June 7, 2004

By Dirk De Vynck

Cape Town - The jewellery retail sector has put in a sterling performance over the last year, following three to four years of difficult trading conditions.

The turn in the sector's fortunes follows the decline in interest rates, which put more money in consumers' pockets to spend on discretionary products such as jewellery.

Also, a big part of jewellery sales are done on credit, with the lower interest rate environment easing the weight of installment payments.

Jewellery sales have benefited from the stronger rand, which makes jewellery more affordable, as jewellers have to pay in dollars for the gold and diamonds they purchase.

Sales have also benefited from the greater buying power of a growing middle class.

Jewellery, as a luxury product, is much more sensitive to the economic cycle than, say, clothing. Hence, in good times jewellers should do relatively better than clothing retailers.

Naturally, jewellers also have a tougher time keeping their heads above water when the downswing comes.

According to Ken Schreuder, the managing director of Foschini Group Jewellery, which houses American Swiss and Sterns, the sector has benefited from a worldwide shift towards jewellery as a fashion item.

Foschini Group Jewellery, part of the listed Foschini Group, put in a respectable performance in its 2004 financial year, lifting turnover by 13.4 percent to R640.6 million.

Same-store turnover growth was up by 12.9 percent and Schreuder said market share has grown consistently over the past five years.

Foschini Group Jewellery, with a total of 298 stores, is by far the biggest local player.

According to Schreuder it has about 28 percent of the jewellery retail market.

Schreuder said the fact that Foschini's jewellery division had one management team overseeing the whole operation had beefed up performance.

"This allows us better to differentiate the American Swiss and Sterns brands in the market place," he said. "Up to four years ago American Swiss and Sterns were managed separately, which caused many crossovers in all aspects of the business."

Galaxy, made up of 90 stores and part of the listed Mr Price Group, also turned out solid 2004 annual results. Turnover increased by 13 percent to R130 million. Same-store growth in turnover was more than 10 percent.

The group sold 14 percent more units in the past financial year. According to Stewart Cohen, the joint chairman of Mr Price, Galaxy held about 8 percent of the jewellery market.

David Buxton, a director of unlisted NWJ, with its 42 stores, said the company had increased its turnover dramatically in the past year, which had helped it to grow market share.

Dean Divaris, the managing director of unlisted Arthur Kaplan, said the company, which served mostly the middle- to upper-income brackets, had also experienced good growth in turnover and earnings over the past year, while market share had stayed more or less constant. Arthur Kaplan has 18 stores.

Industry analysts said the jewellery retail market was much stronger now than a few years ago. Unprofitable stores had been closed, especially in central business districts where the security risk to customers was higher and the volume of business was lower.

Jewellers have had to reinvent themselves. This has ranged from rethinking their product offering to revamping their stores and refocusing their marketing strategies.

Schreuder said: "Although jewellery is different from, say, clothing, similar retailing principles apply. Hence jewellery retailers have become more astute in their way of doing business."

"One has continuously to track the change in trends worldwide and adopt your offering to customers accordingly."

Analysts said the market had matured. The fact that there had been almost no growth in the major retailers' number of stores over the past few years was evidence of this.

But the stringent competition had allowed jewellers to become more innovative.

This included the introduction of new concept stores, like the Foschini group's new Matrix outlets, which stock sunglasses and watches and are aimed at the youth market.

This should help jewellers to combat the next economic downswing.

But for the smaller jeweller, which has not dug out a niche market, conditions will be tough, with those serving the upper echelons of society standing a better chance of survival.