Rapaport Magazine

Fourth-Quarter Sales Positive

Final numbers have been released for the holiday season.

By Ricci Dipshan

Few retailers are complaining about the final 2011 holiday sales totals. It’s true that retail growth was less than in 2010 but it also was better than many analysts had predicted. And, in the end, it was growth — and in the current economic climate, growth of any amount is good.

The National Retail Federation (NRF) reported that holiday sales for the months of November and December 2011 rose 4.1 percent year on year to a total of $471.5 billion. Though the growth rate surpasses NRF’s earlier prediction of 3.8 percent, it was markedly less than the 2010 holiday season growth of 5.3 percent. Jewelry retailers overall say that their holiday numbers were in line with those retail totals.

Top Tier

Surveying top-tier jewelry retail sales this holiday season, David Wu, luxury analyst at analytics firm Telsey Advisory Group, based in New York City, noted that “Overall, while high-end jewelry sales continued to outperform, the performance across companies was mixed.”

Tiffany & Co., for example, suffered a setback this holiday season with slower-than-expected growth in American and European demand for its luxury items that caused it to adjust its annual earnings forecast downward. That contrasts with the 2010 holiday season, when Tiffany adjusted its annual earnings forecast upward because of higher-than-expected holiday sales. It also was a surprise for a company that had been bathed in glowing headlines for beating market expectations by performing so well through the first three quarters of 2011. The company’s global net sales for the nine weeks that ended on December 31, 2011, rose 7 percent to $952 million, a disappointment after its 11 percent growth in 2010. 

Sales in its Americas region — which includes the U.S., Canada and Latin America — rose by 4 percent to $503 million, compared to 9 percent growth in 2010. European sales rose by only 1 percent to $117 million, down from 13 percent growth for the same period in 2010. With their 134 stores, the Americas and European regions account for more than half of Tiffany’s 246 stores. At the same time, Tiffany’s Asia-Pacific sales grew by 19 percent year on year and those in Japan, by 13 percent.

In a January statement, Michael J. Kowalski, chairman and chief executive officer (CEO) of Tiffany & Co., said: “After achieving very strong and better-than-expected sales and earnings growth in the first three quarters of 2011, sales weakened markedly in the United States and Europe during the holiday season, reflecting restrained spending by consumers for fine jewelry.”

Though growth in Tiffany stores in the Americas was better than in Europe, the company cautioned against attributing this to domestic demand, noting that higher U.S. sales reflected higher spending by tourists rather than U.S. customers. The company also pointed out that internet and catalog sales for its Americas region dropped 4 percent year on year, while Tiffany’s flagship store in New York saw sales drop 1 percent from the 2010 holiday season totals. 

Tiffany’s problems, however, were not representative of the high-end jewelry market as a whole. Indeed, Switzerland-based luxury retailer Richemont, which owns brands Cartier and Van Cleef & Arpels, saw an upswing in its overall year-on-year sales growth — including its Americas region — for the three months that ended on December 31, 2011. Its overall sales grew by 24 percent year on year and its sales in its Americas region by the same percentage. In 2010, the Americas sales grew by 17 percent. Sales for its jewelry division grew by 25 percent, up from 20 percent growth in 2010.

Wu said the different performance of Tiffany versus Richemont reflects “the differences between the product range and customer base of the two companies. The first big difference between Richemont and Tiffany is watches, which were generally one of the best-performing categories throughout this holiday season. While Richemont’s exposure to watches is around 40 percent, Tiffany’s product mix is only 1 percent watches. In addition, Richemont has more exposure to higher-end customers — basically, Richemont customers are more affluent than the Tiffany customers.”

Holiday sales results were not made available by Bulgari, which was purchased by French multinational luxury goods conglomerate LVMH in spring 2011. 

Asian Luxury Demand

Many high-end luxury retailers with worldwide stores relied on the faster-growing markets in the Far East to bolster their total sales and insulate themselves from less vigorous demand in the West. It certainly helped cushion Tiffany’s totals.  

A huge portion of Richemont’s sales during the holidays also came from the Asia-Pacific  market, which for the first time accounted for the largest portion, around $1.36 billion — approximately 40 percent — of its $3.4 billion total quarterly sales. Like 2010, the Asia-Pacific market was again the fastest-growing segment for Richemont, showing an increase of 36 percent year on year. The Japanese market was also strong for the company, growing 17 percent from the 2010 holiday season. 

“Growth in these markets,” according to Wu, “is a long-term trend, and you will continue to see very strong demand out of Asia-Pacific and Japan.” Particularly strong items for consumers in these markets, Wu added, are consistent with “product trends that we have seen in the past few quarters. These include high-end statement jewelry, bridal, watches and diamond fashion jewelry.”

A strong driver of luxury jewelry demand in Asia is the consumer desire for something that is not only a status and beauty symbol, but also a good investment. “The high-end customers who are purchasing high-end statement jewelry pieces are not only looking to wear the product, but they also are purchasing them to diversify their investments toward hard assets,” Wu said. “And that investment quality has been helping to drive the outperformance at the higher end.”

Middle Market

Domestically, the two largest jewelry retailers — Signet and Zale — saw similar growth rates. Total sales at Zale Corporation, which currently operates 1,820 stores in the U.S., Puerto Rico and Canada, increased 5.8 percent over the November through December period, a drop from 2010’s 8 percent growth, for total 2011 holiday sales of $564 million, from $533 million in 2010.

Roxane Barry, Zale’s director of investor relations, attributed the growth “to many things that we put in place over the past year in Zales. For example, we grew our core merchandise and added proprietary brands in our stores in October. We have also done a lot of diamond training for our store personnel, and we increased our advertising spend.”

Likewise, year-on-year growth was slightly down this holiday season at Signet Jewelers, which reported 7.8 percent sales growth over the November through December period, compared with 8.1 percent in 2010. Signet currently operates 1,864 retail jewelry stores in the U.S. and the U.K. — including Kay Jewelers, Jared the Galleria of Jewelry, H.Samuel and Ernest Jones.

In its U.S. stores, which make up around 81 percent of Signet’s total revenues, holiday sales, which had grown by 11.7 percent in 2010, increased by 9.2 percent this season. In its U.K. stores, sales grew by .9 percent in 2011. While not a very impressive rate, at least it was an improvement from 2010, when sales actually declined by 8.8 percent. 

Despite the slower growth in Signet’s core U.S. division, Mike Barnes, chief executive officer (CEO) of Signet, said in a release that he was “pleased” with the holiday sales figures. He went on to attribute the company’s year-on-year total holiday sales growth to “the long-term competitive strengths of the business, including the great customer experience that our teams deliver, the strength of our merchandise, our continued investment in advertising to support our store concepts and merchandising initiatives, and our U.S. customer finance programs.” 

Online Sales

Though most analysts and retailers have not yet released final online jewelry sales figures, initial data indicates that ecommerce was a major player in jewelry sales over the holiday season. Signet, the only jewelry retailer to provide total holiday online sales growth along with its retail store sales growth, noted that its internet sales for the nine weeks that ended on December 31 shot up 39 percent year on year.

Total online spending on all items over the November through December holiday period, according to online metrics firm comScore, rose 15 percent to $37.2 billion, up from 2010’s growth of 12 percent. The firm also reported that online jewelry sales had momentum going into the holiday season, as ecommerce for jewelry and watch items increased 15 percent for the quarter that ended on September 30, from the same period in 2010.

Furthermore, on the second Monday in December, dubbed “Green Monday” for its significance as the historical date that online sales hit their peak for the year, comScore ranked sales of jewelry and watches second — behind digital content and subscriptions — in a list of the “Top Growing Online Retail Categories,” a rank this category also held in 2010. 

ComScore also noted that online jewelry sales for India, one of the fastest-growing jewelry and diamond markets in the world, grew 36 percent in November 2011 year on year. 

“With brick-and-mortar holiday retail estimated to have grown about 4 percent in 2011, it’s clear that ecommerce continues to gain market share from traditional retail due to the attractiveness of the internet’s convenience and lower prices,” Gian Fulgoni, comScore chairman, said in a release. “Consumers were especially attracted to the deals and discounts available through digital channels — particularly free shipping, which occurred on well over half of all transactions this season.”

While the internet jewelers have momentum, some doubt whether they will be able to fully overtake conventional retailers in an industry that traditionally has been a brick-and-mortar business. “While I do expect internet sales to take a greater share of total jewelry sales over time, I believe the brick-and-mortar players will continue to dominate,” said Wu.  “Jewelry is an emotional purchase, and consumers want the hand-holding and to touch and feel the product before they purchase it.”

Looking Forward

“In 2012, I expect the jewelry industry to grow at a single-digit pace throughout the year,” predicted Wu. “All in all, it will be marked by continued outperformance at the high end, where demand for watches and statement jewelry will remain solid. For the midtier retailers, I expect the market to remain healthy as the key players focus on expanding their key merchandise as a means of differentiating themselves from their peers and to drive traffic.”

Article from the Rapaport Magazine - February 2012. To subscribe click here.

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