Chains strike gold with fine jewelry; more consumers are buying jewels, even diamonds, at discount

Discount Store News, Nov 1, 1993 by Jill Lettich

More Consumers Are Buying Jewels, Even Diamonds, at Discount

Shoppers are no longer discriminating against discount stores when it comes to buying fine jewelry.

Stores such as Wal-Mart and Kmart are including more 14- and 23-karat gold pieces and in some cases, even diamonds and other precious stones in the mix. Despite price points for better items that range between $700 and $1,000, shoppers have become comfortable with the quality and selection of jewelry at discount stores.

Michael Paolerico, co-chairman, Michael Anthony Jewelers, Mt. Vernon, N.Y., noted that this "redistribution of jewelry" began about two years ago. The company manufactures gold jewelry for Wal-Mart and a number of other discount retailers.

Paolerico noted that the success of the jewelry department at discount stores in the past two years has been due to increased real estate for the category, a commitment by retailers to train the personnel behind the counter and in the buying department, and increasing the visual impact of fine jewelry.

"Case and counter-top fixturing and pretty boxes and packaging help add visual acceptance," he noted. "Once customers see that it is a professional presentation, they have more confidence in the quality of the merchandise. They already have confidence in the Wal-Mart or other discounter's name."

The result of this change of attitude is obvious in newly designed prototypes.

Kmart has created a boutique look for the jewelry department in newer prototype stores.

And Wal-Mart, which featured the jewelry counter further back in older units, has moved it8 department front and center. That is no doubt going to help Wal-Mart's sales of single solitaire diamond rings, which the retailer was recently promoting for just under $2,000.

The reason for the new focus on jewelry is not just a matter of consumer acceptance, but of a significant profit opportunity.

Paolerico estimates that gross margins on jewelry can be greater than 40%. In addition, while traditional jewelry stores may only get one turn on inventory, the volume at discount stores allows them to get two and three turns.

"These turns are lower than they are for some other items, but discounters are willing to accept these because of the higher gross margins," he said.

The sales statistics also speak for themselves. According to the World Gold Council, gold jewelry sales increased 6% to 3.4 billion in the first six months of 1993, compared to a year earlier.

This may seem like a small increase overall, but discounters' share of the jewelry sales wealth is impressive.

According to the World Gold Council, discount stores showed the greatest rate of growth of gold jewelry sales, increasing 24.8%. This was a better performance than department stores, national chains and catalog showrooms in the same period.

"Gold jewelry demand is performing well during a period when consumer confidence indicators have dropped sharply," said Richard Scott-Ram, chief economist, World Gold Council.

"We are particularly pleased that retail jewelry sales have out-performed non-auto retail sales," he said, noting that the Department of Commerce reported an increase of just 4.3% in the first half of the year.

The increase is linked to the higher price points.

"Five years ago, Wal-Mart was selling charms for $9.97," said Paolerico. "Today, opening price points for pendants at discount are between $29 and $49."

In addition, 20-in. 14 karat gold necklaces for $300 and 14 karat gold Looney Tune charms for $50 are among the best sellers from Michael Anthony.

At Kmart, recent circular promotions included marcasite jewelry with onyx stones. Even at 50% off, the jewelry sold for between $3.49 to $34.99 compared to $6.99 and $69.99.

The new Caldor stores in New York City also gave a department store look to the jewelry counter. Grand opening sales included a promotion on gold bangle bracelets for $58.88 and $65.88. Regular prices on some items were listed as high as $269.99.

According to the World Gold Council, bracelets are the best sellers, having increased 8.2% in dollars in the first six months of the year.

The $300 price range for fine jewelry has become common at discount, but the diamond ring at $2,000 is still a novelty.

Paolerico said that discounters still have a long way to go before they are the destination for diamonds. In the meantime, a greater emphasis on the look of the department and the selection of merchandise is creating a profitable niche area for some discount retailers.