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Diamond Retailers’ Confidence in Luxury Sector

2002: Diamond Retailers’ Confidence Needs Favorable Environment to Grow

Feb. 2002

The Conference Board’s Consumer Confidence Index rose for the second consecutive month in January, sparking hope among retailers that the economy is, indeed, headed toward the forecasted second-half recovery. The closely watched index frequently mirrors overall economic fluctuations and predicts upcoming expectations.

"While the economy has not turned around yet, the worst may well be over," says Lynn Franco, director of the Conference Board’s Consumer Research Center. "The upturn in confidence is being driven by growing confidence about the business outlook and job prospects.

Consumers report being more upbeat about economic prospects six months from now. A full 25% of people surveyed expect business conditions to improve this year. Attitudes toward employment prospects are also upbeat, leading to the best confidence levels seen for quite a while.

"Consumer expectations for the future are now higher than they have been in a year," Franco says.

The Federal Reserve Board confirmed the news by holding steady with interest rates, stirring a Wall Street rally.

Among jewelers, meanwhile, caution reigns supreme but a steadier-than-expected holiday season served to buoy the mood a bit for the start of 2002.

Retail Sales on the Rise

Recent reports show retail sales on the rise, suggesting that consumer spending—which accounts for two-thirds of U.S. economic activity—is keeping the recession from devastating the retail sector. Instinet’s Redbook retail sales average, for example, rose 1.4 percent in the first two retail weeks of January, compared to the same period last year.

While, thus far, discounters have lead in sales increases, diamonds and jewelry, nonetheless, are holding their own. The International Council of Shopping Centers, for example, reported that sales of jewelry for the 2001 holiday season were up overall. Jewelry sales rose .6% from Thanksgiving to Christmas, according to the ICSC.

Online jewelry sales, are also on the climb—to $172 million in December, from $117 million in November, says a survey by Forrester Research.

Luxury Woes Explained

Despite the upbeat news, tremors continue in the luxury sector, with LVMH—one of the world’s leading product groups—continuing to slip. Though LVMH’s overall sales for the year seemed positive—a 5% growth rate to $10.8 billion—sales for the fourth quarter were actually down by 4% from last year.

Sales in the watch and jewelry division, specifically, dropped 12% for the year. This gloomy news, however, may be misconstrued, as LVMH and analysts are attributing the lackluster performance not with a general decreased interest in watches, jewelry and other luxury products, but, rather, a decline in travel since Sept. 11 and, therefore, a drop in travel-related sales. 


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