Margins are getting tighter than ever, and consumer sticker shock has inspired some jewelers to beef up their inventory for holiday 2011 with more less-expensive sterling-and-diamond jewelry than ever before. Despite the push for more affordable goods, the overall feeling as the holidays approach is one of optimism and even excitement, as customers return to the stores. Assuming no last-minute snowstorms curtail the selling season, most stores are looking forward to a healthy end to the year and a happy 2012.

Glad Tidings

For Eric Wagner, co-owner of Showcase Jewelers, with three stores in Kansas, Christmas sales account for approximately 40 percent of his annual bottom line, so having a good season matters a lot. Fortunately, he’s optimistic. “Holiday was good in 2010, but I think this year will be even better,” he said. “People are tired of feeling like they shouldn’t be buying, and they’ve put off buying higher-ticket items. But now, bigger items are being sold.”

Sales also are picking up late in the year in the Northeast. “We’re expecting the 2011 holiday season to be better than the first three quarters,” said V. Paul Michaels, president of Michaels Jewelers, with ten stores in Connecticut and seven Pandora stores in New York, New Jersey and Connecticut. “The year started off strong but got flat in the second and third quarters. Business started picking up at the end of the third quarter, and now we’re hoping for a 15 percent increase in our core business over 2010. Core, excluding Pandora. Pandora skews everything. Pandora, after many years of huge increases, is flat this year.”

In other areas, expectations are a little more reserved. “I think people will be more conservative on holiday spending this year than last year,” said Russ Varon, co-owner of Morgan’s Jewelers, with two stores in Southern California. “September was very weak, but I’ve been up other months this year by 15 percent to 50 percent. The walk-in traffic is off, and the price of diamonds has gotten so high that our engagement sales are way off. We have a lot of large merchandise, but we’ve stocked the store with lower-priced items under $1,000.”

Keeping affordable, lower-cost items in the store for the upcoming season is a trend for most retailers. “We’re a little more prepared with price point items than last year,” said John Hayes, owner, Goodman’s Jewelers in Madison, Wisconsin. “We’ve put more sterling silver into stock than we’ve ever had before, and we’ve also purchased some bridal that we can sell at a lower price. Unfortunately, it’s lower quality, but that’s what people’s budgets are.”

Offering a wide range of products for holiday is important even in normally high-end markets like New York City. “Given the high prices of gold and diamonds, we have beefed up inventory on alternative metals and stones,” said Evans P. Siskel, co-owner of DVVS in New York City. “At the same time, we are finding there are customers who will spend more, so we continue to focus on high-end items, though not as much as several years ago.”

Late Arrivals

Another big trend has been the increasing procrastination of holiday shoppers. “Over the past four years, they shop later and later,” said Michaels. “When money is tight, they wait until the last minute to do their shopping. If the economy is good, they shop earlier. Men make up a substantial part of our market, and they are notoriously last-minute shoppers because men don’t like to shop. They don’t know what to get, so they wait for an epiphany. And anyone who shops on the 23rd and 24th needs a lot more help in the store. But giving them more help and spending more time with them can lead to a more expensive present and they might decide to spend substantially more than they had intended.”

Hayes agreed. “A few people have already started putting things on layaway, but the bulk of people, i.e., the guys, come the last week,” he said. “Men shop late, and panic shopping makes them spend more.”

Looking Ahead

One big concern moving forward is the price of inventory. “For 2012, as long as gold and diamond prices don’t go up, it’ll be as good as 2011,” said Wagner. “I’m looking at great numbers for 2011, so I’d be happy with those numbers for 2012. I don’t see it getting any worse.”

Most jewelers are expecting the coming year to bring much of the same. “I think 2012 is going to be very much like 2011,” said Varon. Siskel agreed. “Not to seem a pessimist, but I don’t foresee anything really big occurring in 2012,” he said. “I’m not seeing any trends that would make sales jump dramatically. We foresee 2012 will be at least as good as 2011.”

The Marketplace

• Round is the top seller, with cushion and princess tied for second place.

• The most popular carat weight ranges from .75 carat to 1 carat.

• SI1 is by far the top clarity.

• G-H is the best-selling color range.

• While alternative metals such as silver are gaining ground, 14-karat white gold is still the most popular metal for settings.

• The average price for an engagement ring, including stone and setting, is $8,140.

Article from the Rapaport Magazine - December 2011. To subscribe click here.