The jewelry market needs to brace for a sharp downturn and Signet Jewelers is ready

Something remarkable happened during and after the pandemic: jewelry sales skyrocketed. Personal jewelry consumption reached $94.6 billion in 2021, an increase of more than 50% from the $62.3 billion spent in 2020, according to underlying data from the Bureau of Economic Analysis (BEA). acronym in English).

Overall, American consumers bought a ton of stuff in 2021. Personal consumption of consumer goods increased 18% year over year, and while inflation added 7% to that growth, the results are still surprising.

And among the more than 100 individual categories of consumer spending reported by BEA, jewelry was first in overall growth. Other categories, such as gasoline and used cars and trucks, approached the level of jewelry, but these were high-inflation categories, with prices rising 50% and 37%, respectively. But jewelry prices rose just 9%, according to the CPI.

While the BEA data is still preliminary, so it is presented with caution, it has yet to release its official NIPA 2.4.5 report for 2021. However, it is directional in nature at the very least. Consumers spent a great deal of money buying jewelry to adorn themselves or to give as gifts last year.

Unfortunately, year-end 2021 data specific to jewelry retailer sales is missing from the Census Bureau’s Survey of Retail Trade. But historically, jewelry retail sales have accounted for about half of BEA’s personal consumption data, so we can estimate that jewelry retailers generated some $47 billion in sales, up 40% from the $33, 3 billion in 2020.

Everything that goes up has to go down

As much as the industry may hope that jewelry sales will continue to grow at their current breakneck pace, history and common sense argue otherwise.

Since 2014, jewelry consumption increased from $59.1 billion to $62.3 billion in 2020, up 5%, and jewelry retail sales grew from $31.1 billion to $33.3 billion, an increase of 7%.

2014 was a pivotal year because it was when the jewelry market recovered everything it lost in the Great Recession. It took seven long years for jewelry consumption and jewelry retail sales to surpass the levels reached in 2007.

Now, with inflation at its highest level in 40 years, consumers are under pressure in all essential areas, such as food, gas, utilities and housing. That leaves less for discretionary spending, and jewelry is one of the most discretionary purchases.

While economists argue that a recession is imminent, it certainly looks like the jewelry market will undergo a course correction. How far it falls and how long it lasts is anyone’s guess.

But jewelry consumption did quite well for seven years until 2020 and it took seven years for the jewelry market to recover after 2007 (seven years of partying, seven years of famine), history is likely to repeat itself.

If change is coming and it surely will, then Signet Jewelers would appear to have the most to lose, as it is ranked as the number one jewelry retailer in the country on the list. National JewelerList of super sellers. It operates some 2,800 retail stores under its Kay, Zales, Jared, Diamonds Direct and Banter by Pierce Pagoda banners, as well as DTC James Allen and Rocksbox jewelry rentals, and more.

But like biblical Joseph in Egypt, CEO Gina Drosos and her team have been preparing for this moment.

Ready for whatever the future holds

Since 2018, the company has been undergoing a transformation. Phase one of its transformation plan, “Path to Brilliance”, was completed in fiscal year 2022, ending on December 31, 2021, and has now embarked on phase two, “Inspiring Brilliance”, with the goal of achieving $9 billion in sales.

To date, it has reached $7.8 billion in revenue, just $1.2 billion short of that goal, and has racked up $1.6 billion in sales over the past two years.

While Drosos predicts that the jewelry industry will drop from single digits to basically flat this year, surely he is comparing the results to 2020, not the outlier year of 2021, the company is aiming to hit $8.03bn to $8.25bn million in sales this year. There are many reasons to believe that it will be achieved.

“We are showing that Signet has the strategies, strength and structural advantages to consistently outperform the market and gain share while delivering sustainable double-digit margins,” Drosos said on the earnings call.

This is what she is talking about:

Scale means growth

Throughout the earnings call, Droso refers to the scale frequently. It is capitalizing on its scale in retail, with each of its banners now clearly differentiated thanks to the Brilliance plan.

Much of the credit for its banner differentiation comes from significant investment in targeted marketing, including a $180 million increase in advertising last year. That allowed for more targeted digital advertising and gave it a 50% voice share on TV.

“This allows us to increase customer acquisition and engage customers with relevant messages on the right channels at the right times,” explained Drosos. “Customers who respond to our marketing have higher purchase intent and are looking to spend more.”

In North America, average transaction value is up more than 15% and in-store conversion is up nearly 20% compared to two years ago. Increased its number of new customers by almost a third during fiscal year 2021 and won back 37% of customers that had passed more than two years.

Signet is also taking full advantage of its scale through the vertical integration of its supply chain, an important competitive advantage in today’s environment with challenging industry supply chains. It also gives Signet more control over price points. You can value engineering product design for a variety of good, better, and better product offerings.

And the scale is enhanced through its enhanced data analytics capabilities. You have a fully integrated, enterprise-wide inventory management system and the insights to optimize your retail footprint. In the last four years, it has reduced its retail fleet by 20%. And thanks to their efforts to differentiate their signage, the Kay and Zales stores are able to sit next to each other and not cannibalize sales like they used to.

Deeper connections with customers

Your digital eCommerce portal is driving deeper levels of customer engagement. About 65% of customers start their customer journey digitally. And about 90% of their high-value customers, who spend more than $500, engage through their various buying channels.

While the majority of customer transactions are completed in-store (80% vs. 20% through e-commerce), Drosos explained that the strategic importance of its digital platform is measured by more than just sales.

“It really is one of the competitive advantages that I think is least understood about Signet, but probably the most valuable because the level of spending and the level of capability that we have put into this over the last few years is something that is unmatched in a world fragmented. category,” he said.

“What matters is how customers buy, how we acquire them and how they move through our purchase funnel,” he added.

Give customers more than they need

When times get tough, discretionary purchases like jewelry are the first place consumers go. During the 2008/2009 recession, jewelry spending fell 14% from its 2007 high to its 2009 low.

But Signet, more than other jewelry companies, guards against that by having more of what consumers need when it comes to jewelry.

For most couples getting married, bridal jewelry is not a discretionary purchase but a must. This puts Signet in a good position where it claims a 30% market share.

This year will be a boom year for the wedding business. Some 2.5 million weddings will take place in 2022, more than seen since 1984, and 16% more since 2019, according to the wedding report.

And attending weddings has a combined effect on future wedding statistics. Wedding couples who attend a wedding are more likely to get engaged soon after. Therefore, more weddings means more new couples getting married and more bridal jewelry sales in the future.

Providing jewelry accessories for the bridal party and the mothers of the groom is another great opportunity for Signet this year. And it’s a proof of concept of bridal subscription jewelry through its Rocksbox banner, which gives members of the bridal party the opportunity to wear much more expensive jewelry than they naturally could afford for wedding photos.

In addition to brides, Signet is also leaning toward more jewelry arrangements and extended service agreements. With a goal of making this a $1 billion business, Signet increased services revenue to $620 million in fiscal 2022, up 65% year over year. And repairs are offered on all jewelry no matter where it’s purchased.

Calling his service offerings, such as jewelry repair, a customer relationship builder, Drosos said, “The better we do it, the more lifetime relationships we build and the more lifetime value we capture. When someone hands us a precious piece of jewelry for repair, and we beautifully refresh the quality, we create evangelists. It is a powerful and emotional moment of truth and also an engine for future growth.”

And with customer budgets tight, Signet offers a variety of credit, lease, and split payment options. In fiscal year 2022, credit, leasing and other financing options accounted for 41% of sales in North America.

To the victor goes all the loot

Given all the stress consumers experienced last year due to the pandemic, it’s hard to explain how jewelry consumption grew by 50% as preliminary data from the BEA suggests. That said, Signet was able to keep up with sales up 50% year-over-year and 28% during fiscal 2020.

When asked if we could see a similar drop in the jewelry category as experienced in the 2008/2009 recession, Signet president Jamie Singleton was unable to speak to the broader industry, but for Signet, she said she is well positioned no matter what. . The company’s sales and market share growth are a certainty.

“In times of duress, people engage at even higher levels. After the last recession, the bridal business picked up first,” she stated. “And in those times, people want to give a meaningful gift with lasting value.

“Investing money in jewelry is a better value in times of inflation. It has lasting sentimental value. People’s budgets may change, but they will still want jewelry and we really focus on value engineering and our value equation, like lab-grown diamonds that offer better prices than natural diamonds for bigger looks.

“As a company, we are data-driven and customer-led. We are leveraging our scale to drive value and price points that our customers want, because we know what they want in jewelry,” he concludes.

Note: Fixed a typo that incorrectly read “2017” for “2007”. Corrected 4:00 pm April 4, 2022.

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