IDEX Online Research: Jewelry Suppliers’ Inflation Squeezes Retailers’ Margins
October 24, 11(IDEX Online News) – The disparity between retail prices of jewelry and wholesale jewelry prices swelled in September, according to the latest inflation data from the BLS.
The full analysis is available to IDEX Online Research subscribers and IDEX Online members here.
· Retail prices of jewelry declined by nearly 2 percent in September, when compared with retail prices in August.
· Wholesale jewelry prices, in contrast, rose by over 2 percent in September, when compared with wholesales jewelry prices in August.
Here’s what this means for the American jewelry industry: the margin squeeze that specialty retail jewelers have felt since 2009 has worsened. With retail jewelry prices edging lower and supplier prices rising – a four-point margin loss in September – jewelers’ profits could quickly evaporate, without some near term relief.
Inflation Remains Rampant At Supplier Level
Inflation continues to be rampant in the
· Suppliers’ prices for jewelry in September soared by a record 18.6 percent over the same month a year ago, the largest increase since we began keeping jewelry inflation statistics in 1980, more than 30 years ago. This large gain was driven almost entirely by rising prices for gold and other precious metal jewelry which were up by nearly 22 percent in the month, year-over-year.
The graph below illustrates that suppliers’ jewelry prices have been climbing steadily since 2010, with a pick-up in the pace of inflation in early 2011.
Source: BLS |
· Retail prices of jewelry were up 7.5 percent in September versus the same month a year ago. This was smaller than last month’s jump of nearly 10 percent. Jewelry prices were up strongly in September 2010, so this year’s comparison was against a relatively difficult month last year.
The graph below illustrates that retailers’ jewelry prices have been rising steadily since 2010. In early 2011, retail jewelers raised prices because they felt that 1) the economy was poised for a solid recovery; and, 2) consumers would likely tolerate higher jewelry prices. That “kink” in the inflation curve is clear in January 2011. The good news is this: based on recent sales trends, higher jewelry prices during most of 2011 have had no negative impact on consumer demand for jewelry.
Source: BLS |
The table below provides a detailed summary of inflation rates in the U.S. jewelry industry for the following: 1) year-to-year price comparison for the month of September; 2) month-to-month price comparison for September 2011 versus August 2011; and 3) nine months year-to-date 2011 price comparisons versus the same nine-month year-to-date period in 2010.
Source: Various markets |
Jewelry Inflation Outlook: Is There A Bubble Waiting to Burst?
One of the problems that we’ve encountered at least twice this year is the disparity between jewelry price inflation at the wholesale level and some modest jewelry price deflation at the retail level.
Here’s why this occurs: two different sets of factors are driving price inflation, depending on whether you are a wholesaler or a retailer.
· Wholesalers and suppliers are simply passing along the higher costs related to the rising price of diamonds and precious metals. Their margins are very thin, so they can’t absorb those price changes.
· Retailers must be closely attuned to consumer demand. If they pass along higher costs, they run the risk of scaring off shoppers and dampening consumer demand. There are many, many products vying for consumers’ attention, especially at retail price points below $1,000.
While month-to-month jewelry price inflation showed some moderation at the retail level, inflation levels year-over-year among both wholesalers and retailers are a continuation of trends that began last year. In April and May of 2011, there was a pause in the rate of jewelry price inflation – but it was brief and clearly an anomaly. Since then, jewelry price inflation has been bumping against record levels.
The choppy economic recovery has created a foggy picture of jewelry price inflation. If we eliminate the “fog,” we find an industry faced with a finite number of diamonds. Further, investors who want a “safe harbor” of value in uncertain times are fueling demand for gold. Finally, suppliers’ labor costs in Asia,
In addition, while the
The bottom line: it seems that the jewelry industry must accept “natural forces” as its price regulator. In short, demand and supply – the basic tenets of capitalism – will be the ultimate arbiters of inflation. If that is so, jewelry prices at all levels are headed higher, in our opinion.
The full analysis and statistics on jewelry industry inflation in September are available to IDEX Online Research subscribers and IDEX Online members here. Click here for more information on how to subscribe or become a member.