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Industry
Holiday Forecast: Positive
Rising consumer confidence and a return to financial health could result in the most joyous holiday season since the recession — especially for jewelers.
By Brian Bossetta
Though most Americans are still feeling the shockwaves from the economic crash in 2008, jewelry sales could shine this holiday season as consumers celebrate a return to financial health. “This could be a special year of gift giving with people rewarding themselves for getting their financial ship in order,” said Dr. Jim Taylor, vice chairman of YouGov America, a professional research and consulting organization headquartered in Waterbury, Connecticut. “We expect to see shoppers buying gifts of diamond and gold, celebratory pieces that mark the passage of time.”
Jewelry could be the gift of choice this season, especially among the affluent, according to Shullman Research Center, a New York City–based marketing research and consulting organization focused on the luxury market. While Shullman research found only 21 percent of adults planning to buy jewelry this Christmas, that percentage spikes significantly for those with deeper pockets, specifically those earning $75,000 and up — with 27 percent of those earning between $75,000 and $249,999 and 38 percent of households with incomes between $500,000 and $1 million planning to buy jewelry. The annual “Survey of Affluence and Wealth,” released this fall by Time Inc. and YouGov, reported that jewelry and watches rank in the top five of gift-giving choices, especially among shoppers with more discretionary income.
Jewelers will also benefit this holiday from online sales, according to figures from comScore Inc. The metrics firm forecasts online jewelry sales to be “very strong,” with a year-on-year rise upward of 15 percent, driven for the most part by more affluent consumers. Total online sales, comScore predicts, will increase 16 percent to $61 billion for November and December.
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But jewelry is not the holiday gift of choice only for the affluent, according to Dana Telsey, chief executive officer (CEO) and chief research officer for the Telsey Advisory Group (TAG), a New York City–based research and brokerage firm that focuses on the consumer market. “There’s a broad assortment of jewelry that caters to all groups,” Telsey said, adding that the jewelry market is healthier going into the holidays than the apparel market. “There’s less newness in apparel. The continued strength of jewelry is that it can make the old look new again.”
And while Telsey is not expecting jewelry sales to be as robust as they were prior to the recession, she expressed confidence that jewelry retailers should at least be in for a holiday season comparable to 2013. “We’re expecting a good season for jewelry,” she said, adding that jewelers — as well as other retailers — who find new and innovative ways to drive demand should benefit from improving economic conditions.
Young adults aged 18 to 24 could also spur jewelry sales this Christmas because, according to the National Retail Federation (NRF), they plan to spend more on jewelry than any other age group, with 34 percent within this demographic planning on jewelry as holiday gifts. Other age groups — 28.7 percent of those 25 to 34 and 24.5 percent of those 35 to 44 — will be likely buyers of jewelry as well, according to the NRF.
Simply put, it seems consumers are in better spirits now than they were a year ago. “Consumer confidence is definitely better going into this holiday season and seems to be gradually improving,” Telsey said. The Conference Board predicts American households will spend an average of $538 on gifts this holiday season, up from the $528 spent in 2013. Increasing consumer confidence — spurred by “robust job growth and declines in gas prices” — is the driving force behind this improved outlook, according to Lynn Franco, director of economic indicators at The Conference Board. Based on its survey of households planning to purchase gifts, 7.6 percent plan to spend more on jewelry than a year ago.
In another November forecast, Gallup projected U.S. shoppers will spend an average of $720 on Christmas gifts this year, a 3 percent increase from 2013 but a slight softening from the $781 average spend the consultant had forecast a month earlier.
That’s not to say it will be all sparkle for jewelers this Christmas because many consumers, still reeling from the recession, have altered their shopping patterns at least for the short term, and possibly for the long term. “The economic downturn really rocked consumers and led to fundamental changes in their approaches to spending and saving,” said Pam Goodfellow, consumer insights director for Prosper Insights and Analytics, a consumer intelligence company based in Worthington, Ohio. She emphasized that shoppers are now focusing more on what they truly need, not what they want, and have made getting back on sound financial footing — saving, paying down debt — their number-one priority. “And while consumers may have relaxed this mind-set since the height of the recession,” Goodfellow added, “they haven’t returned to the predownturn spending free-for-alls.”
As most economists point out, luxury items fall off the list of priorities in tough economic times, which is why Goodfellow said jewelers might not see the sales surge they are hoping for if consumers aren’t fully convinced the bad times have ended. “Jewelry is a spending category that has been slower to recover in terms of what’s on consumers’ wish lists, as well as what shoppers plan to buy for the holiday season,” she said. Consumers also might opt for electronics purchases instead of jewelry, she added, because they often “justify” those purchases as practical. “Consumers are much more discerning since the recession,” Telsey said. “You must give them a reason to buy.”
Offsetting a possible spending drop in other gift categories is the surge of gift cards, which, Goodfellow said, have surpassed traditional holiday gifts, “allowing recipients to choose their own item and maybe savor that personal shopping experience, perhaps at an upscale or luxury retailer. At the same time, they allow gift givers to avoid the hassle of finding that perfect gift.”
The Survey of Affluence and Wealth ranks gift cards as the leading gift for 2014, as does Shullman, which, after the cards, lists toys, video games, clothing, books, electronics and food. Jewelry, according to Shullman, tied with home electronics for expected purchases but topped liquor, designer clothing and cosmetics, charitable donations and travel.
Just how festive — and profitable — the upcoming holiday season turns out to be might very well depend on how savvy retailers are at utilizing digital and social media to promote their products and entice potential buyers into their stores. According to Alison Paul, vice chairman of the New York–based global consulting firm Deloitte LLP, 84 percent of shoppers use digital tools before and during their shopping trips and make purchases at a much higher rate — 40 percent — than nondigital shoppers.
This trend of digital interactions, Deloitte predicts, will influence 50 percent, or $345 billion worth of in-store retail sales for November 1, 2014, through January 31, 2015. Those digital-influenced sales will contribute to the overall 4 percent to 4.5 percent increase Deloitte is forecasting in year-on-year Christmas retail sales, to between $981 billion and $986 billion, for the season.
Nonstore retail sales, including ecommerce and mail order, according to Deloitte, will rise between 13.5 percent and 14 percent on their smaller historical base. “In the past few years, mobile technology has made it easy for consumers to second-guess their purchases, allowing them to check prices, read reviews and perhaps purchase from a competitor with just a tap on a screen from any location,” said Goodfellow.
Of the more affluent shoppers, 45 percent will do most, or all, of their holiday shopping online, according to the Survey of Affluence and Wealth, with only 35 percent actually going into stores. The remaining 25 percent will mix it up, using traditional as well as online shopping. In light of this new reality, Paul advises retailers to create effective digital experiences for potential customers, such as tools to help “consumers compare prices, scan through assortments and navigate the store,” as opposed to simply offering their goods on ecommerce sites. “Retailers who better understand how consumers make purchasing decisions, then deliver tools that support that process in a way that is consistent and complementary across online, mobile and store channels may have the advantage this holiday season,” Paul said.
Understanding this emerging digital landscape could be a significant edge for retailers because consumers have become more nuanced in their shopping patterns since the economic crash of 2008 and more knowledgeable about what products they are considering purchasing — thanks in large part to the plethora of information at their fingertips. “Retailers will still have to continue to be very promotional, price competitive and provide a great value proposition to consumers in order to coax shoppers into spending for the holidays this year,” Goodfellow said.
That is especially true considering figures from the Survey of Affluence and Wealth that estimate 55 percent of holiday shoppers — especially women — will use their smartphones to compare prices. That represents a 33 percent increase in smartphone shopping from 2013.
Caryn Klein, vice president of Time Inc. Research & Insights, added, “Shopping continues to shift in favor of digital as the gap between online and in-store shopping is now the largest it’s been in the past four years.”
While the general consensus seems to be that the economy has improved — and continues to improve — since the financial meltdown, opinions differ on the underlying strength and stability of the recovery. Those differing opinions affect the degree of optimism in the various outlooks for how businesses will fare this holiday season. The stock market, one of the leading economic indicators, especially for the wealthy, has hit all-time highs and has fueled more bullish projections for the holidays. Record gains on Wall Street, coupled with rising real estate values and lower debt levels, might encourage “increased spending compared to prior years,” according to Daniel Bachman, Deloitte’s senior U.S. economist.
Despite those gains, there remains an undercurrent of skepticism among many consumers not as invested in the stock market, Goodfellow said, who do not necessarily view what’s happening on the big board as a reliable economic gauge. “Just about one-third of consumers feel that the stock market reflects the strength of the economy,” she added. “The overall recovery has been slow and consumers remain cautious about any seemingly positive reports, instead focusing on themselves and righting their personal financial standing.”
While many economic forecasts highlight improving job numbers as a reason for optimism, there’s a cloud inside that silver lining, too. “Wage growth has been stagnant at best and is likely contributing to consumers’ practical and cautious mind-set,” Goodfellow said. On the other hand, the trajectory of consumer confidence trending upward — Prosper Insights and Analytics’ September reading being the highest since the crash, according to Goodfellow — could compensate for any other financial drags, such as stagnant wages. “Forty-five percent of consumers surveyed were confident or very confident in the chances for a strong economy” going forward, she said.
Despite the range and variety of positive economic indicators, Goodfellow remains guarded. “Consumers are still very much focused on pragmatic spending, paying down debt and increasing savings, compared to their prerecession habits,” she said. Economically wary consumers are making a concerted effort to keep their credit cards in their wallets and are using more cash for their purchases. And though the worst of the financial headwinds might have subsided, the economy could hit turbulence again. “Consumers have reached a precarious balance in terms of sentiment, spending and their approach to finances,” Goodfellow said. “They are more optimistic about the economy. However, any upsets to this balance will likely swiftly snap wallets shut and send consumers back into hiding.”
Among those potential balance upsets are overseas conflicts, fears over Ebola, a resumption in the rise of gas prices and domestic political stalemates. Despite such cautions, there is a real possibility that the 2014 holidays could be the most joyous that American consumers have had in a while — and the most profitable that U.S. retailers have seen in some time. Overall, there are many reasons to believe that “this is the first really cheerful holiday season since the dark days of the recession,” Taylor concluded.Article from the Rapaport Magazine - December 2014. To subscribe click here.
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