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Developments Shaping Real Jewellery Competition in 2013

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A prolonged Eurozone crisis and renewed fears about the US economy have sparked several new developments in the world of jewellery. In 2013, the state of the global economy has led to a combination of restricted consumer expenditure, fluctuations in raw material prices and new marketing initiatives, all of which have in turn provided for an interesting leadership race in key markets such as China and the US. We explore these events through a two-part opinion series, the first of which focuses on real jewellery.

Global Consumers Continue to Drift Away From Luxury

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As outlined in the global report ‘Luxury Losing its Lustre in Personal Accessories’, published in June 2013, the influence of the luxury segment on jewellery is much smaller when compared to its impact on handbags or watches. Some of the biggest luxury goods players such as LVMH and Kering have only heightened their presence in jewellery post 2011. In 2013, luxury real jewellery will account for just 15% of total real jewellery sales as recovering non-luxury players continue to outperform leading luxury brands.

There are two major reasons behind the relatively poor growth of luxury brands. Firstly, only three luxury jewellery brands (Cartier, Tiffany & Co and Bvlgari) have managed to establish a substantial presence outside Western Europe, the US and Japan. Smaller brands such as Boucheron and Graff are at a very premature stage of expansion in Asia Pacific. However, their geographical advantage is failing to boost the 2013 sales growth of leading luxury brands as consumer demand slows in Greater China. With year-to-date growth ranging from negative to single digits, Cartier, Tiffany & Co and Bvlgari are expected to explore other high-growth markets such as India and Russia over 2014-2018, both of which are relatively untapped in terms of luxury consumption.

The other primary factor behind mid-priced and premium brands performing better than luxury brands is that nearly all the leading real jewellery markets have national brands with a loyal consumer base. This is in stark contrast to the competitive landscape in watches, where mid-priced brands such as Casio, Swatch and Fossil enjoy global recognition. Entry into new real jewellery markets such as India and Russia requires a long-term investment on the part of luxury players as they look to wrestle away market share from traditional leaders. When compared to their luxury counterparts, local leaders such as Chow Tai Fook in China, Tanishq in India and Krascvetmet in Russia are recording stronger growth on the back of their widespread and expanding distribution networks in 2013.

China - Leading Players Fined Even as they Catch Up with Chow Tai Fook

Over the review period, 2012 was the first year when market leader Chow Tai Fook saw its retail sales contract. This gave an advantage to second and third-placed Lao Feng Xiang and Lao Miao, both of which saw sales increase at double-digit rates. However, 2013 seems to represent a reversal in fortunes again. In August 2013, Shanghai-based Lao Feng Xiang and Lao Miao were among five jewellery players which were fined a total of US$1.7 million on grounds of price fixing for gold and platinum jewellery. Classified as ‘anti-competitive’ activity, the practice boosted revenues and profits for the involved companies while not carrying the benefits of a drop in gold prices for consumers.

While Chow Tai Fook (CTF) was also under investigation, none of the Hong Kong-based manufacturers (including CTF and Luk Fook) have yet been found guilty of the same activity. On the contrary, 2013 has seen Chow Tai Fook register quarter-on-quarter growth rates in excess of 30%, signalling further consolidation of its leadership. Luk Fook is also likely to increase its market share in 2013 as it increased its retail footprint during National Day Week in early October.

US - Signet has Problems Greater than the Debt Ceiling

Accounting for over 85% of Signet Jewelers’ global sales, the US is vital to the company’s future growth. A snapshot from the company profile ‘Signet Jewelers Ltd’ highlights some challenges facing the company. While geographical presence continues to constrain the company’s potential, its competitors represent a more pressing concern in 2013.

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Registering a growth rate in the high single digits, Signet’s biggest mid-priced jewellery brand Kay Jewelers continued to be the star performer over the six months ending July 2013. Kay Jewelers is the only brand in Signet’s portfolio to have a net positive change in its outlet network over 2013. The brand’s biggest competitor, Zales, reported only a 1% increase in sales for the same period. However, the latter’s recent success is represented by a jump in its net profit. The 2013 fiscal year (ending July) was Zales’ first profit making year since 2008, and in turn is likely to provide resources for increased advertising and outlet expansions in 2014 and 2015. As for calendar year 2013, Signet is likely to amplify the reach of its holiday period television advertisements, and will comfortably retain its number one position in US real jewellery.

On the other hand, Signet’s premium brand Jared the Galleria often competes with luxury players in the US. As such, its prospects in 2012 and 2013 have been somewhat subdued by the rapidly growing Cartier brand. With Jared unlikely to see a significant increase in its store network over 2013 and 2014, the brand must move to position itself away from internationally-renowned luxury jewellers which are likely to gain more market share over the forecast period.

Note: Forecast period refers to 2014-2018, review period refers to 2008-2013.

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