Jewellery retailers.
Recently I came across some interesting market research* into jewellery retailers in Australia. It made me reflect on a number of marketing opportunities that remain largely untapped in this sector. So I thought I’d share some of this insight.
Jewellery Retailers: The facts
There are around 2000 jewellery retailers in Australia, with total revenues over $3Bn and an industry profit (EBIT) of $234M.
The industry has a low level of concentration and the biggest four players accounted for less than 40.0% of the market in 2014-15. Most jewellery retailers are small-sized operators, with fewer than 20 employees.
Of the big players, Prouds Jewellers (Prouds / Angus & Coote / Goldmark) have a market share of c17.3%. 240 Prouds Jeweller stores, 141 Angus & Coote stores and 102 Goldmark stores. (2014: 480 stores = R$580M / EBIT $30M. $62,500 Per Store – 5.1%)
Michael Hill have a market share market share of c9.1% with their 164 Michael Hill Jewellers and 6 Emma & Roe stores. (2014: 170 stores = R$305M / EBIT $47M. $276,470 Per Store – 15%)
Tiffany & Co might only have a market share of 5.2%, but those 7 Stores and their online offer = R$175M / EBIT $16M. (2014: $2,285,714 Per Store – 9%)
As a snapshot it looks good on paper but the industry’s growth in Australia over the last 5 years has been 0%. And the outlook is at best a 1.6% growth over the next 5 years.
The drivers (or brakes in this case) are a low Consumer Sentiment index, low real household discretionary income, relatively high world price of gold & the prevailing cash rate.
The industry is mature, with low capital intensity, low barriers to entry, light regulation and only medium levels of competition. So it is ripe for disruption.
Jewellery retailers have had difficult times recently, preventing the majority from growth in revenue. This weak economic situation has meant growth is only possible by increasing market share, and using price as the strategic focus.
The sparkle at the end of the tunnel
The luxury end of the market in Australia grew by 6% in 2014 and it is expected to continue at 3% CAGR. Demand for precious and semi-precious stones has driven revenue growth. Better quality diamonds are now available, and the consumer is more educated (thanks to the Internet) on issues such as cut, clarity, colour and carat size. This is the largest segment of the market, and has grown to 30% of all revenues.
Australians have become more informed and brand-aware, aided by the increasing presence of international brands and the Internet, which allows consumers to research products, consult blogs and be influenced by celebrities in social media.
Jewellery Retailers: Embracing changes in demand
Internet shopping is growing in popularity from a consumer point of view, but many jewellery retailers are being very slow on the uptake.
Prouds, Shiels Michael Hill, and Tiffany & Co are examples of chain retailers that offer their products online.
Customer confidence and convenience are driving growth in Internet shopping, however in Australia only about 3% of jewellery sales are attributable to the Internet. In the US and Europe, internet jewellery sales is estimated at over 6%.
Increasing consumer demand for online shopping is projected to result in more jewellery retailers offering their products via shopping websites. This demand is expected to be driven by consumers seeking a viable alternative to in-store shopping. The growing popularity of online browsing and comparing different retailers is likely to support this trend.
It will be no great surprise that households in the highest income segment account for the largest share of expenditure on jewellery products in 2014-15.
Demand has been aided by the high level of discretionary income available to the households in this income segment and their ability to purchase products of higher quality and a higher ticket price. As a share of revenue, the relative size of this segment has increased over the past five years.
Jewellery Retailers: Solid Brands are winning
High end jewellery retailers have benefited from the demand for branded offerings, particularly within luxury jewellery, which at the moment is predominantly unbranded. Jewellery is very brand-driven and consumers are willing to pay a premium for jewellery that features a luxury brand name.
Furthermore, accessible luxury brands have grown in momentum. Brands such as Tom Ford, Cavalli, Lanvin, Marc Jacobs and Michael Kors are all increasing in popularity.
Luxury jewellery experienced healthy growth over the review period, underpinned by rising disposable incomes, the increasing population of high net worth individuals in Australia, increased demand for branded offerings and healthy inbound tourism.
It is interesting to note that Chinese tourists represented Australia’s second largest source of international visitors in 2013, behind New Zealand. Chinese tourists are choosing Australia not just as a holiday destination, but as a place to buy big-ticket luxury items in order to escape tax and import duties in their home country.
Consumers are prepared to spend high sums on luxury jewellery, with purchases of such items viewed as an investment carrying an emotional attachment for the wearer or giftee. You only need to look at the Tiffany & Co figures on ‘sales per store’ to see the benefit of a global brand and one synonymous with luxury gifts and engagement rings.
You do not have to be clairvoyant to predict an increase in luxury designer houses launching jewellery collections as extensions of their existing brands. These brands are set to benefit from strong brand awareness and loyalty.
Luxury brands are expected to continue to establish their e-commerce sites and social media platforms as a way to engage with potential consumers.
Jewellery Retailers: Anticipated Trends
The Euromonitor, IBIS World and McKinsey reports outlined a number of trends
Global Strategies. Global Brands have no barriers. Global media channels bring economies of scale to messaging, especially through sponsorship.
Branding Strategies: Globally, branded jewellery currently accounts for 20% of the market, forecast to potentially double in 5 years
Distribution Strategies: The Internet could grow to as much as 10% of sales, but many more will search online and then buy instore, as it is a ‘high-involvement’ category driven by a ‘sensory experience’. Buyers want to experience the brand (e.g. Tiffany)– which is the opposite of the ‘showrooming’ trend to view offline, then search online to buy cheaper. Luxury jewellery brands are going to have little discounting. Also, buyers are choosing speciality jewellers over the department stores.
Pricing Strategies: The middle is stagnant, while top end beats inflation, because many buyers trade up for perceived quality.
So what is the market opportunity for jewellery retailers?
Having a clear market position
Jewellery brands must have a clear market position to attract their target market and maximise sales. The opportunity for growth is segmenting the market and supplying either fast fashion turnover at affordable prices, or going towards luxury and increasing the brand values. I would advocate the latter.
Having a multi-channel distribution strategy
Jewellery brands will benefit from being located both in key shopping centres and online. This maximises their exposure and opportunity to passing consumer traffic offline or online. Let the buyer decide which they prefer.
What about existing jewellery retailers?
In an age of over-supply in the supply chain, there is no barrier to creating a retail brand of branded jewellery.
One only needs to look at the success of Pandora and Tomas Sabo to see the success of ‘monobrand’ jewellery retailers. Once only available from a ‘concession’ in a department store they are now in every shopping centre. If you need proof the imitation Pandora, ‘Emma & Roe’ recently introduced by Michael Hill, is worth watching. It might not be ‘luxury’ but it is single-minded.
Even stores that stock brands, such as Cadenzza, and Net-A-Porter mix ‘known brands’ with ‘faux brands’ to increase the margins on commodity level ‘fine’ jewellery’.
The winners in 5 years will be those jewellery retailers that create strong jewellery brand offers.
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If you are a jewellery retailer looking to grow please do not hesitate to contact us for the details behind this review.
If you want to read the details in the reports for yourself go to
‘A multifaceted future: The jewelry industry in 2020’ from McKinsey & Co
http://www.mckinsey.com
‘Luxury Jewellery & timepieces in Australia’ from Euromonitor International
http://www.euromonitor.com
Industry Report ‘Watch and Jewellery Retailing in Australia’ from IBISWorld
http://www.ibisworld.com.au