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22 september 2009

A discreet sign outside the Birks jewelry store in the Eaton Centre advises couples they can get up to $1,000 off their wedding bands if they buy a diamond engagement ring at least 0.7 carats in size, Toronto Star reports. In the worst economic downturn in decades, even emotion-laden purchases such as wedding rings are being discounted. Stores of all kinds across the U.S. and Canada are feeling the impact of rising unemployment and sagging stock portfolios. An unseasonably cool, wet summer hasn't helped.

On the floors below Birks, there are signs of deep price discounting by major retailers — Sears, Esprit, The Children's Place, Pottery Barn. Sales of clothing, furniture, appliances and electronics are all down. But purveyors of luxury goods are really feeling the pinch. It is a tough time to be in the jewelry business, especially in the U.S., where a string of chains have filed for bankruptcy as sales continue to plummet.

"Jewelry is probably one of the most discretionary, delayable purchases there is, except for your Sweet 16th or your 25th anniversary, where you've got to cough up something," said John Williams of the Toronto-based retail-consulting firm J.C. Williams Group. "Also, there's an attitude out there that being frugal is cool," he added. "In the '80s, it was all about 'if you've got it, flaunt it.' That's over."

Mark Mani, owner of Mani Jewellers, sees it in his independent store in Toronto's financial district. Jewelry is still a popular gift, but some people are spending less, said Mani, who is stocking fewer "high-ticket" items of $3,000 and up. "We've had to adapt by stocking more lower-priced items," he said. "I'm carrying lines that are 14-karat gold, instead of 18-karat. Or they're of medium-quality finishes versus high-end finishes. Or the diamond quality is one notch down."

He's also still carrying the higher quality merchandise, he said. And in an apparent contradiction, the store's decision to move its bridal collection upmarket is paying off by attracting people who are willing to spend $15,000 or more on an engagement ring.

The decline and fall of retail sales is particularly challenging for luxury goods firms, which are loath to tarnish their brand by deeply discounting their goods. Some manufacturers have chosen instead to introduce new lines at lower price points, sometimes under different names.

Gucci has launched a line of watches under its own name that starts at $600 instead of $1,000. Simon G has launched lower-priced diamond rings, pendants and necklaces under the Zeghani brand. Others, such as Tiffany & Co., say they are "staying the course."

"We are not engaging in discounting or changing our marketing or merchandise strategy. We remain confident that the future is bright," Andrea Hopson, vice-president of Tiffany Canada, said. The big publicly traded jewelry firms, Tiffany, Birks & Mayors and Zale Corp., which owns Peoples, have all reported dramatic declines in sales, especially in the U.S., where the credit crisis sparked the global downturn.

Sales at the very high-end stores owned by diamond miner Harry Winston fell a dramatic 30 percent in the spring quarter. Still, that was an improvement from the 60 percent plunge it felt over Christmas, traditionally the jewelry industry's best season. The stores are outside Canada.

At Tiffany, sales at U.S. stores that have open more than a year were down 34 percent in the latest quarter, although it is still making money. Other U.S. chains have filed for bankruptcy, including Fortunoff, Whitehall, Friedman's, Christian Bernard and Ultra Stores — the start of what could be an industry shakeout.

Canada's market, buoyed by a relatively strong banking sector and global demand for oil, has proved to be relatively robust. Still, consumer demand for discretionary big-ticket items, such as jewelry, is at best flat.

Birks & Mayors, whose business is divided between the southern U.S. and Canada, reported that sales fell 23.3 percent in the quarter that ended March 28. Same-store sales fell 16 percent at the Mayors chain in the U.S. but were flat at its Birks stores in Canada. The two chains carry similar merchandise but most of the Mayors stores are Florida.

"The economic downturn continues to have a significant impact on the retail industry and luxury goods products in particular," Tom Andruskevich, Birks & Mayors' president and chief executive, told analysts on a conference call July 6. The Montreal-based company, which operates 69 stores, has cut 160 jobs, or 15 percent of its workforce, since the start of the year, and frozen management bonuses. It also plans to close its store in St. Catharines at the end of July.

But some observers said what they're seeing is partly a return to more rational industry behavior. "Gone are the days of ridiculous markups to pay for the jeweler's Porsche," said Paul Aguirre, editor of Canadian Jeweller magazine. "Now, it's more about getting a 10 percent profit margin and creating a relationship with the client." He sees jewelry designers moving to address the new "trading down" mentality.

Economic uncertainty has delivered a double whammy, driving the price of gold bullion to $1,000 an ounce as investors flock to hard assets in the face of a fluctuating U.S. dollar. At the annual JCK trade show in Las Vegas, Aguirre said he saw a lot more platinum in place of gold, and a lot more exotic woods in place of gemstones. Pandora, a popular maker of charm bracelets, recently added a line of "eco-chic" wooden beads to its collection of gold, silver and gemstones, he said.

"We also saw a lot of silver. Well-mined, well-produced silver is making a comeback in everything from necklaces to earrings, rings and cufflinks," Aguirre said. "I wouldn't be surprised to see silver engagement rings next, if things don't improve."

Looking ahead to the Christmas season, some jewelry retailers are being even more cautious, ordering fewer and less expensive pieces. "We believe that we have to reduce inventory," Andruskevich of Birks said. "We've given our merchants the responsibility to bring some fresh new products into the business, even though they may have a smaller purchasing budget than a year ago."