Just under 400 U.S. retail specialty jewelers closed their doors in the first six months of 2009, up from about 300 closures in the same period a year ago, according to new data from the Jewelers Board of Trade.

 

However, jewelry store openings continue to offset these closings: 91 brave merchants decided to open a jewelry business in the first six months of 2009, despite the tough economy. This is almost in line with the 96 new openings in the first six months of 2008.

 

Thus, so far this year, the U.S. jewelry industry has lost a net of about 300 jewelers, for a net loss of about 1.3 percent of the total number of specialty jewelers.

 

On an annualized basis, this suggests that roughly 1,000 jewelers will go out of business this year, and about 225-250 new jewelry businesses will open in 2009, for a net loss around 750 jewelry businesses. Historically, more jewelry store openings and closing occur in the second half of the year.

 

When projected jewelers’ closings are netted against projected new jewelers opening stores, the industry could see a net decline of about 3.3 percent in the number of specialty jewelers operating in the American market.

 

If the U.S. jewelry industry loses a net of 750 businesses this year, it would be at the high end of the typical range of the annual net shrinkage of specialty jewelry businesses. The industry has lost a net of about 500-700 jewelry businesses each year for the past two decades. But this year’s projected net shrinkage of jewelry industry retail capacity would not be a record loss; in 1988, the industry lost a net of 1,500 jewelry businesses, or just over 5 percent of the total jewelry businesses in the U.S. This was followed by a loss of another 1,100 in 1989 and a loss of 922 in 1991. Thus, this year’s projected net loss of 750 jewelry businesses – just over 3 percent of industry retail capacity – is far less than some dire predictions about the potential demise of the U.S. jewelry industry.

 

Census totals for jewelry manufacturers and wholesalers also dropped in the first half of 2009. The number of manufacturers who closed in 2009 edged up modestly from last year. However, the number of jewelry wholesalers who closed in 2009 – 108 businesses – spiked by more than five-fold over the same period a year ago, when just 18 wholesale businesses closed. These figures are roughly in line with our forecast, which calls for the number of wholesale jewelry suppliers to shrink dramatically, both in 2009 and following years.

 

Just Over 22,000 Specialty Jewelers in the U.S.

As of the end of June, 2009, the Jewelers Board of Trade (JBT) reported that there were about 22,323 retail specialty jewelers operating in the U.S. The JBT census counts each jewelry business once, no matter how many stores they operate. Therefore, even though Kay has about 1,400 stores and Zale operates about 2,000 storefronts and kiosks, Kay and Zale represent only two of the 22,323 businesses in the JBT census. We estimate that there are about 26,000 jewelry storefronts in the U.S. (the government counts storefronts, but its data runs about two years behind).

 

Where Have The Jewelers Gone?

Of the almost 400 jewelers – actually 391, based on JBT numbers – who closed their doors this year, some declared bankruptcy, others were sold or merged, and some simply folded their tent and stole off into the night.

 

There were 45 specialty jeweler bankruptcies in the first half of 2009, more than double the 20 bankruptcies that were reported in the first half of last year.

 

Consolidations – mergers or sales – occurred in 92 cases, down from last year’s 110 mergers or sales in the first half of 2008.

 

Finally, a total of 254 specialty jewelers simply closed their doors, apparently with little or no fanfare.

 

In addition, there are another 500 or so specialty jewelers who are “missing in action” so far this year, according to the Jewelers Board of Trade. These are jewelry businesses that were moved from “listed” to “unlisted” status because they did not answer JBT’s request for information. They also may be businesses that have shut down their store, but continue to operate from home or a suitcase; or, they may be businesses that have moved to part-time status. Jewelers Board of Trade began compiling the number of jewelers “missing in action” in the first quarter of 2008, so there is no long term historic data comparison which can be made (JBT cites these jewelers as “ceased operations”, but that is a misnomer, since many of them may still be in business, but are unaccounted for). 

 

Here is a summary of the Jewelers Board of Trade statistics for the first six months of 2009 (all figures are year-to-date) for specialty jewelers in the U.S. jewelry market:

 

 

Source: Jewelers Board of Trade

 

 

The 500 or so jewelers who are “missing in action” are not included in the “closings” census above, since their status is undetermined. Last year, there were about 200 jewelers on the “missing in action” list at the end of the first six months. It is not possible to determine how many of those jewelers actually shut down versus the number that were restored to an active listing later in 2008 or early 2009.

 

We also note that the number of jewelers shown in the category “Sale / Merger / Consolidation” appears to include a few suppliers and manufacturers; JBT does not compile detailed statistics for this category.

 

Jewelers’ Creditworthiness Deteriorates Somewhat, But Not To Dire Levels

The Jewelers Board of Trade reported that the average size of the payment claim placed by vendors against retailers with unpaid bills was $9,036 for the first six months of 2009, up 17 percent from the average of $7,696 for the first half of 2008. Further, the number of claims rose by a very modest 3 percent to 1,905 for the year-to-date 2009 through June versus 1,858 last year in the same period.

 

It is no surprise that the size of vendors’ claims against retailers is up, but the unexpected news – good news – is that the number of claims has risen so modestly.

 

During the first half of 2009, the number of retailers’ credit rating downgrades exceeded upgrades, as would be expected. This is similar to last year’s trends, when retailers’ credit downgrades also exceeded upgrades in the first six months.

 
The following table summarizes the Jewelers Board of Trade credit upgrades, downgrades, claims placed, and average claim size for the first six months of 2009 versus the same period in 2008 for retail specialty jewelers in the U.S.

 

 

Source: Jewelers Board of Trade

 

 

Bankruptcies Heaviest in Northeast

The northeast of the U.S. has been particularly hard-hit during the current recession. Therefore, it is no surprise that a disproportionate number of jeweler bankruptcies occurred in that geographic region. According to the Jewelers Board of Trade, about 29 percent of this year’s 45 bankruptcies occurred in the Northeast states; this is a region with about 22 percent of the nation’s jewelers. The Southwest was also hard-hit, with 22 percent of the bankruptcies in the first six months, but with only 16 percent of the nation’s jewelers. The other four regions – Southeast, North Central, South Central, and Northwest – had a lower rate of jewelry bankruptcies than their expected proportionate share, based on the total jewelry census by region.

 

New Store Openings In Proportion to Existing Jewelers

While jeweler bankruptcies were concentrated in the Northeast and Southwest, the number of new jewelry stores opening was spread geographically in direct proportion to the number of jewelers already operating in a particular region. For example, 22 percent of the new jewelry stores that opened in the first half were in the Northeast, a region that already has about 22 percent of the nation’s jewelry stores. The Southwest saw 18 percent of new store openings; it currently has about 16 percent of the nation’s jewelry stores. There were 91 new jewelry businesses opened in the first half of 2009, according to JBT statistics.

 

Manufacturers Continue to Consolidate

The fall-out rate for jewelry manufacturers has increased somewhat in the first half of 2009 versus the same period of 2008. However, there was a big jump in the number of bankruptcies of jewelry manufacturers year-over-year. Finally, the number of jewelry manufacturers who opened was the same in both years, as the following table illustrates:

 

 

Source: Jewelers Board of Trade

 

 

Jewelry Wholesalers’ Closings Spike

Jewelry wholesalers have not fared well in the current recessionary environment. As we have been forecasting, the number of jewelry wholesalers who close their doors is expected to rise sharply. Far too often, wholesalers do not add enough value to the distribution channel. When retailers (or manufacturers) seek ways to cut costs, wholesalers’ commissions are one of the first items that will be chopped. Further, more and more retailers are able to buy directly from manufacturers, thus by-passing wholesalers.

 

The number of wholesalers closing their business in the first half of 2009 spiked more than five-fold from the same period a year ago – 108 wholesale businesses closed this year versus just 18 businesses last year. Further, the number of bankruptcies doubled, but it was still very small. Mostly, the wholesalers simply close up their shop, cut off the lights, and leave, with no fanfare. The following table summarizes changes in the jewelry wholesaler census in the American market for the first six months of 2009 versus the first half of 2008.

 

 

Source: Jewelers Board of Trade

 

 

Outlook for Jewelry Industry Census in 2009 – A Moderate Decline in Specialty Jewelers and Manufacturers; A Sharp Drop in Wholesalers
We continue to maintain our forecast of a net of about 1,000 or so jewelry business closures during 2009, offset by roughly 225-250 openings. Both jewelry store closings and openings tend to occur more frequently in the second half of the year. We normally expect 35-40 percent of jewelry store openings and closings to occur in the first six months, and 60-65 percent of the openings and closings to occur in the second six months. This is a bit of a surprise; normally retailers stay open through Christmas to raise cash, and then close immediately after the New Year, when their cash coffers are full so they can pay their debts prior to closing.

 

We are also predicting a modest rise in jewelry manufacturers who will close this year. However, we believe jewelry wholesalers are going to suffer the most, with closings continuing to accelerate. Most other consumer business categories have eliminated wholesalers from their distribution channel; jewelry is likely to be next.

 

There have been dire predictions about the number of specialty jewelers who will go out of business this year. As Mark Twain might have said, “The reports of our industry’s death are greatly exaggerated.”

 

There are a number of reasons for the lack of a total washout among specialty jewelers this year:

 

• While the number of jewelry businesses will likely rise this year, jewelers’ financials have been under pressure for some years. Thus, the weakest jewelers have already closed.

• There were a number of high profile jewelers who closed over the past couple of years – notably Whitehall and Friedman’s. We don’t see a major chain going out of business in 2009. Thus, the net number of storefronts that will close this year could be around 1,000, since the few chains which have closed are businesses with only a limited number of stores, rather than hundreds of stores, similar to Whitehall and Friedman’s.

The graph below illustrates our projected net decline in jewelry businesses in 2009, based on trends established in the first half of the year.

 

 

Source: Jewelers Board of Trade

 

 

While most of those in the jewelry industry – retailers, wholesalers, manufacturers, and others associated with the industry – have a decidedly pessimistic view of the future, we note that the numbers – sales, census, and profits – have not been as bad as some had feared. Certainly, the numbers have not been as bad as the mass media has tried to make them look.

 

There is no question that historic trends confirm that the number of jewelers who close will rise in a recessionary period. However, this economic slowdown has not been as bad as some had predicted. From peak to valley – on an annualized basis – U.S. jewelry sales are likely to be down by 14-15 percent or so. In the Great Depression, jewelry sales fell by 70 percent. That won’t happen in the current economic cycle.

 

Broader View Outlook – Less Sparkling

In 1971, specialty jewelers sold 73 percent (by value) of all the jewelry purchased by consumers in the U.S. Last year (2008), specialty jewelers sold just 43 percent of all jewelry bought by American shoppers. During recessionary periods, specialty jewelers tend to lose market share that they never recover.

 

There are roughly 128,000 storefronts where Americans can buy jewelry. Specialty jewelers have about 26,000 of those storefronts, or about 20 percent of all stores that sell jewelry. Thus, consumers have a huge number of stores from which to choose their jewelry.

 

Broadlines merchants – such as Wal-Mart, Kohl’s and others – are taking market share from specialty jewelers. Not only do these merchants have sharp prices, but they have recently begun to invest in training for their jewelry sales employees.

 

We recently heard a retail quote that went something like this: if your product isn’t different, then how you sell it must be different, if you are going to survive.

 

If jewelers want to maintain – and perhaps even gain market share – they need to create new competitive differentials for their business. Specialty jewelers continue to promote cheap, cheaper, and cheapest. That won’t work long term.