By  on July 14, 2008

COSTA MESA, Calif. — The sun isn't the only thing that shines in California's Orange County.

The home of Disneyland, planned communities, seaside mansions and plenty of disposable income has turned into a lucrative market for fine jewelry and watches — and one that keeps ticking even though Southern California has been battered by the U.S. economic downturn.

At South Coast Plaza, the 275-store hub of luxury shopping in Costa Mesa, Calif., seven of the top 10 performing stores are from the segment. Henry Segerstrom, managing partner of South Coast Plaza owner C.J. Segerstrom & Sons, projected fine jewelry and watches will account for 10 percent of the complex's $1.5 billion in sales this year and climb to 12 percent of its total volume within 24 months.

This is happening even as Segerstrom estimated that 40 percent of the center's stores are tallying decreases from last year.

Fine jewelry stores, however, are averaging almost $5,000 in annual sales a square foot, five times the center's average, he said.

"We have grown fine jewelry into our number-one category and the compounded annual growth rate is over 10 percent," said Segerstrom. "All of us have been impacted by the gas prices and inflation. That is having an effect on the marketplace and we are no different. But as far as the jewelers are concerned in the higher price range, we haven't seen any dramatic change."

The desire of fine jewelry and watch companies for an Orange County presence hasn't ebbed. Harry Winston, De Beers and Tourbillon are to unveil South Coast stores this summer or in the fall, with the Swatch Group-owned Tourbillon making its U.S. retail debut at the center.

Rolex opened a 2,300-square-foot South Coast store in April and Piaget proceeded last month with a 1,000-square-foot store that's the Richemont-owned brand's first in California. Bulgari more than tripled its store size last year and Van Cleef & Arpels completed a facade renovation last month.

New stores join a fine jewelry and watch retail group that has swelled since Tiffany and Cartier inaugurated South Coast's branded fine jewelry business decades ago and proved it pays to have outposts 50 miles apart in Beverly Hills and Orange County. Other notable members are Chopard, Mikimoto, Tourneau, Movado, Montblanc, Baccarat and David Yurman.

At the Fashion Island shopping center in Newport Beach, there's Charriol and Traditional Jewelers, which carries Rolex, Piaget, Chopard, Patek Phillippe, Bulgari and Cartier merchandise.

Although Rodeo Drive remains arguably Southern California's most prized fine jewelry and watch real estate, South Coast Plaza is closing the distance. De Beers chief executive officer Guy Leymarie recently described Orange County as the second-hottest jewelry market in the country, behind New York. South Coast stores are regularly among fine jewelers' and watch makers' top five nationwide. Tiffany's South Coast unit is its second most productive U.S. store behind New York.

"One of the most interesting areas of the country for luxury jewelry is Orange County," said Thomas O'Neill, ceo of Harry Winston Inc. "The customers have a sense of style, sense of taste, sense of value. We have an expectation that it will be one of the best stores in the network."

Since its June launch, Larry Boland, president of Piaget North America, has been pleased with Piaget's initial South Coast retail experience.

"We have consistently seen the right level of customer and our sales are on track,"

he said.

Van Cleef & Arpels ceo Emmanuel Perrin described the brand's entrance into South Coast in 2003 as a "very good decision.

"From the first year, the sales have increased sixfold," Perrin said. "Last year, it was high double-digit growth. We have had a store in Beverly Hills a long time and there has been no cannibalization at all."

Cartier's location in South Coast has been its fastest growing over the last two years, said the company's vice president of retail, Anthony Ledru.

"Obviously, the traffic is a little down in some places, but [South Coast] and Beverly Hills are really doing fantastic," he said. "There will be strong growth this year, but not the strongest growth we have seen in other years."

Andrew Block, executive vice president at Tourneau, noted that the watch purveyor has continued to notch robust sales this year at its 2,000-square-foot South Coast store after a stellar 2007.

"June 2007 was terrific," Block said. "It is very difficult to comp those numbers in this economic climate, yet our store has done exceptionally well. We are doing a very, very high-five-figure number per square foot."

The concentration of ultrarich — whose thirst for opulent jewelry hasn't subsided despite domestic economic troubles — in Orange County is attractive bait for fine jewelry and watch firms. Orange County placed fourth on market research firm TNS' 2007 list of counties with the highest number of millionaires. It boasts 115,396, compared with top-ranked Los Angeles County's 261,081.

"There is a core of wealthy clients and wealthy residents in that part of the country that is very important," said Michael Belleveau, ceo of Baccarat. "It seems to be somewhat insulated from some of the economic factors that have taken hold. We are expecting an increase this year over last year, even though the economy is a bit more difficult."

Baccarat's jewelry sales have jumped 30 to 40 percent in the last year after the brand, known for its tabletop and interior design goods, moved to a new second-level, 1,000-square-foot boutique and enhanced its jewelry displays, he said.

The economic malaise, however, has taken its toll on Orange County. The county's median home price dropped 23.6 percent to $485,000 in May from the same month the previous year, according to DataQuick Information Systems, although it remained the highest in the six-county Southern California region. The county's May unemployment rate was up to 4.8 percent from 3.5 percent a year ago, still notably lower than Los Angeles County's four-year record of 6.7 percent in May.

Segerstrom acknowledged that South Coast, where 60 to 65 percent of shoppers are locals, has not been immune to the economic slide. Although about 40 percent of the stores are down from 2007, he stressed the resilience of upper-tier jewelry and watches. That segment has been buoyed by a burgeoning interest in luxury brands and well-to-do customers' willingness to invest in pieces that retain value.

If jewelry and watch industry players expressed disappointment about West Coast business, it was largely because they've had difficultly matching previous year's substantial revenue bumps. Marc Hruschka, president and ceo of Chopard in the U.S., said the best word to summarize the brand's sales in California was "OK."

"We are not setting any records, but we are also coming off very strong years," he said. "We are happy that we are holding those gains."

Beth Canavan, executive vice president at Tiffany & Co., indicated that softer shopping traffic in Southern California is at least partially offset by the brand's historically solid market position.

"Because we have been there [at South Coast] for 20 years and in Beverly Hills for 40 years, it has allowed us to build relationships with customers over decades," she said. "It reduces our reliance on store traffic growth. In its place, our conversion rate has gone up, so we are able to maintain healthy top-line growth."

Segerstrom said jewelry brands with sturdy sales have expanded their assortments of six- and seven-figure pieces once thought of as too steep for Orange County clientele. He said the barrier was broken on seven-figure items when Tiffany added a diamond salon to its South Coast location two years ago.

"For many years, our jewelry stores carried fine jewelry, but in a more affordable price [range]," he said. "When they began to bring in individual major pieces, they found a good market here."

Fine jewelry and watch brands have followed suit in the chase for Orange County's ultra-premium market. Cartier made its store almost 1,000 square feet bigger in 2006 to enlarge its bridal collection and selection of one-of-a-kind pieces. Rolex's South Coast unit features rare and costly pieces, including an Ice watch that store director Jonathan Clancy touted as "the most-expensive Rolex ever made" with a $485,000 price tag.

"Business is very good," said Clancy of Rolex's three-month South Coast run. "The shopping center has done nothing but improve the level and integrity of the retailers."

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