Market Developments
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Wal-Mart gives prime placement to fine jewelry
By Michelle Graff
June 25, 2009
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| Wal-Mart is the No. 1 seller of jewelry in North America, racking up an estimated $2.9 billion in jewelry sales in 2008. |
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Kearny, N.J.--Strolling through a Virginia Wal-Mart store recently, industry analyst Ken Gassman noticed profound changes to the mega-retailer's fine-jewelry department that were hard to ignore, especially for an analyst who specializes in the jewelry industry.
Once hidden in the rear of the store, the jewelry counter now occupies greater square footage at the front, with sales associates who seemed relatively well-trained behind a counter that occupies prime real estate. It is not an anomaly.
The same setup exists at the Wal-Mart in Kearny, N.J., where the first display that shoppers see when they enter the store is the fine-jewelry counter.
Located behind neatly lined rows of shopping carts, the well-lit counter is constructed of trendy, light-colored wood, designed to catch the attention of shoppers who might otherwise disappear into aisles of sweat pants and hand soap. It's quite a change at a store where finding the fine-jewelry department practically required a detailed map.
"It was never there in the past," Gassman says of the jewelry department's up-front placement. "It was buried back in the clothing area. You had to literally leave a trail of bread crumbs to find your way back out."
This front-and-center placement, combined with the company's recent decision to shift its jewelry operations from Bentonville, Ark., to New York, raises many questions, but the prime one is this: Has the mega-retailer changed its ambitions in the jewelry category?
Bargains are the new black
With an estimated $2.9 billion in jewelry sales in 2008, according to National Jeweler's State of the Majors 2009, Wal-Mart already ranks as North America's top jewelry seller.
But Gassman says demographic shifts, as well as the exit of key competitors in the jewelry category, might have Wal-Mart eyeing a larger slice of the jewelry pie.
Recent market data shows that jewelry spending among consumers ages 25 to 34, many of whom are classified as "DINKs"--double income, no kids--is rising faster than it is for any another age group. They are a generation with money to burn, yet they see no shame in shopping at a store whose motto is "Save money. Live better."
"These younger people have grown up shopping at Wal-Mart," Gassman says. "[Wal-Mart] believes those younger people who began shopping with them early will continue shopping with them if they can continue to show value and have reasonably knowledgeable salespeople."
Another societal trend that could benefit jewelry sales at Wal-Mart: Saving money is in style.
Todd Slater of Lazard Capital Markets, one of 21 analysts who tracks Wal-Mart, recently told CNNMoney.com that the recession has made saving trendy, especially among consumers with means to shop wherever they would like.
"There is a reverse snobbery that is benefiting Wal-Mart right now," Slater said. "Wealthier consumers are boasting about getting bargains at Wal-Mart."
But independent jewelers can take heart: Even a younger generation of consumers is unlikely to buy an engagement ring for the love of their life at a New Jersey Wal-Mart, where the aromas of a nearby Subway sandwich counter drift over to the displays of jewelry.
The bulk of Wal-Mart's sales are fashion jewelry, not bridal, Gassman says.
Indeed, this is obvious just looking at the product mix at the Kearny store, where the display cases contain a scaled-down selection of bridal but hefty portions of fine fashion jewelry, especially birthstone pieces.
"By and large, it's fashion that's driving sales right now," Gassman says. "Wal-Mart's got this thing figured out."
Routed-out rivals
Gassman says another factor working in Wal-Mart's favor is the bankruptcy and liquidation of rival Friedman's, a once-ubiquitous chain whose executive team strategically positioned its stores near Wal-Mart's, knowing that jewelry shoppers who were frustrated by Wal-Mart employees' lack of knowledge would filter over to Friedman's.
But Friedman's is no longer in business, and Wal-Mart seems to be shoring up the knowledge of its salespeople in an effort to scoop up market share.
Gassman says today, Wal-Mart's salespeople, while certainly not on the level of graduate gemologists, know enough about diamonds to make a sale.
This could put a dent in the customer base of stores such as Kay Jewelers and Zales Jewelers and, depending on their location and price points, even some lower-end independents.
Another crack in the jewelry retail landscape that Wal-Mart might be able to exploit comes at the department store level.
Eugene Fram, a professor of marketing at the Rochester Institute of Technology in Rochester, N.Y., says historically, when a merchandise category becomes as challenged as fine jewelry has during this economic crisis, department stores tend to back off and some even exit the market.
That opens up another opportunity for Wal-Mart to redirect consumer traffic.
"As a discretionary purchase, fine jewelry is especially vulnerable to reduced purchasing," Fram says. "This trend has helped Wal-Mart to secure a substantial hold on the sale of moderately priced jewelry by offering well-known brands and presenting a good value proposition to its jewelry customers."
Mum's the word
Whatever its plans are for fine jewelry, Wal-Mart is keeping them tightly under wraps: The retailer's press office declined an interview request from National Jeweler, and the company's public filings provide scant information about its jewelry business.
The Bentonville, Ark.-based retailer recorded a 5.9 percent increase in U.S. same-store sales for April, and a 3.6 percent increase in U.S. same-store sales for the 13-week period.
Jewelry, though, was not noted as being among the top performers.
And, in an April 15 appearance on NBC's Today show, Wal-Mart President and Chief Executive Officer Mike Duke didn't appear to even stroll past the jewelry department while giving a tour of a Wal-Mart store in King of Prussia, Pa.
James Ragan, who follows Wal-Mart as an analyst for Los Angeles-based stock brokerage firm Crowell, Weedon and Co., says he hasn't heard much about Wal-Mart's intentions for fine jewelry.
"I don't have a good feel for that," he says. "It's not an area Wal-Mart has really talked about over the last several quarters."
Areas of growth highlighted recently by the retailer include small kitchen appliances and home décor, while sales of apparel, the division that includes jewelry, have been soft.
But Ragan says the fact that Wal-Mart is relocating its jewelry counters to the front of the store may signal that the company senses potential.
"If you are seeing that in the store, that suggests that's an area they are committed to," Ragan says.
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