Survey: Independents expect 2008 upturn in sales

July 03, 2008

National Jeweler's first "America's Best Jewelers" benchmarking survey aims to help jewelers pinpoint profitable ideas.

By Emma Johnson

New York—What are your peers up to?

That question can be answered by National Jeweler's first-ever "America's Best Jewelers" benchmarking survey, launched this spring in an effort to suss out industry trends and help independent jewelers establish best practices in their stores.

Independent research firm MPI Group, based in Shaker Heights, Ohio, conducted the online survey, and it was completed in March and April by 264 participants, of which 93 percent were independents.

The survey covered topics including annual and projected sales, marketing and advertising practices, product and service mix, and management and employee practices.

Jewelers were optimistic in their sales outlooks, but many were also grappling with higher expenses. About half (49 percent) of participants said they expect their annual sales to increase in 2008 compared with 2007, while 18 percent expected no change, and one-third (33 percent) said they thought sales would drop over the next year. Fifty-nine percent reported per-unit operating costs were up over the past year, and a whopping 27 percent said that those expenses increased by more than 10 percent. Only 21 percent said their store's per-unit operating costs fell over the period.

David Peters, Jewelers of America's (JA) director of education, was pleased with respondents' positive outlooks, but he warned of challenges to the industry ahead.

"Optimism is a good place to be, mentally. It is a conqueror's attitude," Peters says. "I don't want to tell [jewelers] they're wrong, but the challenges they're going to be faced with this year are yet to be revealed. We don't know the extent of the recession, but a positive attitude is absolutely the best way to face it. It is like the way a racecar driver faces a turn: you slow down a little coming into the turn, then once you're in the turn you give it a little more gas."

Participants' median gross margins—or net revenue minus materials, labor and overhead—stood at 43 percent, about the same as three years ago, while median net profits stood at 10 percent and averaged 16 percent—a slight increase over three years ago when median profits were 8 percent and at an average of 14 percent.

Custom-jewelry sales and repairs were the most likely product categories to have increased over the past year, reported 52 percent of respondents, who also said they expect the rise to continue.

Meanwhile, 44 percent of respondents said that sales of diamond jewelry were up during that period, and 37 percent said loose-diamond sales rose.

Peters says that it behooves jewelers to focus on custom designs and repair work, given that branded jewelry and Internet sales are increasingly dominating the industry.

"The age when independent jewelers can differentiate themselves with product is gone," Peters says. "The real key to differentiation is from a service perspective and with the bench, and what they can create to make customers' dreams realities."

To wit, jewelers who took the survey said top market forces included high quality, at 71 percent, service and support, at 69 percent, and customization, at 42 percent.

Training the best staff in town In keeping with anticipated improved sales into 2008, respondents said they expect the number of employees at their stores to grow. At the time of the survey, the median number of store employees was four, with an average of 7.1, almost exactly the same as 2006. For 2008, the median number of employees was expected to be four, and the average, 7.6. Survey respondents reported very little turnover at their businesses, with an average tenure—owners not included—of 8.4 years, and seven years as the median. Half of the stores surveyed had zero turnover in 2007.

Suzanne DeVries, president and chief executive officer of Diamond Staffing Solutions, says many jewelers, even those who are doing well, are planning on hiring just one employee in 2008. She considers these trends very conservative, but advises jewelers to train any hires exceedingly well.

"In this economy, you have to be different," DeVries says. "You can have very low turnover, but make sure your employees are the best in town. If you don't have well-trained people, it doesn't matter how many people you have."

DeVries, who sees many jewelers waiting until June or July to make any new hires in anticipation of the holiday season, says the best prospects have disappeared by that time.

"Come September or October, those people are not going to leave their current employers high and dry," De Vries says.

When it comes to promoting their stores, three types of media ranked highest out of nine choices: tops was direct mail, relied on by 66 percent of those surveyed; magazine advertising was second, at 55 percent; and 51 percent held in-store events.

Peters says that he would like to see jewelers harness the power of new online media more than they currently do.

"I believe independent jewelers grossly underestimate the power of that kind of marketing," he says. "New media marketing is the key to these jewelers' futures. Many are convinced their customers don't want or like it, and I'm convinced they do."

Many of the survey participants are family-owned stores that have long flourished through traditional marketing, but that might not help keep them successful, Peters says.

Stores spent an average of 8.8 percent of their sales on advertising and marketing in 2007, and anticipate spending 9.3 percent on average in 2008.

JA spokeswoman Peggy Jo Donahue was pleased these figures were so strong.

"I was very happy see the advertising and marketing spend," Donahue says. "In this economy, it is even more important to spend on advertising, even though that may be one of the first places jewelers are inclined to cut. Jewelers in many ways can create their own reality, and a strong advertising spend is a good sign of being optimistic—and being optimistic is so important."

Top five marketing objectives:

Build general traffic: 75 percent
Build brand awareness: 54.1 percent
Promote specials/sales: 42.6 percent
Promote specific lines carried: 41.7 percent
Promote seasonal buys: 34.3 percent

Source: "America's Best Jewelers" benchmarking survey. National Jeweler, MPI Group

Editor's note: This story first appeared in the June 2008 print edition of National Jeweler.