(IDEX Online) – It should be a ho-ho-ho Christmas for American jewelers! Holiday jewelry sales during the all-important November and December 2011 Holiday Selling Season are expected to rise by a range of seven percent to about ten percent, based on “dollars through the cash register.”

 

While the forecasted range of the sales gain is unusually wide this year, it is related to one key unknown: inflation of precious gemstones and metals, especially as those higher prices flow through the distribution channel.

 

The graph below summarizes the IDEX Online research department’s forecast for 2011 Holiday Jewelry Sales for the U.S. market. This range of sales gain – seven percent to ten percent – will yield November-December jewelry sales of between $18.3 billion and $18.9 billion, versus last year’s $17.2 billion.

 

Source: US Dept of Commerce

 

IDEX Online Research is predicting unit sales gains of one percent to two percent, with the balance of the gain – six percent to nine percent – resulting from inflationary pricing related to gold, silver, platinum and polished diamonds.

 

Solid, But Slowing Gain in Final Months of 2011

While the jewelry sales prediction seems robust, it is important to note that this gain represents a slowdown in the jewelry demand versus the first eight months of 2011.

 

Through August (the latest data available), total U.S. jewelry sales have risen by a dramatic 11.5 percent over the same eight-month period in 2010. Thus, our forecast of a sales gain of seven percent to ten percent for the November-December period represents a modest slowdown in the rate of sales gain for the American jewelry industry.

 

Further, based on August preliminary data – the latest available – total U.S. jewelry sales during that month were up 12.6 percent, while specialty jewelers posted an astounding 19.4 percent gain, a number that we believe will be revised downward, though not by more than two or three percentage points.

 

Inflation Is Fueling High Jewelry Sales Gains

What is fueling these unusually strong jewelry sales gains in the U.S. market? On a year-to-date basis, roughly three percent of the total jewelry sales gain has come from higher unit sales, while the balance of over eight percent has come from inflation. The unusually high inflation rate is due to higher precious metals and precious stone prices, which have affected the global jewelry industry this year.

 

Ignore “The Elephant in the Room”

Jewelers continue to tell us that they are worried about the mood of consumers. Both the Consumer Confidence Index and the Consumer Sentiment Index are at the bottom ends of their historic ranges: clearly, consumers feel just awful. And, why not? Americans are dealing with a dysfunctional Congress, high unemployment, depressed home values, a stock market that is bouncing like a pogo stick, and a host of other negative factors.

 

However, as any credible economist knows, how consumers feel and their spending habits are NOT related. There is almost no correlation between any “consumer confidence index” and retail sales trends.

 

It may seem illogical that consumers’ moods and consumers’ spending are not linked. Some economists have suggested that consumers are so tired of hearing the media’s recession rhetoric that they have turned off the television and gone shopping in the mall.  

 

In the American market, there are two adages that help explain the actions of American consumers: “When the going gets tough, the tough go shopping” and “Americans are born to spend.” The American market has more cathedrals of consumption – shopping malls – than any other country in the world. Shopping is ingrained in the American culture.

 

One footnote: while other jewelry news services report consumer sentiment indices, IDEX does not. Now, you know why: it is not a meaningful index for either the jewelry industry or the retail segment in the U.S. market. Ignore those consumer sentiment indices.

 

Headwinds & Tailwinds

While the Great Recession of 2008-2009 is officially over, there are both positive and negative factors and tailwinds affecting jewelry demand and retailers’ sales, as the following list illustrates:

 

Negative Factors

• Economic factors are hurting:
  • Unemployment remains stubbornly high.
  • The U.S. economy continues to stumble along, as if it is in a slumber.

• Rising commodity prices – precious metals (gold, silver, platinum) and polished diamonds – have hurt demand for jewelry.

• The lack of new exciting jewelry has hurt consumer demand. Further, the lack of an industry promotional focus – especially by diamond suppliers – has not kept jewelry a “top-of-mind” category with consumers.

• The iPad and smart phones, priced $200 - $500, are vying for consumers’ discretionary income.

Positive Factors

• Consumer traffic is up in U.S. malls.

• Household debt levels are down significantly from pre-recession levels. As a result, consumers have begun to take on new debt in recent months. Since a large portion of jewelry sales are made on the “monthly payment plan,” this is good news for jewelers.

• Jewelers and other retail merchants are reporting an increased number of transactions.

• The average jewelry ticket has shown an amazing recovery this year.

• Most merchants are reporting an increased conversion rate – browsers-to-buyers – in their stores.

• Bridal jewelry demand remains strong.

• Bead jewelry (such as Pandora) has helped boost jewelers’ sales and margins. Further, bead jewelry has increased the frequency that shoppers visit a jewelry store.

• There has been some recovery in demand for jewelry “basics” such as diamond solitaires.

What “The Others” Are Saying About Holiday Sales

Consensus estimates for U.S. retail sales (all categories except autos) call for a gain of three percent to four percent in the 2011 Holiday Selling Season. Thus, jewelry sales gains are expected to significantly outpace total retail sales. However, we reiterate: substantially higher prices of precious metals and gemstones are fueling the projected gain in jewelry sales. These inflation factors won’t affect most other retail categories.

 

At least one survey shows that consumer intentions to purchase jewelry as a gift in the upcoming Holiday Selling Season are about flat with 2010 levels. The problem is that this survey missed the impact of a rising average ticket for jewelry. The average jewelry ticket is up by at least six percent this year versus the same period in 2010. Therefore, if exactly the same number of people buy jewelry this year as last, and they buy exactly the same items, sales this year will be six percent higher than last year.

 

How Will You Do?

The Holiday Selling Season opportunity is available to all jewelers this year. As we tell jewelers, if you are depressed and think you won’t have a good selling season, that’s exactly what will happen.

 

If, on the other hand, you go into the Holiday Selling Season with a positive attitude, you’ll do well.