How Jewelers Can Beat the Recession Blues

Jewelers did all the right things during the pandemic. They called their VIP customers just to say hello, reached out when occasions were coming up, and built an online presence if they didn’t have one already, among other strategies. And jewelry sales boomed as the market opened again.

But old habits die hard in the jewelry trade. Jewelers became complacent during the recovery period, and they stopped doing the very things necessary to run a retail or wholesale business, according to industry consultant Sherry Smith, director of business development at The Edge Retail Academy. “They did all those things really well during the lockdowns because 2020 was scary, but 2021 came and business was on fire because everybody was buying jewelry,” she elaborates. “When business was easy, [jewelers] stopped doing some of the things they had done to make sure they didn’t go out of business in 2020.”

Inventory insecurities

The Edge estimates that gross jewelry retail sales and profit declined 5% year on year in the first four months of 2023, while the number of units sold was down 3%. That’s no reason to despair, says Smith, considering 2021 was a record year and the market matched those numbers in 2022.

Still, she is not surprised by the change in sentiment amid all the recession talk. The slowdown in sales becomes a self-fulfilling prophecy, with businesses holding back because of the negative sentiment. For example, she relates, retailers say they don’t want to replace goods that are selling fast, even though their business hasn’t changed dramatically.

That said, jewelers are holding a lot of inventory after buying large volumes during the boom of the last two years. The average inventory turnover is currently 0.6 to 0.8 times per year, below the suggested target for a healthy business of one full cycle, Smith reports.

That’s a result of the industry’s love for buying, she admits. When the market reopened from Covid-19, jewelers bought “way more than they needed” as soon as they got the chance, which is why the average stock turn is currently low, she explains.

The road to healthy margins

Jewelers with a strategic mind-set, such as the companies that work with The Edge, are making money, Smith says; these clients’ profit margins are holding relatively steady at around 48%. Typically, it’s generic product that drives jewelers’ margins up, as opposed to branded goods, she adds.

Lab-grown diamonds continue to perform well, with profit margins holding steady at around 63% over the past 12 months despite — or because of — the recent decline in prices at wholesale, according to The Edge’s data. Colored gemstones and pearl jewelry offer higher margins as well, while watches and natural diamonds rank among the lower-margin performers. Within the natural diamond category, stones up to 0.50 carats have more attractive margins, which start to drop off in the 1-carat range.

That may lead to a gradual change in the makeup of retail inventory, which is affecting buying patterns in the wholesale market. Lab-grown continues to capture market share, albeit from a relatively low base of under 10%, Smith reports. However, the slowdown in the economy is currently a cause of greater concern for jewelers, she says. “They’re worried about what this year will bring. Will we hit a recession? Will people just suddenly stop buying jewelry? How do we keep the business going that we’ve done in 2021 and 2022?”

For Smith, the answer is simple: tap into the very things companies did when the market shut down in the pandemic. Her message to both clients and the broader industry is therefore clear: Don’t let all the recession talk make you stop doing the things you should already be doing to run your business right.

This article is from the May-June 2023 issue of Rapaport Magazine. View other articles here.

Image: Ring shopping. (Shutterstock)