Specialty Jewelers Hit Hard by Covid Closures - Full Analysis

American specialty jewelers' revenues have been hard-hit this year by mandated store closings due to Covid-19. As a result, producers, suppliers, and retail jewelry merchants have faced greater-than-normal uncertainties about the market.

In an effort to provide the diamond and jewelry industry with benchmarks to measure sales levels over the past several months, IDEX Research has summarized the results of the major publicly-held jewelers with distribution in the U.S. market. 

There are three specialty jewelers who provide reliable, consistent data about their performance in the American market, and who also have significant retail market share.  Those three publicly-held jewelers with retail outlets - Signet, Tiffany, and Movado - generate almost a quarter of the total specialty jewelers' retail sales in America.  We believe their results could be viewed as a proxy for the $32 billion U.S. specialty jewelry sector.

The first fiscal quarter reports for publicly-held jewelers covers sales during February, March, and April, while their second fiscal quarter includes May, June, and July.  The graph below summarizes their weighted sales by fiscal quarter compared to total U.S. jewelry and watch sales.  Total U.S. jewelry and watch sales trends are shown by the blue bars, while a weighted average of sales by Signet (US), Tiffany (US), and Movado (US retail, wholesale and licensed) is shown by the orange bar. 

Here's what an analysis of year-to-date 2020 results of publicly held jewelers' U.S. results shows:  

·     Sales - Publicly-held jewelers' in the U.S. market have been below the average for all jewelry and watch sales.  This is no surprise:  The publicly-held jewelers operate bricks-and-mortar specialty jewelry stores, almost all which were closed by government mandate in the 2020 Spring selling season.  By contrast, multi-line retailers like Walmart, Costco, and Macy's were allowed to keep their stores open and kept serving jewelry shoppers.  Amazon's jewelry business improved; because they are an online retailer, their business was not affected by government mandates related to closing bricks-and-mortar stores. 

·     Online Sales - All three major publicly-held jewelers have a solid infrastructure, and they were able to ramp up online sales and marketing efforts quickly.  In contrast, smaller independent specialty jewelers, often called "mom-and-pop merchants" - whose stores were closed due to government mandates - were unable to quickly implement an online sales effort.  Signet's online brand, James Allen, posted a solid double-digit sales gain amidst an environment in which bricks-and-mortar jewelers were posting dramatic double-digit sales declines. 

Advertising / Marketing - The large publicly held specialty jewelers posted smaller sales declines than mom-and-pop independent jewelers in part because those major jewelers have much larger advertising budgets which can drive business to their stores.  Here's a comparison of advertising and marketing costs, as a percentage of sales, of the major U.S. specialty jewelers versus independent specialty jewelers: 

Average Ticket / Transactions - Specialty jewelers' number of transactions plunged; even when they were able to make sales, their average ticket - average transaction value - was down.  Consumers simply weren't impulse shopping, and jewelers were unable to create add-on sales.

Luxury Jewelry Demand - The higher-end jewelers such as Tiffany and Jared posted a smaller sales decline than lower-end specialty jewelers.  History has shown that wealthier jewelry consumers tend to continue to spend, regardless of external issues like the economy, the stock market, natural disasters, and other issues that may cause greater uncertainty among lower income shoppers. 

·     The average transaction value by brand helps to differentiate between "luxury jewelers" and "popular-priced jewelers". Signet's average transaction value by brand for 2019 is shown on the table below; Tiffany's average ticket data is estimated, based on historic figures and trends.  Movado does not break out sales by market category on a quarterly basis, but the average retail price range by brand illustrates the breadth of their product range. 

Very Low-End Jewelry - Piercing Pagoda, which sells popular-priced fashion jewelry, posted a far smaller sales decline than its sister specialty brands like Kay and Zale.  A few malls remained open to accommodate multi-line retailers; Piercing Pagoda's kiosks captured business in those malls.  

·     Watch Demand - Consumer demand for watches was weaker than demand for jewelry among specialty jewelers. 

Early Summer Turn-Around - The turnaround in jewelry sales came in the June-July period, when stores reopened and shoppers returned to the malls. 

Third fiscal quarter sales - August, September, and October - will be reported in late November and early December for the publicly-held companies.  IDEX Research will summarize results. 

The tables below were created by IDEX Research after culling press releases, financial information, and legal documents.  They summarize detailed performance in the U.S. market by the three major publicly-held jewelers who provide a break-out of their performance on a market-by-market and brand-by-brand basis. 

Signet Group - U.S. Stores

Signet operated 2,454 stores in the U.S. at the end of the second fiscal quarter of 2020. It also operates stores in Canada and the U.K., the Republic of Ireland, and the Channel Islands. 

Some observations: 

·     Bridal jewelry sales fell more dramatically than we might have expected.  In part, this was due to weddings - large social gatherings - that were delayed due to mandated government restrictions of group sizes.  

·     Watch sales showed the largest decline among Signet's sales by product mix.  

·     Initially James Allen, Signet's online store, showed a small sales decline, but bounced back strongly in the second fiscal quarter.

Signet reported preliminary August sales trends:  1) same-store sales rebounded solidly with an 11 percent gain; and 2) e-commerce sales rose by a dramatic 65 per cent in the month. 

The table below summarizes Signet's detailed sales trends for the first and second fiscal quarters of 2020.

Tiffany & Co.

Tiffany operates about 123 company-owned stores in the Americas, including the U.S., Canada, and Latin America.  It also operates stores in Asia-Pacific, Japan, and Europe. 

Some observations:

Sales in Tiffany's Americas stores did not bounce back in the second quarter as rapidly as they did in other world locations.  Sales in Tiffany's U.S. stores represent about 86 per cent of the Americas sales, and they represent about 43 per cent of total worldwide sales. 

Engagement jewelry sales declined more than other categories for Tiffany as consumers delayed wedding plans. 

Store closings peaked at about 75 to 80 percent of the company's worldwide retail stores in April.

Tiffany's e-commerce sales in the U.S. market increased by 122 per cent in the second fiscal quarter of 2020 versus the same period last year.  For the first six months of the fiscal year, Tiffany's e-commerce sales rose by 67 per cent in the U.S.  Worldwide e-commerce sales were about 15 per cent of sales in the first half of 2020 versus an average of about six   of worldwide sales for the previous three fiscal years.

After the end of the second quarter Tiffany reported three key sales trends for the August-September period:  1) worldwide sales were up 25 per cent; 2) online sales roughly doubled (online sales represent about 13 per cent of sales versus about six per cent a year ago in the same period; and 3) U.S. sales were down in the low double-digit range.  

The table below summarizes Tiffany's detailed sales trends for the first and second fiscal quarters of 2020.

Movado

Most people think of Movado as a watch producer.  However, it has 45 company-owned retail stores in the U.S. and two company-owned stores in Canada.  Direct-to-consumer sales (mostly from stores, but also e-commerce, repairs, and other revenues) represent almost 25 per cent of Movado's total corporate revenues.  About 40 per cent of Movado's total corporate revenues are generated from U.S. sales, including stores, wholesale sales, and licensing revenues.

Some observations:

Total consumer-direct sales fell by slightly less than total company sales.  However, sales in all segments - stores, wholesale, and licensed brands - dropped by about half in both quarters.

Online sales more than doubled in the second fiscal quarter. 

The table below summarizes Movado's detailed sales trends for the first and second fiscal quarters of 2020.

Third Fiscal Quarter Sales

As noted earlier, the public companies will report results for their third fiscal quarter during late November and early December.  IDEX Research will summarize those results.