Jewelry Market Must Prepare For A Steep Drop And Signet Jewelers Is Ready

A remarkable thing happened during and after the pandemic: Jewelry sales went through the roof. Personal consumption of jewelry reached $94.6 billion in 2021, up over 50% from the $62.3 billion spent in 2020, according to the Bureau of Economic Analysis’ (BEA) underlying data.

Across the board, American consumers bought a ton of stuff in 2021. Personal consumption of consumer goods rose 18% year-over-year and while inflation added 7% to that growth, the results are still stunning.

And among the over 100 individual categories of consumer goods spending reported by the BEA, jewelry was tops in overall growth. Other categories, like gasoline and used cars and trucks, neared jewelry’s level, but these were high inflation categories, with prices up 50% and 37% respectively. But jewelry prices rose only about 9%, according to the CPI.

While the BEA’s data is still preliminary so it is presented with caution – it has yet to release its official NIPA 2.4.5 report for 2021. Yet it is at the very least directional in nature. Consumers spent an awful lot of money buying jewelry to adorn themselves or to give as gifts last year.

Unfortunately, year-end 2021 data specific to jewelry retailers’ sales is lacking from the Census Department Retail Trade Survey. But historically jewelry retailer sales have totaled roughly half of BEA’s personal consumption data, so we can estimate jewelry retailers generated some $47 billion in sales, up about 40% over $33.3 billion in 2020.

What goes up must come down

As much as the industry might hope that jewelry sales continue to grow at its current heady pace, history and common sense argue otherwise.

Since 2014, jewelry consumption advanced from $59.1 billion to $62.3 billion in 2020, some 5%, and jewelry retailer sales grew from $31.1 billion to $33.3 billion, a 7% increase.

2014 was a pivotal year because that is when the jewelry market recovered all that it lost in the Great Recession. It took seven long years for jewelry consumption and jewelry retailer sales to exceed levels reached in 2007.

Now with inflation running at a 40-year high, consumers are getting squeezed in all the essential areas, like food, gas, utilities and housing. That leaves less for discretionary spending and jewelry is one of the most discretionary of purchases.

While economists argue about whether a recession is imminent, it certainly looks like the jewelry market will undergo a course correction. How far it falls and how long it lasts is anybody’s guess.

But jewelry consumption did pretty well for seven years through 2020 and it took seven years for the jewelry market to recover after 2007 – seven years feast, seven years famine – history is likely to repeat itself.

If change is coming and it surely will, then Signet Jewelers would seem to have the most to lose, being ranked the nation’s number one jewelry retailer on the National Jeweler’s Superseller list. It operates some 2,800 retail locations under its Kay, Zales, Jared, Diamonds Direct and Banter by Pierce Pagoda banners, plus DTC James Allen and Rocksbox jewelry rental, and more.

But just like the biblical Joseph in Egypt, CEO Gina Drosos and her team have been preparing for this moment.

Ready for whatever the future holds

Since 2018 the company has been undergoing a transformation. Phase one in its transformation plan, “Path to Brilliance,” was completed in fiscal 2022 ended December 31, 2021, and now it’s embarked on phase two “Inspiring Brilliance” with the goal to achieve $9 billion in sales.

To date, it’s reached $7.8 billion in revenues, just $1.2 billion shy of that goal, and it’s racked up $1.6 billion in sales over the past two years.

While Drosos predicts the jewelry industry will be down low-single digits to basically flat this year – surely she is comparing results to 2020, not the 2021 outlier year – the company is guiding to reach $8.03 billion to $8.25 billion in sales this year. There is every reason to believe that will be achieved.

“We are demonstrating that Signet has the strategies, strength and structural advantages to consistently outpace the market and gain share while also delivering sustainable double-digit margins,” Drosos said in the earning call.

Here’s what she is talking about:

Scale means growth

Throughout the earnings call, Drosos refers to scale frequently. It’s capitalizing on its scale at retail, with each of its banners now clearly differentiated thanks to the Brilliance plan.

Much of the credit for its banner differentiation has come through a significant investment in targeted marketing, including a $180 million increase in advertising in the past year. That enabled more targeted digital advertising and gave it a 50% share of voice in television.

“This enables us to increase customer acquisition and engaging customers with relevant messages in the right channels at the right times,” Drosos explained. “Customers who are responding to our marketing have higher purchase intent and are looking to spend more.”

In North America, average transaction value was up more than 15% and in-store conversion up nearly 20% compared to two years ago. It grew its number of new customers by nearly one-third over fiscal 2021 and brought back 37% of customers who’d lapsed more than two years.

Signet is also making the most of its scale through vertical integration of its supply chain, a major competitive advantage in the current environment with industry supply chains challenged. It also gives Signet more control of prices points. It can value engineer product design for a range of good, better, best product offerings.

And scale is enhanced through its enhanced data analytics capabilities. It has a fully integrated inventory management system across the entire company and insights necessary to optimize its retail footprint. Over the last four years, it reduced its retail fleet by 20%. And thanks to its efforts to differentiate its banners, a Kay and Zales stores can sit side-by-side and not cannibalize sales as they once did.

Deeper customer connections

Its digital e-commerce portal is leading to deeper levels of customer engagement. Approximately 65% of customers start their customer journey digitally. And some 90% of its high-value customers, who spend in excess of $500, engage across its different shopping channels.

While most customer transactions are completed in store – 80% versus 20% via e-commerce – Drosos explained that the strategic importance of its digital platform is measured in more than just sales.

“It’s really one of the competitive advantages that I think is least understood about Signet but probably most valuable because the level of spend and the level of capability that we have put into this over the last several years is just something that is unmatched in a fragmented category,” she said.

“What matters is how customers are shopping, how are we acquiring them and how are they moving through our purchase funnel,” she added.

Giving customers more of what they need

When times get tough, discretionary purchases, like jewelry, are the first place that consumers cut. During the 2008/2009 recession, spending on jewelry dropped 14% from its 2007 high to its 2009 low.

But Signet, more than other jewelry companies, is shielded from that by having more of what consumers need when it comes to jewelry.

For most couples getting married, bridal jewelry is not a discretionary purchase but a must-have. This puts Signet is good stead where it claims 30% market share.

This year will be a boom time for the wedding business. Some 2.5 million weddings will take place in 2022, more than seen since 1984, and up 16% since 2019, according to the Wedding Report.

And attending weddings yields a compounding effect on future wedding statistics. Dating couples who attend a wedding are the most likely to get engaged shortly afterward. So more weddings mean more new couples getting married and more bridal jewelry sales down the road.

Providing jewelry accessories for the bridal party and mothers of the bride and groom is another big opportunity for Signet this year. And it is a testing the concept of bridal subscription jewelry through its Rocksbox banner, giving bridal party members the chance to wear much more expensive jewelry than they could naturally afford for the wedding photos.

Besides bridal, Signet is also leaning into more jewelry repair and extended service agreements. With the goal of making this a $1 billion business, Signet grew services revenues to $620 million in fiscal 2022, up 65% year-over-year. And repairs are offered for all jewelry no matter where it is purchased.

Calling its service offerings, like jewelry repair, a customer relationship builder, Drosos said, “The better we do at them, the more lifetime relationships we build and the more lifetime value we capture. When someone hands us a treasured piece of jewelry to repair, and we beautifully refresh the quality, we create evangelists. It’s a powerful and emotional moment of truth and also a driver of future growth.”

And with customers’ budgets stretched, Signet offers a variety of credit, lease and split-payment options. In fiscal 2022, credit, lease and other financing options accounted for 41% of North America sales.

To the victor go the spoils

Given all the stress consumers experienced last year due to the pandemic, it’s hard to explain how jewelry consumption grew some 50% as the preliminary data from the BEA suggests. That said, Signet was able to keep pace with sales up 50% year-over-year and 28% over fiscal 2020.

Asked if we may see a similar drop in the jewelry category as that experienced in the 2008/2009 recession, Signet president Jamie Singleton couldn’t speak to the industry as a whole, but for Signet, she said it is well positioned no matter what. Company sales and market share growth are a certainty.

“In times of duress, people get engaged at even higher levels. After the last recession, the bridal business rebounded first,” she affirmed. “And in those times, people want to give a meaningful gift with lasting value.

“Putting money into jewelry is a better value during inflationary times. It has lasting, sentimental value. People’s budgets might shift, but they will still want jewelry and we really focus on value engineering and our value equation, like lab-grown diamonds which offer better prices than natural diamonds for bigger looks.

“As a company, we are data driven and customer led. We are leveraging our scale to bring forward value and the price points our customers want, because we know what they want in jewelry,” she concludes.

Note: Corrected a typo that misstated “2017” for “2007.” Corrected 4:00 p.m. April 4, 2022.

Katheleen Knopf

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