Professional Documents
Culture Documents
Jewelry Retail
QUARTERLY UPDATE 7/7/2008
SIC CODES: 5944
NAICS CODES: 44831
Industry Overview
The US jewelry retail industry generates annual revenues of about $25 billion from 30,000 specialty stores. Large
companies include Zale, Tiffany, and Sterling Jewelers. The industry is fragmented: the top 50 jewelry chains hold less
than half of the market.
COMPETITIVE LANDSCAPE
Jewelry sales depend partly on consumer income. Small jewelers can effectively compete with large chains because
price isn't the main factor determining sales. Profitability depends on merchandising and effective marketing. Average
industry revenue per worker is about $160,000.
Jewelry is also sold in department and discount stores, and by mass merchants. Because regular gross margins are
very high, often 50 percent, mass merchants have been able to cut prices and take market share. Wal-Mart is the
largest jewelry retailer in the US.
Jewelers' operations consist of buying jewelry from manufacturers and wholesalers, training sales staff, and marketing
products through various channels. Many jewelers also operate repair services, which can account for 10 percent of
annual revenue. Company buyers must be both technically skilled and aware of fashion trends. Most retailers buy
merchandise fully finished from many different manufacturers. Some retailers also create pieces themselves. Tiffany
manufactures about 30 percent of its jewelry, and has licensing arrangements with several jewelry designers who sell
their designs only through the company. Retailers also sell merchandise on consignment from manufacturers.
Selling costs are high for jewelry retailers, who generally wish to project an upscale image, because high quality sales
space, furnishings, and expert sales personnel are expensive.
Marketing is typically through newspaper and magazine advertising, although some retailers also use direct mailing, and
is typically directed at a particular demographic group. Whitehall, for example, targets middle- and upper-middle-income
women over 25.
Larger companies like Zale Corporation operate several chains that target different shoppers. The average sales price
of an item is less than $200 at its Peoples Jewelers chain and close to $1,000 at its Bailey Banks & Biddle chain.
FINANCE & REGULATION
An average jewelry store has annual revenue of $1 to $2 million. Stores are often smaller than 2,000 square feet, and
the average selling price per item is close to $300.
Jewelry sales are highly seasonal, with 40 percent of revenue and the majority of profits generated in fourth quarter:
25 percent of annual jewelry sales are in December. Merchandise inventories are high, often more than 50 percent of
annual sales, and inventory controls must be tight to prevent embezzlement. Accounts receivable are very high for
companies that offer their own credit card.
Credit is an important consideration for all jewelers, since credit availability is necessary to sell an expensive product.
The average cash purchase is usually much lower than the average credit sale. About 50 percent of a typical jeweler’s
sales are financed on credit cards. Some local jewelers extend credit themselves on large purchases to well-known
customers, a practice that has had disastrous results for some companies in recent years. Big chains like Whitehall
typically offer a private credit card through a third party, taking no credit risk themselves. Most small retailers avoid risk
by taking only third party credit cards.
Like other retailers, jewelers are basically unregulated by the government except insofar as they must adhere to
standard fair trade and credit laws. The FTC provides guidance to jewelers to accurately advertise and describe
gemstones, especially if they have been treated to change color.
Most jewelry sold in US stores is imported. Imports have increased rapidly in recent years. The largest sources of
jewelry imports in 2005, excluding costume jewelry, were India, China, Italy, and Thailand. Israel and Belgium are the
major world centers for cutting rough diamonds into finished gemstones. The US is the world's largest diamond jewelry
market, accounting for about 50 percent of global sales.
The world supply and price of uncut diamonds is still largely controlled by the Diamond Trading Company (DTC), an
arm of De Beers of South Africa. De Beers controls a majority of the world's trade in uncut diamonds through its own
production and purchase agreements with other major producers, like Russia and Angola. Retailers don’t buy directly
from De Beers, although most of their manufacturers do. As the operator of a cartel, De Beers isn't allowed to own
companies in the US.
HUMAN RESOURCES
Employees of higher-priced jewelry stores usually require special training and may be bonded for security reasons.
Because of the special expertise required, most workers at high-end stores are full-time. Salespeople often work on
commission. Typical hourly wages are below the national average. Retail jewelry stores have an exceptionally good
safety record.
MONTHLY NEWS
Texting jewelers: R U with Gen Y?
National Jeweler Network, 26 June, 2008, 1177 words
Seattle-The children of the baby boomer generation are here, and, if the marketing radar is right, they are ready to
shop. Born between 1978 and 1993, and dubbed "boomlets," "echo boomers" or members of "Generation Y," this 15-
to ...
Study: World's uber-wealthy still crave luxury; New York-Despite increasing costs and financial market turmoil, the world's
high-net-worth ...
National Jeweler Network, 26 June, 2008, 440 words
New York-Despite increasing costs and financial market turmoil, the world's high-net-worth individuals (HNWIs) and ultra-
high-net-worth individuals (Ultra-HNWIs) continued to seek luxury items last year, according to the 12th annual World ...
The Jewelry Channel going off-air; Austin, Texas-In yet another sign of tough economic times, a Texas-based jewelry
television network announced it ...
National Jeweler Network, 18 June, 2008, 341 words
Austin, Texas-In yet another sign of tough economic times, a Texas-based jewelry television network announced it will
cease operations in early August. In a letter to the Texas Workforce Commission obtained by National Jeweler, Austin, ...
Retailers Buying Gold Due to High Prices - Gold prices have increased significantly over the past several months.
Many jewelers, to combat higher gold costs, have started buying used gold jewelry. Jewelers who buy gold pay
customers cash and then resell the jewelry to a processor for a profit. Some jewelers say that the process will help them
survive otherwise lean times, while also generating consumer interest in other items.
Richest Emerge as Customer Focus - Economic downturns often mean hard times for retailers, but high-end jewelers
can take comfort in new research suggesting that ultra wealthy consumers aren't planning to cut back. Americans who
claim $10 million in net worth plan to increase spending near-term, according to research firm Prince & Associates. The
80 percent of the ultra wealthy consumers planning increases may be the customer base of many high-end jewelry
retailers looking to weather the hard economic times affecting most consumers.
Business Challenges
CRITICAL ISSUES
Sales Tied to Economic Growth - Jewelry sales are tied to the health of the US economy, particularly changes in
disposable personal income and consumer confidence. Sales of expensive jewelry, especially, depend on good
economic growth. For example, during the last recession, jewelry store sales dropped 5 percent.
US real disposable personal income, an indicator of jewelry retail activity, increased just under 1 percent in
March 2008 compared to March 2007.
Competition from Mass Merchants - Specialty jewelry stores continue to lose market share to mass merchants like
Wal-Mart. Specialty stores now account for only about half of all jewelry sales in the US. The share sold by traditional
department stores has been declining as well.
Wal-Mart plans a large expansion in Canada of up to 27 new supercenter stores, which may impact sales at
local jewelry stores in many Canadian cities.
Influence of De Beers - The world diamond supply and pricing are strongly affected by De Beers, the South African
group, which controls 65 percent of the world's rough diamond supply. However, De Beers faces increased competition
from Canada, Australia, Angola, and Russia, and has encountered legal obstacles in the US and the EU because of its
business practices.
Exposure to Credit Risk - Some local jewelers extend credit themselves on large purchases to well-known customers,
a practice that has had disastrous results for some companies in recent years. Extending credit is common, and expands
during good economic times. Credit collection is lower during difficult economic times, at the same time that profit
margins slip within core jewelry sales.
Public Mistrust of Jewelers - The public is wary of, and intimidated by, jewelers, a perception not unfounded given
the average 100 percent price markup in the industry and the difficulty consumers have assessing product quality. Wal-
Mart's success in selling jewelry stems partly from consumer perception that it has the lowest prices.
Crime Exposure - The small and expensive nature of the merchandise makes jewelry a target for potential thieves. The
Jewelers Security Alliance reported 1,275 crimes against the jewelry industry in 2005, totaling $112 million. Crimes
include thefts in stores and off premises, such as robberies of traveling salespeople.
Branding - To increase consumer confidence, retailers and manufacturers are trying to establish brand names. While
branding has been successful for signature pieces from famous retailers like Tiffany, gemstone branding has so far had
little impact. Branding has been most successful for watches.
Business Sales - In addition to selling jewelry to individuals, some companies like Tiffany sell items like cups, pens,
watches, and pins to business accounts for use in employee programs.
INDUSTRY OPPORTUNITIES
Private Credit Cards - Jewelers offering private credit cards have targeted promotional materials to customers to
enhance connection with the store; some have also been able to sell other types of merchandise to them. Zale
Corporation markets insurance and credit insurance to its credit card customers, 48 percent of whom buy some form of
insurance product from the company.
Internet Sales - Luxury jewelry giant Tiffany and many other jewelers have set up websites to sell a limited amount of
jewelry.
Favorable Demographics - The number of Americans 45 to 65, the segment of the population with the highest income,
will increase 30 percent between 2000 and 2010. This group will probably increase demand for higher-end jewelry.
Executive Insight
CHIEF EXECUTIVE OFFICER - CEO
Increasing Security
A jewelry store’s inventory values are high. Theft of jewelry while in transit is not unusual. Some jewelers are participating
in a joint security effort by the Jewelers Executive Conference that reduces the opportunity for criminals to steal from
traveling salespeople. While most jewelers are insured against theft, participating in such cooperative efforts reduces
losses and demonstrates an attempt to comply with anti-money laundering programs.
Creating Websites
Many jewelers are creating websites to display their merchandise. Online sales are small but growing. Zales’ e-commerce
grew over 30 percent in 2005 and it believes that e-commerce has long-term growth potential. Online jewelry sales at
Amazon and Blue Nile were up significantly in 2005.
Investing in Technology
Many stores are starting to invest in technology to improve efficiency. Multi-location stores are redesigning store
processes using point-of-sale software to improve communication with other stores, vendors, and customers. Data
processing improvements such as purchase order management, merchandise planning, accounting systems, and bar
coding are being implemented by even single-location stores to help with inventory and financial controls.
HUMAN RESOURCES - HR
Training Staff
Jewelry store staff members usually require special training. Many are technically skilled and have a sense of fashion.
Product knowledge training is required for expertise in diamonds and colored gemstones. Some stores provide training
through the Diamond Council of America (DCA) to train key employees and managers. Companies also train buyers on
merchandise quality and negotiation techniques.
VP SALES/MARKETING - SALES
How does the company manage changes in the economy and consumer spending?
Jewelry sales are tied to the health of the US economy, particularly changes in disposable personal income and
consumer confidence.
How will the jeweler compete against big box retailers like Wal-Mart?
Specialty jewelry stores continue to lose market share to mass merchants like Wal-Mart.
Are the company's high-end products still selling well, despite economic difficulties in the US?
Ultra wealthy consumers plan to increase spending in the near future.
How does the company predict and respond to new jewelry trends?
Trade shows are a common source of new product ideas.
What types of marketing does the company use?
Newspaper ads are common; direct mail catalogs are often used. Discount promotions are most common at the lower
end of the market.
Does the company cater to individuals who make frequent, expensive purchases?
Small jewelers may depend on a few wealthy buyers.
How does the company make pricing decisions?
FINANCIAL ANALYSIS
How does the company manage the seasonal nature of jewelry sales?
Jewelry sales are highly seasonal, with 40 percent of sales and the majority of profits generated in fourth quarter.
How large an inventory does the company carry? How often does inventory turn over?
Inventory may turn over only one or two times per year.
How does the retailer manage inventory to prevent employee theft?
Has the company had loss due to transit theft or store robberies?
Theft of wholesale jewelry in transit to stores is fairly common.
Does the company extend credit, either through a credit card or to favored customers?
Some large companies manage their own credit card operations. Some issue cards managed by third parties.
BUSINESS AND TECHNOLOGY STRATEGIES
What future does the company see for independent jewelers competing against chains?
Although the industry is still fragmented, chains have increased their market share.
How does the company plan to use the Internet to increase sales?
Internet jewelry sales aren't expected to grow rapidly, but informational websites that show a wide range of inventory and
prices that customers can view at home are expected to be popular.
Financial Information
Income Statement
Net Sales 100% 100%
Gross Profit 51.5% 49.7%
Operating Income 3.7% 3.5%
Net Profit After Tax 2.2% 1.6%
Balance Sheet
Cash 5.4% 7.2%
Accounts Receivable 2.4% 0.3%
Inventory 67.8% 67.7%
Total Current Assets 76.3% 75.5%
Total Fixed Assets 5.2% 5.2%
Other Non-Current Assets 18.5% 19.3%
Total Assets 100.0% 100.0%
Accounts Payable 11.6% 8.1%
Total Current Liabilities 20.7% 16.5%
Total Long-Term Liabilities 0.8% 0%
Net Worth 78.5% 83.5%
Financial Ratios
(Click on any ratio for comprehensive definitions)
Quick Ratio 0.44 0.44
Current Ratio 2.66 3.67
Current Liabilities to Net Worth 48.0% 23.0%
Current Liabilities to Inventory 50.0% 35.5%
Total Liabilities to Net Worth 64.5% 32.0%
Fixed Assets to Net Worth 9.0% 6.0%
Collection Period 4.8 1.4
Inventory Turnover 2.5 2.1
Assets to Sales 61.0% 84.0%
Sales to Working Capital 3.0 1.9
Accounts Payable to Sales 8.0% 7.0%
Return on Sales 2.0% 2.0%
Return on Assets 3.0% 2.0%
Return on Investment 10.0% 10.5%
Interest Coverage 4.8 2.5
Financial industry data provided by Fintel -- offering leading benchmarking with a database of over 900 industries. Utilize financial analysis through
profitability, liquidity, sustainable growth rate, business valuation, custom research, and other tools. Visit us on the web at
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VALUATION MULTIPLES
Jewelry Retail
MVIC (Market Value of Invested Capital) = Also known as the selling price,
the MVIC is the total consideration paid to the seller and includes any cash,
notes and/or securities that were used as a form of payment plus any interest-
bearing liabilities assumed by the buyer.
Net Sales = Annual Gross sales, net of returns and discounts allowed, if any.
Gross Profit = Net Sales minus Cost of Goods Sold..
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges.
SOURCE: Pratt's Stats™ (Portland, OR: Business Valuation Resources, LLC) To purchase more detailed
information, please either visit www.BVMarketData.com sm or call Business Valuation Resources
at 888-287-8258.
Industry Forecast
US personal consumption expenditures for jewelry and watches are forecast to grow at an annual compounded rate of
6.3 percent between 2007 and 2012.
Spending on Jewelry Growth Strong but Declining
First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research
Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures
the links between industries and the aggregate economy.
Consumer Spending: Change in overall level of consumer spending on goods and services
Commodity Prices: Changes in prices for commodities, such as crops, metals, and other raw materials
Kitco
Precious metal and jewelry news, charts, and pricing.
Modern Jeweler
News.
POS - point-of-sale
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