyed strong sales early this year; with January mall jewelry sales up 9.2 percent (February sales are not yet available). This continues the trend that began in early 2005, with mall jewelers’ sales tracking much stronger than in the past. In 2003 and 2004, mall jewelers’ sales were lackluster due to reduced mall traffic. While we have not seen a notable surge in mall traffic, we believe that mall jewelers’ merchandising, marketing, and promotional efforts are paying off. The graph below summarizes mall jewelers’ sales trends as compared to all (specialty) jewelers’ sales. 

Source:  Dept. of Commerce & ICSC

Luxury goods retailers have experienced mixed sales trends – actually, “volatile” sales trends would be a more accurate characterization. The graph below summarizes luxury goods retailers’ sales trends versus jewelry sales trends in the U.S.

Source:  Dept. of Commerce & ICSC

 

Factors Affecting Consumer Demand

Retail sales volatility this time of the year is not unusual. For most retailers – with the exception of jewelers – January and February are the slowest months of the year, so any variation in sales shows up as a large percentage move. 

Positive factors driving retail demand include a continued healthy labor market expansion, including a low unemployment rate and higher wage rates. Record high wealth levels also support spending. In short, the U.S. economy is set for another strong year.

Constraining factors include the biggest nemesis of all: high-energy prices. While sales at gasoline stations are up almost 15 percent over last year (all price-related), this is coming at the expense of other retailers. Further, debt burdens are near record levels, and will be an increasing drag as they rise due to higher interest rates. Higher interest rates will also reduce the desirability of borrowing to spend, especially in view of the low savings rate (still negative) and the lack of pent-up demand for many goods. Home equity extraction has already begun to slow due to increased borrowing costs, and the coming slowdown in home-price appreciation will intensify the slowing. Thus, consumer cash flow will be down. Finally, rapidly rising benefit costs – especially health care costs – remain a constraint on cash wages. 

IDEX Online Research’s Proprietary Jewelry Sales Forecast

With this month’s sales report, IDEX Online Research is introducing its proprietary jewelry sales forecast for the U.S. market. Very simply, it is a mathematically driven model based on historical sales trends coupled with some economic predictive data. Tests of its performance in the past indicate that it has been generally accurate (though we must admit that a couple of times it made even weather forecasters look good!). 

Based on the latest data (through February 2006) fed into the IDEX Online Research computer, we are forecasting that U.S. jewelry sales will be up about 3.9 percent this year. This is a big jump over the 3.2 percent that the model was predicting in January. While we do not expect to see such large changes in the forecast in coming months, it does highlight the volatility we have seen recently in jewelry demand. 

The graph below summarizes our U.S. jewelry sales forecast for 2006. Each month, we will update the numbers with the latest data. Clearly, as we get close to the end of the year, the model’s accuracy will increase dramatically. In the meantime, we believe jewelers can use this model as a reasonable expectation of jewelry sales in 2006. 

Source:  IDEX Online Research