New Consumer Mind-Set Dampens Holiday Sales

Many U.S. jewelry retailers — and the retail industry in general — experienced modest sales growth during the November and December holiday period in 2015. Holiday sales grew 3 percent year on year during that period to $626.1 billion, according to the National Retail Federation (NRF). That growth fell short of NRF’s targeted 3.7 percent, and a far cry from the 4.1 percent sales boost in 2014. Lower oil prices have led to falling consumer prices and greater spending power, but retail buying did not increase accordingly. Coupled with the strong U.S. dollar, tourism grew at a low rate and those that visited spent less. As a result, many jewelers and tourism-dependent retailers saw lackluster sales from international visitors. “Disinflation” and Currency Challenges    “It’s been a tough season and a disappointing year,” said Jack Kleinhenz, chief economist at NRF. “It’s not that we have weak demand, but rather weak prices. Retailers don’t have pricing power anymore.” He called the falling jewelry and general merchandise prices as a “disinflation” that has been a big issue, not just in the U.S. but also around the world. Retailers had to be price competitive to even move products.    Furthermore, consumers had the benefit of technology, allowing them to go online to check prices at one store and then perhaps decide to make the purchase at another. “Firms that were able to implement technology well showed stronger sales,” Kleinhenz pointed out. Mobile commerce in the U.S. soared 59 percent year on year to $12.65 billion in November and December, according to estimates from comScore, a company that measures online analytics. That number accounted for 18 percent of total digital commerce up from 13 percent in 2014.    Kleinhenz noted that midmarket retailers such as Macy’s and some luxury retailers such as Tiffany & Co. did not do as well as they had hoped during the holiday period.These companies have traditionally counted on their sales being bolstered by tourists who visit the major cities in the U.S. during the holiday period. The strong U.S. dollar has made it more expensive to visit the country and spend, adversely impacting retailers on both the East and West Coasts, Kleinhenz elaborated. According to the U.S. National Trade and Tourism Office, international visitors to the U.S. in 2015 was forecast to grow at its slowest rate — a growth of just 300,000 visitors to 75.3 million, representing only .4 percent. The country had enjoyed an average growth of 6 percent each year since its recovery from the 2008 recession.    The strong currency also adversely affected sales gains made in overseas regions (see Holiday Season 2015 chart below). Tiffany & Co. and the various jewelry maisons under the Richemont banner were among some brands that saw their overseas sales growth in Europe and Japan either diminished to modest numbers, or even plunged into the red. Less Bling, More Experiences    Kleinhenz also noted that consumers have continued their gradual move away from material purchases and toward experiential purchases, such as travel and dining. “There was a pent-up demand for services after the recession,” he explained. The retail sectors that did do well were furnishings and home building supplies. Consumers have become conservative and debt levels have gone way down, and people are investing more in their houses. The sectors that fared the worst were apparel and accessories. “There was an excess supply of winter clothes due to the unusually warm weather we had, and there had been an inventory buildup from summer into fall,” Kleinhenz said.    Some breakthrough in product innovation would make consumers start spending again, speculated Kleinhenz. “Consumerism as we know it has changed. People are not going to overleverage themselves to buy goods as they become satisfied with what they have.” He described HDTVs and 4K TVs as innovative products that were sales boosters in 2014, but 2015 — other than technology wearables such as Apple Watches and Fitbits — had been largely missing such breakthoughs.    Looking ahead, Kleinhenz expects consumer prices to stay down in the early part of 2016, and might not pick up until midyear or the end of the year, when wages might start to increase. But he predicted, while the year might not be spectacular, as the U.S. economy is forecast to grow at subdued rates of around 2.5 percent, it will not be terrible. “The economy is not as fragile as some people have been suggesting,” he concluded. Signet    Signet, the largest jewelry retailer in the U.S., enjoyed growth across all its major divisions.

• U.S.–based Sterling Jewelers division — comprising Kay Jewelers, Jared and other regional brands — saw an overall 7.2 percent year-on-year boost during the holiday period, with Kay growing 8.9 percent and Jared, 6.8 percent. The success of Kay was attributed to key collections and categories, including the recently introduced Ever Us two-stone rings. Jared saw its new store operations, marketing and merchandising initiatives pay off.
• Zale division sales were driven by material increases at flagship Zales stores as well as Piercing Pagoda kiosks. The Ever Us and other collections, as well as gold jewelry, were important sales drivers in the kiosk channel.
• The U.K. jewelry division enjoyed higher same-store sales but saw gains offset by unfavorable currency exchange rates. Branded bridal, diamond fashion jewelry and beads primarily drove same-store sales.
• Ecommerce sales were up 10.9 percent to $139.7 million.

Tiffany & Co.    Tiffany & Co. attributed restrained consumer spending and uncertain global economic conditions to having negatively affected its holiday earnings.

• The Americas’ lower sales of 7 percent were exacerbated by the decline in foreign-tourism spending in New York and other U.S. markets. Total sales in Canada and Latin America rose. 
• Asia Pacific sales excluding Japan plummeted 11 percent during the period. China’s strong continued growth for Tiffany & Co. was offset by weaknesses in Hong Kong and Singapore. Japan’s sales gained 12 percent due to strong tourist numbers, though its gains were reduced to 9 percent after strong U.S. dollar considerations.
• Europe’s 4 percent sales increase in constant exchange rates was turned into a contraction of 4 percent after currency considerations. Sales rose in the U.K. but notably declined in France, with mixed performance across Continental Europe.
• The company forecasts that the strong dollar and global macro challenges might result in minimal growth in net sales and earnings for 2016.

Richemont    Switzerland-based Richemont’s holiday sales results were wrapped into its third-quarter report. The luxury group fared well, helped by the weakness of the euro currency, which Richemont uses in its reporting.

• The group saw sales declining in November 2015 for Europe, which primarily reflected lower levels of tourism.
• Trading in Asia Pacific remained challenging as demand for watches continued to contract. Mainland China demand improved, but Hong Kong and Macau reported significantly lower sales. Japan saw growth, although at lower rates due to seasonal factors such as Chinese tourism. 
• Sales in the Americas remained subdued, although jewelry showed growth over soft demand for watches. 
• The group’s jewelry maisons, including Cartier, Van Cleef & Arpels and Piaget, were the top performers, limiting decline for the segment as a whole. The jewelry maisons’ sales improved by 2 percent while watchmakers’ sales ticked up by 1 percent.
• Richemont expects that the challenging trading environment would likely prevail until March 2016, negatively affecting operating profit for the year.