Low US Dollar March 28, 2008
Industry Analysis: Consumers Losing Confidence, But Still Spending
Tiffany & Co.’s fourth-quarter results offer an interesting perspective on the current economy. The 1% drop in same-store U.S. sales for the quarter ending Jan. 31 shows that consumer spending has slowed, but hardly dried up.
The Tiffany statement reported a higher per-transaction average, suggesting that top-end diamond and designer jewelry pieces held up well. Net sales in the U.S. grew 4% to $527.9 million. International retail sales rose 21% to $422.56 million in the quarter, boosted by a 40% rise in the Asia-Pacific region, excluding Japan, and 29% in Europe.
For the fiscal year ending Jan. 31, 2008, Tiffany’s net sales grew 14.7% to $2.93 billion, while comparable-store sales increased 8% over the previous year.
The chief challenge faced by Tiffany and retail jewelers around the world is not slowing economies, but how to deal with the lofty prices of precious metals. Retailers who attempt to fully pass on the increases risk deterring consumers who might balk at the price tag or delay purchases in the expectation that prices will drop.
Some retailers have announced price increases — one reason analysts gave for disappointing Valentine’s Day sales — but few of those increases reflected the full extent of higher metal costs.
AUCTIONS: As prices for top gems soar, the major auction houses are making sure there are plenty of items to tempt the ultra-wealthy.
Christie’s is offering a 14.23-ct. rectangle-cut Fancy Intense pink diamond at its April 16 New York auction. The low estimate is $10 million, the high $15 million. The stone is owned by an unnamed jewelry collector who is also selling a diamond necklace that belonged to French Empress Eugénie in the 1850s (estimated at $4-$6 million) and many top Belle Époque, Art Nouveau and Art Deco designer pieces.
Christie’s is also offering a 39.34-ct. D-IF cushion-cut type IIa diamond it compares to the similarly shaped Polar Star diamond, a Golconda stone owned by European royalty. (”Golconda” is the term applied to type IIa diamonds mined in India — primarily the Golconda mine — during the Mogul era.)
Christie’s has several other million-dollar-plus diamonds up for bid at the New York auction, including a 29.91-ct. D-VVS1 cushion cut, and a number of fine emeralds and sapphires. There are far fewer major rubies in this sale than the previous one, with the exception of a 9.71-ct. stone identified as an unheated Burmese, carrying a top estimate of $500,000.
Christie’s and Sotheby’s have also packed extremely important diamonds and colored gems into their spring Hong Kong and Geneva sales, convinced the money is still there for such pieces.
TRADE: India’s government and diamond industry have been waging diplomatic offensives with resource-rich nations in Africa.
India’s Gem and Jewellery Export Promotion Council, accompanied by the country’s minister of commerce, is visiting Namibia and Angola this week to discuss “beneficiation” and rough supplies. These diamond-producing countries have been actively pursuing an expansion of cutting operations within their own borders, which India regards as threatening to its 900,000 to 1 million member diamond workforce — particularly because the polishing operations will likely focus on the larger, more easily worked goods that bring the most profit.
Minister of Commerce Jairam Ramesh said India must assist African nations’ efforts to “move up the value chain.” He emphasized that in the future India will find it difficult to source rough diamonds unless it demonstrates to African nations that it will collaborate actively in value addition within these producing countries.
Several key colored-gem producers also made a strong pitch to India’s mining industry at a major Indo-African conference recently. Representatives of the Democratic Republic of the Congo, Mozambique and Zambia noted that India’s mining companies were welcome to compete for “sensible” exploitation of their resources.
Mining was a key topic at the India-Africa Business Conclave, held March 19-21 in New Delhi. The conference, involving 20 African nations, was a precursor to the Indo-African summit conference to be held April 8.
MACRO: Consumer confidence took another sharp decline in March, according to the Conference Board Consumer Research Center. The Confidence Index stands at 64.5, down from 76.4 in February, and the Expectations Index declined to 47.9 from 58.0. The Present Situation Index sank to 89.2 from 104.0 in February.
“Consumers’ confidence in the state of the economy continues to fade and the Index remains at a five-year low,” said Lynn Franco, director of the Research Center. “The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers’ outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low, a level not seen since the Oil Embargo and Watergate.”
Slowing retail sales are also taking a toll on U.S. shopping malls. The International Council of Shopping Centers predicts that 5,770 mall stores will close this year, the highest number in four years. Russell Shor Senior Industry Analyst
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