January/February 2003 • To the Finish • Economy Dominated Jewelers Sales in 2002 • News & Updates • In This Issue

Rhodolite garnet cut by Jeff Gurecky, photo by John Parrish.

Economy Dominated Jewelers' Sales
in 2002
By Marlene A. Prost

Jewelry retailers struggled with a double economic whammy in 2002 as customers still reeling from September 11 were hit in the pocketbook by a plunging stock market.

But retailers have been coping well in the tough market. According to Colored Stone's annual survey of independent retail jewelers, the number of stores whose sales went up in 2002 was the same as in 2001. And fewer stores said sales were down — 27 percent in 2002 compared to 37 percent the previous year.

Timely fears about peace and prosperity overshadowed all other concerns. Retailers seemed genuinely surprised when sales did go up, and struggled to find some explanation.

"Sales for the last three months have been really good. I have no idea [why]. We're as surprised as anybody else," said Larry Owen of Cluxton's in Athens, Alabama. "It could be this part of the country. We're next to Huntsville and Decatur, where there are a lot of high-tech and government jobs, and we haven't had a job shortage."

"We had a good Christmas last year; we expected nothing," says Bill Lewis of Hardie's Jewelry in Fort Worth, Texas. Lewis said his store's average price point for colored stones was in the $2,000 range; this year's highest sale was a $30,000 ruby.

Lewis was an exception, however; a growing number of sales are at the lower end of the market. According to the survey, the best-selling price points were under $500 (35 percent of those surveyed), with jewelry's popularity dropping as the prices got higher.

"The rich get richer and the poor get poorer" may be a cliché, but the market does appear to be polarizing. While lower-end sales increase, wealthy consumers continue to buy high-quality merchandise.

Nowhere is this trend more apparent than in colored stone jewelry sales. Retailers whose color jewelry sales were up said that 53 percent of customers were buying at higher price points than the previous year, and 41 percent said the most popular price points were over $2,000.

Peridot snuck onto the bestseller list this year at number nine, with green gemstones becoming more popular. Photo courtesy Groh + Ripp.

Of the retail jewelers whose colored stone jewelry sales were down, on the other hand, 53 percent said their customers were buying at prices under $500, and none of them said price points over $2,000 were popular.

Sales of colored stone jewelry seem to have gravitated toward the high end of the market. The trend may have been spurred by the desire for quality that developed over the years of the tech stock boom, or it may simply be that higher-quality gems are more beautiful.

The bad news for color is that the majority of consumers are buying lower-priced jewelry. Even among retailers whose overall sales were up from 2001, the most popular price points were at the low end of the market, and their product mix leaned more heavily toward diamond. When times got tough, consumers bought more traditional items.

In a similar conservative vein, the "Big Three" of sapphire, ruby, and emerald were back on top of the bestseller list this year. In 2001, in a surprising shakeup, ruby and emerald slipped to fourth and fifth place, supplanted by pearl and tanzanite — a change many attributed to broader consumer awareness, especially for pearl.

Gems can be a regional taste, but blue sapphire seems to do well everywhere. "Blue sapphire has been

doing consistently well," said Owen. "Emerald is probably second, but we don't have many calls for rubies." Green and yellow stones, such as peridot, yellow topaz, and citrine, have also sold well, he said.

What explains blue sapphire's dominance? Color, color, and color, say the retailers who named it as their number-one seller this year. Over a quarter of jewelers surveyed said that blue sapphire will be even more popular in 2003.

"It really has been popular, this year especially," said Kim Felts of Felts Fine Jewelry in Tulsa, Oklahoma. "It is selling better this year than last. Garnet probably beat it out [for us] last year." By comparison, fancy sapphires have not done well, said Felts. "I don't think the people are quite educated about fancy-colored sapphire."

The best predictor of a stone's appeal is whether its color is popular or in fashion, said 57 percent of retailers. The next best reason is consumer awareness, followed by in-store promotions. Stones expected to grow more popular next year were tanzanite and blue sapphire, by an overwhelming margin.

Tanzanite is holding its own despite the controversies of late 2001 and early 2002. One-quarter of retailers said the stone has grown more popular over the past year, while one-third said it will be even stronger next year. However, its reputation may be harmed by sales of low-grade stones and poor information about its proper care.

"The whole cachet has been cheapened by the low-grade tanzanite on the [shopping networks]," said

Philip Burton of Burton Jewelers in Anacortes, Washington. "People don't know what good tanzanite is. When they see it, they say, "'Wow, what's that?'"

"Tanzanite has pretty much plateaued or is on its way down," said Lewis. "No one has taught [customers] how to wear it [and clean it]. . . . Tanzanite is a very unstable stone; it has to be taken care of. It can't tolerate extreme temperature, and it can't go through various light changes."

Consumer lifestyles can also affect sales. In Tulsa, Oklahoma, customers shy away from emeralds because of their active outdoor lifestyle, said Felts. "Our customers are just not looking for emerald. Maybe they're uncomfortable with the durability factor with our lifestyle. Everybody knows opals and emeralds are fragile. . . . We have a lot of lakes, with boating and skiing, and [customers] know they can't take an emerald to the lake," she explained.

< 18K gold peridot and rhodolite garnet rings with diamonds from Rina Limor for J.R. Gold Designs.

Quality Matters

Customers interested in quality are still paying for it.

"We're selling a lot of larger diamonds and colored stones," said Owen. "We had a large tanzanite set in diamonds sell for about $13,000, a ring in a platinum setting."

Sam Cavarretta of Gem and Jewelry in Carbondale, Illinois, reported he had a surprisingly good sales year and a strong September, with more high-end buying. "I don't know why. A lot of jewelers had a weak September, [but our] September was very good. We're running very steady with last year." Colored stones are selling as strongly as diamonds, he said, citing one $10,000 diamond-and-blue-sapphire bracelet that sold because of the colored gem.

However, the economy has forced many consumers to sacrifice size for quality, or to postpone their purchase as they wait for the market to recover.

"I would say it's more due to the economy than 9/11," said Burton. "You're looking at the people with disposable income. I can think of three customers waiting for the stock market [to improve]. It's true certain high-end customers don't care. They've seen peaks and valleys. But I have one customer who's retired on a fixed income, who's still waiting [to buy] her diamond earrings."

Retailers have been adapting to these changing sales patterns. "We're listening to our customers. This year they can't spend as much as before; [things are] a little tight," said Felts. "We've been accommodating them. I've been buying more nice pieces, but not high end. For example, I have a sapphire bracelet I bought recently that has drop-dead gorgeous sapphires. They're small, so you keep the price down but don't sacrifice quality. Many would rather go smaller and have a really nice [look]."

Tanzanite slipped to fourth place in 2002. Photo courtesy Groh + Ripp.

It's the Economy . . .

The bear market, the sluggish economy, and fears of terrorism have combined to make buyers and sellers wary, according to the survey.

This summer's disastrous stock market had one positive effect, said Cavarretta. "A lot of people watched their portfolio shrink and thought it might be a good time to spend on jewelry. That helped a little." But, he added, "Now there's the war in Iraq."

"I think the economy is still the biggest issue. When you wake up every day and hear bad news, it has to affect you," said Corey Shaughnessy of Gallerie Estate Jewelers in Austin, Texas. "People who wouldn't have thought twice about making a purchase two years ago will now [hesitate]."

Almost half of retailers surveyed called the economy the biggest problem facing the industry today. With consumers spending less, it's no surprise that retailers' biggest concern was the competition, especially when it came to price: low-end discounters (17 percent); the Internet (13 percent); and other luxury items (3 percent).

When money is tight, consumers pit jewelry against other luxury purchases, from furs to cars, said Burton. "We need to make sure manufacturers and retailers advertise enough and effectively so we continue to put our product [out in the public]."

Within the jewelry industry, Internet competition is the biggest problem, particularly diamond marketing, said Felts. "One out of four who have purchased diamonds has purchased on the Net, which is scary. . . . It is a problem because there is so much on the Net, there is no way to regulate it. [Buyers] are not checking qualifications; they're just buying."

Lewis agrees. After having many customers mention online purchases, he decided to tackle the Internet head-on by giving an insider's perspective on their gems. "It would happen a lot with tanzanite. . . . Sometimes, from the [downloaded] picture, I'd say, 'Let me tell you what they're not telling you' and I'd quash it right there."

If it was a good deal, he would admit it. "One lady brought me a big tanzanite [she bought online]. It was gorgeous. I couldn't fault it."

She had paid $2,500 for the loose stone. Lewis said he could have bought the stone for $1,600 wholesale and charged her $2,600. He learned from the experience. He hooked up a high-speed ISDN connection and now keeps two laptops and three desktop computers at the store. When customers say they've found a good deal online, he immediately calls it up and often counters with his own product and a better deal.

"I have a computer, I have a lot of loose stones out there. . . . The beauty of it is, [they can see] my stone in person," said Lewis. So he's turned a problem into a plus? "I have to," he said.