Special Report: The State of the Majors 2009
By Glen A. Beres
June 17, 2009
With 21 units, Long Island, N.Y.-based Harris Jewelry is 28th on National Jeweler's Top 50 list.
It's been a game-changing year for the Majors, who have faced one tough scenario after another, from shrinking sales and dramatically reduced store traffic to spiraling expenses and the need for relentless consolidation.
For large jewelry retailers with numerous stores spread out across the country, the effects of the recession are multiplied.
With less discretionary income, U.S. consumers are more focused than ever on price and are less loyal to stores and brands. Meanwhile, a tight financial market has made it difficult for even willing-to-buy, middle-income customers to obtain the necessary credit to purchase high-priced jewelry.
In short, the issues facing the industry's biggest jewelry retailers, based on research for National Jeweler's Top 50 and $100 Million Supersellers lists for 2009, are as large as the companies themselves, which is why, perhaps, even those companies still sitting at the top of the lists are pruning their retail empires.
This year, the Top 50 North American jewelry chains--the largest chains by store count--represent approximately 5,978 retail locations. That's 891 fewer doors than the 6,869 the chains held at this point last year, a 13 percent decrease. This is also the second year in a row that the aggregate number of units for the major chains has gone down in one year, based on our Top 50 research.
And, in an obvious sign of just how bad the economy has been for jewelers, it is the biggest year-to-year drop in store count for the chains since National Jeweler began compiling the Top 50 list 20 years ago. As a group, these chains only plan to open about 80 new locations in 2009--a stingy 1.3 percent projected growth over current store count, compared with 200 new stores projected in 2008, which represented 3 percent growth.
And these projected openings hardly tell the whole story, as they do not account for replacement stores and continued store closings, of which there undoubtedly will be many. Clearly, the chains are in retrench mode and have dramatically curtailed their capital growth plans to focus on making existing stores more profitable.
Case in point: Zale Corp., usually one of the most aggressive chains in terms of new store openings, said in its second-quarter financial report released in March that it planned to open just two units--one Peoples Jewellers and one Zales Outlet--for the remainder of the fiscal year. While the company did open 13 stores in the first half of its fiscal year, it also closed 23 stores and 38 kiosks during the same period. All told, Zale operates 80 to 90 fewer units than it did last year.
Other chains significantly smaller this year include Helzberg Diamonds (down 35 stores), Reeds Jewelers (down 22 stores), Ultra Stores (down 14 stores), Hannoush Jewelers (down 13 stores), Don Roberto Jewelers (down eight stores) and Maui Divers Jewelry (down eight stores).
As for the $100 Million Supersellers--the largest jewelry retailers in North America ranked by jewelry sales volume, in all retail channels of distribution--the 35 giants on this year's list account for approximately $21 billion, or 32 percent, of the estimated $65.8 billion total U.S. retail jewelry market, according to our research. In a true reckoning of just how far the mighty have fallen, these "biggest of the big" have lost an aggregate $2.3 billion, or 10 percent, of their retail jewelry sales totals since 2008, according to National Jeweler estimates.
Last year, the Supersellers accounted for about $23.3 billion, or 38 percent, of the estimated $62 billion U.S. retail jewelry market; however, there were also 10 additional companies on the list. The Supersellers now represent approximately 17,870 locations that sell fine jewelry and watches. That compares with roughly 18,970 locations in 2008, a 6 percent drop.
Like their jewelry-only Top 50 counterparts, these major retailers also have pulled back their capital growth plans in a big way in 2009: They anticipate opening some 350 new locations this year, a meager 2 percent projected increase over current store count. This is dramatically more conservative than last year, when the Supersellers anticipated opening some 625 to 650 new locations, a 4 percent projected growth rate. And again, such figures do not account for the large number of anticipated store closings that most analysts and industry experts believe lie ahead this year.
Aside from the previously mentioned chains that are also on the $100 Million Supersellers list, Finlay Fine Jewelry took the biggest hit to its store count this year. The company now operates 674 doors, which is 119 less than the 793 it had at this time last year.
Liquidations and bankruptcies
Even chains with traditionally aggressive expansion plans have grown more conservative in light of the global economic slowdown. At the end of its fiscal year in January, Wal-Mart, the nation's largest jewelry retailer, was operating approximately 4,105 U.S. stores that sold jewelry. This compares with 4,005 units for the same period in 2008--a far cry from the several hundred units the discount giant typically has added in previous years. Meanwhile, Wal-Mart said it expects to open only 157 to 177 new U.S. units this year, compared with 243 in the previous year.
There are numerous changes to the Top 50 list this year. Gone are Friedman's, Whitehall Jewelers, Christian Bernard Stores and Four Points Corp., four large players that have liquidated or are doing so now. Four other companies operating under Chapter 11 bankruptcy protection at press time were Ultra, Shane Co., Robbins Bros. and Dunkin's Diamonds. Eight-store Dunkin's, based in Heath, Ohio, is new to the list this year.
Other new entries include 69-store Bailey Banks and Biddle (with a full year of operation under parent Finlay, which bought it from Zale), plus a roster of eight-store chains: Sioux City, Iowa-based Greenberg's Jewelers, New York-based Harry Winston, Baton Rouge, La.-based Lee Michaels Fine Jewelers and West Hartford, Conn.-based Lux Bond and Green. The fact that any eight-store chains made the list this year is yet another indicator of how much the big jewelry players have been struggling. This was the first time in many years that retailers operating fewer than 10 units made the Top 50 list.
There are substantial changes to the $100 Million Supersellers list this year as well. Gone from this list are Friedman's and Whitehall, and also exiting are Fortunoff and Mervyn's, all of which threw in the towel and liquidated after several years of struggling.
Reeds Jewelers, Hannoush Jewelers, Harry Winston and Rogers Enterprises have all dropped off the list because store closings and/or shrinking sales sent them under the $100 million-mark in jewelry sales. Kmart's results were consolidated under parent Sears Holdings, with sales for the former rolled into Sears' results. Similarly, Carlyle and Co. has been consolidated under parent Finlay's listing.
Consolidation on rise
Undoubtedly, the biggest story of the past year was shrinking jewelry sales combined with increased consolidation--a deadly combination. The disastrous economy, compounded by plummeting demand for luxury goods, rising costs, the real estate bust and the financial/credit crisis, have swirled together into a hurricane-force wind that has the jewelry industry and its major players in a defensive position that includes store closings, layoffs and cost-cutting, the likes of which have not been seen in decades.
Some of the more notable store and staff consolidations this past year included:
--The loss of a slew of major retail players over the past year via liquidations, including Friedman's, Whitehall, Christian Bernard, Fortunoff, Mervyn's and Four Points.
--Macy's has undergone a major realignment of its regional divisions to further build its national Macy's brand. This year, the company consolidated, folding its Macy's North division into Macy's East, Macy's Midwest into Macy's South, and Macy's Northwest into Macy's West.
--Due to the Macy's divisional restructuring, Finlay Fine Jewelry is losing 94 Macy's doors (57 as a result of the Macy's North-Macy's East realignment and 37 through the Macy's Northwest-Macy's West realignment). Finlay estimates that the locations it is losing generate some $120 million in jewelry sales. As a result of the continued deterioration of its core department store business, Finlay announced in February that it would exit the leased department business entirely to focus on its standalone jewelry stores (Bailey Banks and Biddle, Carlyle and Co. and Congress Jewelers). However, more recent reports from the company have Finlay closing Carlyle's North Carolina headquarters and also planning to shutter at least 40 underperforming stores in its jewelry division.
--Since May 2008, Jewelry Television (JTV) has reduced its workforce from more than 2,000 to about 1,300, according to published reports.
--During the fourth quarter of 2008, HSN eliminated 250 positions.
--Zale Corp. cut 250 positions in February.
--ShopNBC reduced its salaried workforce by 11 percent in the fourth quarter of 2008.
--Saks Inc., parent of Saks Fifth Avenue, announced a workforce cut in January, slashing 1,100 corporate support and store positions across all divisions.
--In December 2008, Kohl's acquired 31 Mervyn's locations at auction.
--Blue Nile saw its fourth-quarter 2008 sales plummet a surprising 23 percent.
"Fashion and accessory spending is on life support, and jewelry in particular has been very hard hit, with more store closings, layoffs and mall vacancies every day," says Howard Davidowitz, chairman of Davidowitz and Associates, a retail-consulting firm based in New York.
Davidowitz notes that the aspirational mid-market customers that had been splurging on credit and tapping into equity from their homes to live above their means have been most hurt by the economic downturn. Not coincidentally, this was the same group that led to the huge expansion of the luxury market in the late 1990s and 2000s, of which jewelry was a major benefactor, with consumers focused on getting the right brands and moving to more upscale offerings. Now, with discretionary spending among this large segment way down, jewelers have really felt the squeeze.
"In this environment, many people just aren't going out and buying jewelry, and when they are, they're not spending nearly as much as they did in the past," Davidowitz says. "That's why retailers need to retool in a major way. We're way over-stored and oversaturated with retail selling space. I think we'll see even further store consolidation and a huge trimming of product in the stores going forward as retailers struggle to survive."
Companies pull out all stops
Major jewelry retailers are trying to cope with the struggling economy in numerous ways. Some have moved to lower price points in the hopes of appealing to cash-strapped customers. For companies like Maui Divers of Hawaii and James Avery Craftsman, this has meant minimizing diamond sales to focus on core product. The department store giant J.C. Penney Co. beefed up its sterling silver jewelry offerings last year and replaced some of its entry-level gold pieces with cheaper silver product.
Many have tried to streamline operations and cut expenses. Others have moved to cut out the middleman and bring more sourcing, designing and manufacturing in-house. The latter has been the recent strategy for companies such as: Birks and Mayors, which has increased the percentage of self-manufactured jewelry it sells in its retail stores from 32 percent to 40 percent over the last three years; Maui Divers, which is focusing on exclusive proprietary designs made in-house; Hannoush, which manufactures much of its own jewelry and also directly imports its diamonds and gemstones; Goldenwest, which is one of the largest independent direct diamond importers in the United States and manufactures nearly all of its own jewelry; Sterling Jewelers, which opened the Signet Sourcing Manufacturing unit in India in 2007; and Gitanjali, which plans to market in its U.S. retail stores its self-manufactured proprietary brands made in India.
Many retailers have recognized the Internet's ability to reach customers, build a store brand, generate incremental sales and support their other retail channels of distribution. Large companies in particular, such as Zale, HSN, QVC, J.C. Penney Co., Tiffany and Co., Wal-Mart and Ross-Simons, have been able to significantly boost sales in recent years by emphasizing a multichannel marketing approach that includes store, Internet and catalog sales.
While online jewelry sales for many have been off this year, numerous retailers and experts have acknowledged that their overall decreases would be higher without a strong Web presence.
"We believe the Internet will continue to grow more quickly than brick and mortar because it is more a function of ease of use and further trust in the ability of the medium to offer quality authentic goods," says Eric Beder, a senior vice president and retail expert at Brean Murray Carret and Co. in New York.
One potential sunny spot amid all the doom and gloom: Some analysts and experts believe that the misfortunes of many of the larger chains and mass merchants can create opportunities for smaller regional chains in the form of store acquisition opportunities and the chance to siphon off new customers. However, experts note that to survive in this economic environment, jewelers--large and small--need to be particularly sharp and able to adapt to changing dynamics in the consumer market.
Pam Danziger, president of Unity Marketing, a Stevens, Pa.-based firm that tracks the luxury market, says jewelry retailers and other luxury marketers must emphasize value for the money.
"Luxury consumers today are smart shoppers," Danziger says. "They know value and how to measure value. Luxury brands and marketers, such as jewelers, will see their sales revenues continue to drop unless they bring their prices back in line with value and justify spending more on their products. These companies also need to adapt to the changing shopping patterns of luxury consumers."
Jewelers should be prepared to offer customers the 24-7 convenience of multichannel purchasing opportunities and provide a Web site that offers a convenient and memorable shopping experience rather than just a chance to do some "window shopping," she says.
Now is also the time for jewelers to maintain a proactive stance on advertising and marketing, Danziger says, especially given that the many companies jewelers compete with are cutting back, or dropping out of the game altogether.
Editor's note: This story first appeared in the May 16 print edition of National Jeweler.
Links referenced within this article
Top 50 and $100 Million Supersellers lists for 2009
nationaljewelernetwork.com
Find this article at:
nationaljewelernetwork.com |
