NEW YORK — Jewelry and watch executives are facing the challenge of developing strategies to gain market share in a time when the luxury sector is volatile.
With ongoing worldwide economic woes, a concurrent global travel slump and the continued conflicts in Iraq and elsewhere in the Middle East, many executives are pondering the question as they shape their imminent and long-term plans.
Although the U.S. economy has been hit particularly hard in the past two years, many fine jewelers — especially European luxury houses — continue to consider it to be a key market alongside the Far East, with much untapped potential.
“It’s striking that America accounts for 3 percent of the population, 35 percent of the worldwide wealth, 50 percent of the luxury car consumption and only 15 percent of the worldwide watch and jewelry consumption,” said Stanislas de Quercize, president and chief executive officer of Cartier in the U.S. “This tells us that we have to find a way to make the treasures of jewelry and watches more known to the consumer. We need to do more to share the uniqueness of the sector.”
In recent years, the fine jewelry and watch industries have undergone some significant changes. The U.S. jewelry industry, which generates annual retail sales in the region of $43 billion, remains mostly unbranded and dominated by independent jewelry stores and small manufacturers making generic products.
That said, more manufacturers are encouraged by developments such as the De Beers LV retail venture and a growing number of jewelry designers like David Yurman entering the branded jewelry business.
“The fashion companies had phenomenal growth, whereas the jewelry industry as a whole hasn’t grown as quickly,” said Richard Farrell, director of London-based 2 Degrees Freedom Ltd., a marketing and research consultancy dedicated to research on jewelry, which publishes the quarterly, National Jewelry Study.
“Two of the main factors could be attributed to lack of dollars spent on advertising and marketing to raise awareness for the category and to compete directly with the fashion and travel industries. There also aren’t sufficient brands to drive the market forward and demand premiums for players to allow for premium margins in the supply chain. The jewelry industry can learn enormously from fashion and watches on how to develop brands.”Over the past two decades, the watch business has seen an influx of brands at all price levels. According to a recent watch retailer survey conducted by Goldman Sachs, the global watch industry is dominated by Switzerland. Goldman Sachs reported the Swiss watch industry had $6.65 billion wholesale sales worldwide last year, with export levels flat to the previous year. The two biggest markets for Swiss watches are Europe and Asia, which, respectively, account for 38.8 and 34.7 percent of watch exports in value, according to the Federation of the Swiss Watch Industry. Swiss exports to the U.S. are estimated to be in the region of $1.02 billion.
Last year was particularly challenging for retailers across the board. The holiday season, which can account for up to 85 percent of annual sales for some jewelers, did not meet expectations and retailers were forced to aggressively mark down their wares or were left with high inventory levels.
According to a survey conducted by Jewelers of America, the national trade association of retail jewelers, overall fine jewelry and watch retail sales were flat in 2001 and 2002, although some sectors, including chain stores and designer retailers, reported increases.
“For two years now, retail jewelers have had to work hard to compete for their share of consumer dollars in a challenging economy,” said Fred Michmershuizen, Jewelers of America’s director of marketing. “Consumers today are looking not only for value, but also for retailers they can trust. As consumers search for retailers they can have confidence in, professionalism has never been more important to the jewelry industry in general and to retailers in particular.”
Francesco Trapani, Bulgari’s ceo, told WWD in an interview in June: “We can’t think about returning to the rhythms of 1999 or 2000. I think those times are well behind us. But I think it’s realistic that the situation for next year could be better than that of today.”
Trapani said it could take a while for customers’ emotions to rebound.
“For the last two and a half years, people have heard that things are always getting worse,” he said. “Maybe [the industry] is even more linked to mood than to economic trends.”According to Valérie Chassé, deputy director at Ipsos, the global qualitative research company that conducted an extensive survey during Baselworld, The Watch and Jewellery Show, consumers are showing a changed attitude toward luxury goods. Whereas fine jewelry and watches were once considered status symbols and heirlooms for the elite, the Nineties’ economic and stock market boom opened luxury to a new, more trendy client with materialistic values. The post-2001 era has become a time of uncertainty and Chassé said consumers now look to luxury goods as a safety blanket for stability and security.
“There is this move toward disappearance of midmarket brands and eventually smaller traditional manufacturers in Europe,” she said. “However, at the same time, we witness an emergence of smaller, new, innovative, distinctive brands. There is a place for new and creative brands, even in a marketplace where you find a lot of consolidations with luxury groups, and very powerful brands.”
Stéphane Truchi, Ipsos’ managing director, said many traditional business formulas no longer are working. He said brands need to offer more value, or luxury will lose its relevance.
“There will be different kinds of developments,” Truchi said. “They will need to be strong in innovation and creation and bring new things in the market from a fashion, design and quality point of view so that brands can gain in distinctiveness.”
Cartier hired a new artistic director, Giampiero Bodino, two months ago to freshen the firm’s creative department. In the next few weeks, the luxury jewelry is launching a high-jewelry collection inspired by the house’s iconic panther theme, a women’s version of its Roadster timepiece and a new handbag collection.
“There are more and more brands coming into this market, and they are trying to brand diamonds,” said de Quercize. “We have to express the identity of our brand.”
Another growth opportunity is the rise in female self-purchases, as women marry later and make more money than ever before.
“A major development we are likely to see is the whole area of women buying jewelry for themselves,” said Freedom’s Farrell. “Seventy percent of the market is in gifting for women, while 30 percent is in women buying jewelry for themselves. That’s an enormous opportunity for growth. The [Diamond Trading Co.’s] right-hand ring is beginning the push into the area.”Fine jewelry also has become a category to watch on the main floor. Several specialty and department stores, including Saks Fifth Avenue, J.C. Penney and Bergdorf Goodman, have freshened up their assortments in recent years.
In the past two months, Macy’s has joined the flock and unveiled two new departments for fine jewelry and watches. In August, Macy’s Herald Square opened what it calls the Jewelry Store on the main floor, with more resources and fashionable lines than before and an expanded bridal diamond assortment. The department also offers loose diamonds as part of its bridal department.
“The customer needs to see differentiated product,” said Cathy Gin, vice president and divisional merchandise manager of fine watches and jewelry. “The customer now wants newness. It really drives a lot of the business.”
The retailer also doubled the space for watches with its new watch gallery that bowed last month, featuring additional fashion lines such as Christian Dior, Concord, Ernst Benz, Givenchy, Glycine, Locman, MW Michele and TechoMarine, alongside Gucci, Movado, Coach and Raymond Weill.
“The fine jewelry and watch business is currently in good shape,” Farrell said. “The basics are in place. Weddings are still strong, and although consumer confidence is low, there’s still a lot of money. Christmas will be very important and the trade is sounding very confident about what is happening in the season. Recent trade shows have reflected the optimism and key players have announced big marketing pushes for the Christmas season.”
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