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The Value-Conscious Consumer Emerges

Jan 14, 2010 1:07 PM   By Avi Krawitz
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RAPAPORT... As Christmas sales have filtered through, with jewelry retailers reporting some better-than-expected results, it appears that consumers were extremely brand-conscious this holiday season.

During this week’s post-Christmas conference call, Terry Burman, the chief executive officer (CEO) of Signet Jewelers, explained that while in 2008, the market was characterized by heavy discounting and going-out-of-business promotions, in 2009, Signet was better able to leverage its own marketing and promotional events.

In reporting 5.6 percent growth for Signet’s U.S. same-store sales, Burman emphasized that the company’s “marketing power” and its staff training on strategy implementation led to strong performances in its various categories. The company’s approach was to develop “value ranges” and place a strong emphasis on the related promotional events.

This strategy was vastly different from the one implemented for Christmas 2008, he continued, when the recession-related panic was at its peak. “Last year, it would have been foolish of us to take ranges that were right, and which consumers were responding to, and start discounting those against going out of business sales and huge discounting from some competitors within our sector,” Burman explained.

Similarly, Tiffany & Co.’s CEO, Michael Kowalski, noted that “Today more than ever, there is an appreciation of those brands that represent genuine, lasting value.” Tiffany’s sales grew 17 percent during the season.

Kowalski’s and Burman’s analyses are telling and the performance of the jewelry retail sector during the final two months of 2009 shows just how far U.S. consumers came during the year.

The results may also indicate the ease with which consumers can become accustomed to challenging times. After all, by most definitions, the Christmas 2009 period would still be classified as a tough economic environment. Some would argue that it was even tougher than 2008, as U.S. unemployment remained above 10 percent and more workers were jobless through December 2009 than in 2008.

Other indicators were equally discouraging. While the consumer confidence index, as measured by The Conference Board, rose to 52.9 in December from 50.6 in November, the Board’s present situation index — a gauge of consumers’ assessment of current economic conditions — fell to 18.8 in December from 21.2 during the previous month. This December reading was the lowest to be recorded since February 1983.

Yet, initial reports show that jewelry outperformed other retail products, with MasterCard Advisors' SpendingPulse report noting strong growth in the low- and high-end jewelry categories, while the mid-tier, mall-based jewelers continued to struggle.

It seems that at the end of a tough and forgettable 2009, consumers loosened their purse strings somewhat and truly sought out value products for their loved ones. While one might think that this trend represented a one-off splurge, the Signet and Tiffany returns indicate that consumers have emerged from the recession with a renewed appreciation for their money and where they spend it.

This trend emphasizes that by its very nature, diamond jewelry is still considered a long-lasting, appreciating product. While it may be the last thing one buys when times turn tough, diamond jewelry has an embedded value that consumers appear to be aware of.

Given their results, as well as their strong emphases on brand investment, Tiffany and Signet, two of the largest jewelry chains on the market, recognized this trend ahead of the retail pack. They also took their cue from De Beers, which has long focused on the lasting value of diamonds and has more recently emphasized “fewer, better things” in its advertising. This may also be one of the reasons that other jewelry retailers lagged behind, particularly the embattled Zale Corporation, whose Christmas sales fell 15 percent.

If anything, Christmas 2009 showed us that consumers are indeed focusing on fewer, better things. As the markets start to improve and edge toward recovery, we can recognize that diamonds may be just the type of product that the post-crisis consumer is looking for. The diamond industry as a whole should capitalize on this trend. The opportunity is ripe to build more value-focused brands.

Note: This article is an excerpt  from a market report that is sent to RapNet members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.

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©Copyright 2009 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1 702 893 9400. This Rapaport Market Report is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.

LH
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Tags: Consumers, De Beers, Jewelry, Signet, Tiffany, Zale
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