It’s a bling thing

IBISWorld estimates industry revenue will grow at an average annualised rate of 1.5% over the five years to 2008-09.

Some factors that have affected the performance of this industry over the past five years have included the importation of fashion jewellery, silver and low-quality items from China, which have performed well due to their price competitiveness and strong consumer demand.

The strong demand for diamonds from China and India has affected the domestic diamond retail market and led to a supply shortage. Sales have also been boosted by the rising Australian dollar.

Consumer demand for diamonds has also experienced growth across the watch market, with gem-set watches noted as a popular selling item.

Enterprise numbers have posted a modest growth over the past five years, while store numbers have risen slightly. The growth in enterprise numbers has been achieved through the popularity of numerous small “luxury end” retailers and also by the entry of low-end fashion retailers, while the rise in establishment numbers has been driven by the expansion of store networks by the existing larger operators such as Michael Hill.

Overall, these “fashion” jewellery stores have filled a void in the market for the latest items at affordable prices.

While the number of watch and jewellery stores operating in Australia is regarded as slightly too high given demand, watch and jewellery retailers are reported to represent 1.7% of all Australian retail outlets.

IBISWorld forecasts that industry revenue will grow at an average annualised rate of 1.5% over the five years to 2008-09. The demand over this period will stem from the anticipated growth in disposable income and consumer sentiment.

Sales will also be driven by trends in the type of fashion jewellery demanded by consumers along with continued popularity of personalised jewellery, custom orders and specifically designed pieces.

Externally, industry operators will face greater competition across the fashion jewellery market, with department stores expected to undertake heavy discounting in an attempt to increase foot traffic and reduce stock levels in a tough retail market.

Added to this, jewellery chains are expected to continue growing over this period, with store numbers yet to reach a point of saturation.

A key trend set to impact on this industry over the next five years is the introduction and continued consumer demand for branded jewellery.

Over the outlook period, it is anticipated that the market will become increasingly dominated by existing operators as they expand their store network.

In general, the industry will experience a consolidation of operators at the chain store levels. Continuing high rent costs will also result in fewer stores over this period.

There will, however, be room for the specialty or niche operator at both the upper or lower end of the market, with specialty operators at the upper-end of the market able to offer unique pieces of jewellery that can be marketed on the basis of quality and individuality rather than price.

Key success factors for operators in the industry

• Having a clear market position. Market positioning is also important. For example, the specialty operator at the upper end of the market can offer unique pieces of jewellery that can be marketed on the basis of quality, individuality and service rather than price.
• Having a good technical knowledge of the product. Quality staff are required so that clients can be given advice on designs, gems and metals.
• Ability to control stock on hand. Stock control plays an important role in enhancing profitability of a store. Computerised stock controls allow daily analysis of sales and monitoring of popular/unpopular items.
• Proximity to key markets. Successful operators need to be located in an area with a high volume of customer-traffic.
• Production of goods currently favoured by the market. The products stocked should be perceived as offering value for money (unless the operator has an exclusive up-market positioning).
• Attractive product presentation. The store layout and display of stock must encourage customers to purchase and reinforce the company image.

Products and service segmentation

Major market segments

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au