Designer Jewelry Hit by Downturn

Retailers See Soft Sales.

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Designer Jewelry is the latest market to tarnish, thanks to the lackluster economy.

This story first appeared in the August 4, 2008 issue of WWD.  Subscribe Today.

After burgeoning in the past decade with the emergence of branded jewelers such as David Yurman and John Hardy becoming major forces, as well as smaller designer firms like Leslie Greene and Faraone Mennella making their mark, the category that’s a step below fine jewelry is facing a bevy of challenges.

Vendors and retailers are lamenting decreases in sales, foot traffic and consumer interest in the category. Executives said the “aspirational” customer who spent $1,000 to $10,000 has faded from the scene. Retailers noted that consumers have become fixated on commodities over brand names, seeking generic gemstones and gold jewelry over the latest must-have designer item.

Designer jewelers’ bread-and-butter business is the $1,000 to $10,000 price range, but in recent years, many of these firms have come out with luxe lines with diamonds and other precious gemstones that go from $20,000 and up. This luxury sector — in which the wealthy continue to purchase pieces that start at $20,000 at retail and go into the hundreds of thousands of dollars — continues to thrive.

Diamond jewelry firms such as Graff, De Beers, Bulgari and Cartier have noted that their superrich clients are relatively unaffected by the economy and continue to purchase large diamond suites and stones over 10 carats, as the demand exceeds the limited supply of such stones.

But the spenders to whom money is still an object are exerting more caution when purchasing pieces, given the poor economy and high prices for diamonds and precious metals. Last year, worldwide jewelry sales were up 4.3 percent to about $64.8 billion, according to the Jewelry Industry Research Institute. Industry insiders predict this year will be far less successful, meaning this holiday season could be a tough one for jewelers, who have seen a boom in the last few years.

Independent jewelry stores are suffering, as well. The International Diamond Exchange, or IDEX, reported last month that, during the first half of 2008, the number of specialty jewelers in the U.S. dropped by 211 companies, leaving about 22,830. In the same period last year, 146 U.S. specialty jewelers folded. According to the same report, the number of jewelry manufacturers in the U.S. declined to 3,376 in June from 3,412 in January. A decade ago, there were more than 4,500.

John Hardy designer Guy Bedarida said, “It could be a difficult moment for designer jewelry because customers are trying to go for a safe investment like gold or diamonds. We haven’t gotten this feeling so far. Because our jewelry is handmade, it’s perceived by our customers as more of a piece of art.”

Bedarida noted that high-ticket items ranging in price from $6,000 to $10,000 are selling, and that the high jewelry Cinta collection has been in demand with price points at upward of $20,000. The company is predicting flat sales compared with last year.

“OK is the new good,” said Lux Bond & Green president and owner John Green, who attended the JA NY Summer Show 2008 that ended its four-day run Wednesday at the Jacob K. Javits Convention Center in Manhattan. “Everyone is being price-conscious, asking, ‘What’s going to sell? What’s going to make my case look good?’”

Lux Bond & Green has eight jewelry stores on the East Coast, and the category that is performing best right now is classic pieces, such as diamond line bracelets, eternity rings and solitaire necklaces.

Prestige watch brands such as Patek Philippe, Cartier and Rolex also have been performing. The designer jewelry sector is suffering, but Green believes it’s a good thing because it will thin out a crowded field.

“The biggest challenge right now is fashion,” Green said. “The designer business is going to be a lot more challenging this fall and traffic is currently less robust. This is an economy that cleans out the noise.”

Jim Rosenheim, chief executive officer of Tiny Jewel Box in Washington, said, “We’re in a situation we’ve never been in before with the weak dollar.”

This time last year, the price per ounce of gold was at $673, platinum was at $1,287 and silver was at $13. Last week the metals, respectively, were at $911, $1,725 and $17. “The difference between now and the past is that the idle shopping is not there the way it was before.”

Rosenheim invested in some larger and expensive pieces, but isn’t completely neglecting the $1,000 to $10,000 range.

“That’s always been a key category for the industry, but the above-$10,000 business is up and very good,” he added.

“Some of the independents are going to be struggling. There’s not doubt,” said designer Stephen Webster, who is seeing sales continue to increase for his higher-priced one-of-a-kind pieces. “The more creative brands will ride it out.”

Foreseeing the crunch on designer jewelry, Faraone Mennella has removed itself from the category. The brand is repositioning itself as precious jewelry, with higher-ticket items such as a $110,000 diamond cuff to be featured in Saks Fifth Avenue’s holiday catalogue. The brand now will be competing with the likes of Buccellati and Verdura in Neiman Marcus and other independent stores.

“This is a milestone move for us and it’s the right moment in this economy to do it,” said Amedeo Scognamiglio of Faraone Mennella. “Ultimately, this is what we want the brand to be.”

Temple St. Clair has noticed the loss of its entry-price-point consumer. “It’s strange out there,” said designer Temple St. Clair Carr. “I feel it on par with some of the retailers that are conservative about the inventory they are carrying. It gets tricky. We try to make sure they have some newness.”

St. Clair Carr noted that her high-end pieces are in demand, having just sold a Paraiba tourmaline ring for $120,000.

“We’re affected in some ways,” she said of the economy. “The middle-ground price point [from $1,000 to $3,000] is slower than usual.”

Katey Brunini, founder of K. Brunini, which showed at JA, said, “We’re selling our big-ticket items. The self-purchase has pretty much dropped out.” Many of Brunini’s sales are now gifts.

Emily Armenta, designer and president of Armenta, a jewelry firm based in Houston, said, “Our customers have been affected. Whereas they would have spent $10,000 on a ring, they’re now spending $5,000.”

Even high jewelers are being cautious in the current environment, with many injecting lower-priced items into their lines to cover a broader spectrum. But lower-priced is relative — these items often start at $10,000 and up.

Daniel Koren, president and founder of nine-year-old diamond firm Daniel K, with a diamond jewelry line that has an average price point of $80,000 at retail, is offering a lower-priced line with an average price range of $15,000 to $40,000. In the line, dubbed Prêt-á-Porter, Koren uses colored sapphires, pavé diamonds and gold for the first time.

“The environment of our industry is quiet and people are concerned,” Koren said. “You have people sitting back and waiting. Four years ago, the majority of our business was in the U.S., but now the international business is making up for the lack of business in the U.S.”

While Koren’s signature diamond collection is only available in 50 doors, the Prêt-á-Porter collection will have a wider distribution.

Carla Amorim, a 15-year-old Brazilian designer brand, has a sizable U.S. business, but also is focusing on growth outside the States to compensate for the slowness. The brand is opening a store in Brazil this fall.

Slane and Slane, which makes silver and gold jewelry, also is considering international expansion to contend with the lackluster U.S. economy. There are talks to open a store in Russia, and the firm is considering expansion into the Middle East, specifically Dubai.

While the commodity nature of the jewelry business may hurt the designer business, it’s also the asset that keeps fine jewelry covetable.

“Our business has been really robust this spring at all levels,” said Ed Burstell, senior vice president and general merchandise manager for nonapparel at Bergdorf Goodman, which has had an influx of traffic with European and other tourists who have flooded New York of late. “The success hasn’t been price-point driven, it’s all about the assortment and the item and the quality of the design. We renovated the floor and the business, added substantial linear footage and, at the top end, we’ve had an incredible season with vendors like Verdura, Buccellati, Paul Morelli and de Grisogono.”

Green perhaps summed up the state of the market when he said, “The aspirational customer is gone, whether it be clothing, shoes, bags or jewelry. But jewelry will still sell. The biggest difference for us is that there are still birthdays and anniversaries. People won’t just forget about those and want to mark those occasions with jewelry.”

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