State of the Jewelry Industry-022008

1
State of the Jewelry Industry
February 21, 2008

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Table of Content
Executive Summary p.3
Overall Economic Outlook p.5
Diamond Market Outlook p.5
Jewelry Industry Outlook p.6
Jewelry Sales Trend p.7
Sales by Type of Merchandise
The Watch Market
Seasonality
Merchandise Profile p.14
Bridal
Luxury Pieces
Designer Fine Jewelry
Economic Selection
Advertising Efforts
Challenges p.17
Industrial Trends and Opportunities p.21
Competitive Landscape p.23
Specialty Jewelry Stores
Single-Brand Jewelry Stores
Department Stores
Mass Merchants

3
Executive Summary
Impact of the Downturn in the Economy
 Mass affluent and super-rich consumers expected to increase spending while middle class is cutting
back.
 Steep cost increases from mining, polishing, and importing will continue to squeeze profit margins, yet
market conditions prevent jewelers from sharply raising retail prices. Sales are expected to increase
mildly due to inflation yet unit sales are expected to drop by 4-5% in 2008.
 Numbers of specialty jewelry stores and jewelry wholesalers continue to drop and are expected to
continue to decrease in 2008.
Competitive Landscape
 There are over 30,000 jewelry stores in the U.S. with average sales between $1-2 million. The top 50
jewelry chains hold less than half of the market.
 Specialty jewelry stores face challenges from online jewelers, television shopping channels, big box
discounters, high-end single-brand stores, and department stores, most with sizeable marketing budgets.
 Specialty jewelry stores indicate that they plan to improve their in-store experience, including customer
service and visual appeal as a hedge against online competition.
Sales Trends
 Mass advertising seems to have had a positive impact on the sale of right-hand rings, journey pendants,
and gemstone cocktail rings.
o Designer fine jewelry brands such as David Yurman and Scott Kay gain popularity: 44%
jewelers reported holiday sales for designer jewelry sales were up.
o Branded diamond jewelry such as Hearts on Fire and De Beers increase their brand recognition
and preference among core consumers.
o Diamond right-hand rings ranked as the most popular style of diamond jewelry among women
who bought jewelry for themselves.
 Demand for high-end watches remains strong.
o Watches accounted for 11.5% of total jewelry sales in 2007 – the strongest increase was in
men’s watches in the $5K - $10K price range at 42%.
 Platinum and diamonds are still the favorite for engagement rings, despite the high prices.
 Palladium starts gaining notice and popularity in engagement settings as well as in other fine jewelry and
timepieces design.

4
 Consumers appear to be looking for something new and different, as evidenced by the overall drop in
estate jewelry sales and increasing demand for non-mainstream designer pieces.
 Jewelry, although still preferred by women, is not the top choice of holiday gifts.
o Trends show a growing interest in “experiential gifts” for Valentines Day; jewelry stores
competing with pricy electronics for holiday gifts.
o An estimated 40% of proposals take place during Valentine’s Day, Thanksgiving, Christmas and
New Year’s Eve.
 Price point for a diamond engagement ring (DER) for the second marriage is significantly higher than for
the first marriage. The average cost for DER is $3,200 for specialty jewelry stores; $5,600 on
BlueNile.com
Challenges
 Economic downturn causing core market to cut back on non-essential spending.
 Rising cost on raw material and manufacturing overseas leading to cost inflation and negative impact on
profit margin.
 The fragmented industry makes adjusting retail price a challenge because no retail has enough power to
take the initiative.
 Online jewelers keep gaining ground due to competitive pricing, no sales tax, extensive education, no
sales pressure, fast service and large merchandise selection.

5
Overall Economic Outlook
Jewelry sales have always been strongly correlated with economic growth, and the U.S. economy is not in
the best shape. The combination of a poor housing market, tightened credit and high fuel costs along with an
unpromising job market has convinced most economists that the U.S. economy is slipping into recession.
The lower Consumer Confidence Index reveals that consumers have mentally prepared for recession.
- According to the Labor Department, non-farm payrolls fell by 17,000 in January 2008, the first drop
since August 2003. Responding to the economic downturn, the Fed has lowered the interest rate by
1.25% within 8 days in January. It is expected the Fed will further lower the Fed funds rate to boost
the economy.1
- Deterioration in the housing and credit markets has caused widespread instability in both the
domestic and world equity markets and raised fears that the U.S. economy may slip into a recession.
According to the Conference Board, its Consumer Confidence Index fell to 87.9, down from 90.6 in
December; the Expectation Index declined to 69.6 from 75.8. Consumers claiming business
conditions are “bad” rose to 20.0% from 18.8%.2
- The weakening dollar position affects U.S. trading in various ways. On the one hand it helps reduce
the huge trade deficits facing the U.S. On the other hand it makes imports less affordable. Combined
with the strong tendency of recession, goods and services that heavily rely on imports are expected to
experience some hardship in 2008.
- Despite the economy, 80% of high net-worth consumers expect to increase spending in 2008. The
Elite Traveler Affluent Consumer Survey reveals 34% of Mass Affluent (with net-worth over $1
million) would spend more time making a luxury purchase, 80.3% of Super Rich (net-worth over
$30 million) will increase their spending on luxury goods and services in 2008. The Super Rich are
expected to offset the cutbacks in buying by less wealthy consumers: they spent $236,200 per
household on jewelry over the holidays, compared with $4,600 for the Mass Affluent.3
Diamond Market Outlook
In 2007, De Beers announced 3% drop in rough diamond sales to $6.8 billion, and yet consumer sales of
diamond jewelry increased by around 3%, with strong sales growth in China, India and Middle East, but a
disappointing holiday season in the U.S.4
While the U.S. jewelry market experienced a soft 2007 holiday
selling season, demand in other regions of the world for diamond jewelry remains strong, especially for
larger carat and high quality goods. As long as the demand for diamonds and diamond jewelry stays high,
especially in emerging markets, prices will likely rise. Further, since rough diamond prices are rising faster
than polished diamond prices, the pressure for passing along those price increases continues.
On a yearly basis, global polished diamond prices rose by an exceptionally strong 4.7% in January 2008,
compared to the same month a year earlier. If diamond prices continue to increase at this rate, it would be
one of the larger annual price increases in the past 20 years. The demand for larger, higher quality diamonds
1
Payrolls unexpectedly decline, increasing odds of recession, WSJ.com, Feb 1 2008.
2
Consumer confidence falls in January, CNNMoney.com, Jan 29 2008.
3
Despite economy, Super Rich still spending, NationalJewelerNetwork.com, Feb 4 2008.
4
De Beers full year 2007 sales dip, Israeli Diamond, Feb 10 2008

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is strong, which reflects on the dramatic price increase above 2 carats; diamond prices in the 2 carats and
below held steady whereas diamonds under ½ carat have seen a slight decline in prices.5
Based on the traditional relationship between economic growth and diamond demand, it is expected that
diamond prices will not rise as sharply in 2008 as they did in 2007. The steep price hike in raw diamonds
will keep polished diamond price from falling, yet it is expected the growth will be moderate.6
Jewelry Industry Outlook
In 2007, the jewelry industry reported a net loss of 349 specialty jewelry stores, compared to 855 in 2006.
The number of jewelry manufacturers that have their production operation in the U.S. also declined from
3,386 in 2006 to 3,290 in 2007. It is believed that the number of manufacturers who actually have significant
production facilities remaining in the U.S. is far fewer than reported. IDEX forecasts that net loss of
independent specialty jewelry stores could reach 600 or more in both 2008 and 2009, based on historical
trends.7
While the number of jewelers is declining, direct selling through the Internet and TV shopping channels is on
the rise. In the U.S., QVC is the largest single distributor for Italian gold. The dynamic on gold jewelry
distribution has also changed: In March 2007, Berkshire Hathaway announced merging of the industry’s two
largest gold importers and distributors, Bel-Oro and Aurafin, into an uber gold jewelry distributor—Richline
Group.8
The blooming online jewelers keep gaining ground in jewelry sales. With much higher inventory turnover
rate and low overheads, online jewelers are able to provide large selection with lower price. In 2007, both
Blue Nile and Amazon.com reported record-high increase on diamond sales. According to IDEX, online
jewelers’ sales mix is about 80% diamonds and diamond jewelry, whereas a typical specialty jeweler
5
January global diamond prices continue to rise, IDEX Online Research, Feb 4 2008
6
January global diamond prices continue to rise, IDEX Online Research, Feb 4 2008
7
Net decline of specialty in the U.S. slows in 2007, IDEX Research, Jan 30 2008
8
The man in the middle, ModernJeweler.com, Mar 14 2007
Source: IDEX Online Research
Polished diamond prices were nearly 5% higher in January
2008 than they were a year ago

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generates 40%-48% of sales from diamonds and diamond jewelry.9
The superior financial model of online
jewelers is expected to continue the competitive advantage over specialty jewelers. Although IDEX predicts
the growth of online jewelry sales will eventually slow down, online jewelers still are the major competition
to specialty jewelers in the perceivable future. Facing the strong challenge online, more jewelry stores
emphasize in-store experience, customer service, customized design and repair service as their competitive
advantages toward online jewelers.
Even with the forecast of the economy, total jewelry sales are still expected to grow in 2008. First Research
reports 2007 average sales per jewelry retailer were nearly $2.7 million,10
including retailers with multiple
locations. Sundale Research indicates average jewelry store sales of $1,021,211, a mild growth of 2.5%
compared to 2006.11
With an estimated average of 7-8% inflation caused by rising price in raw materials and
the depreciation of U.S. dollar, industry-wide jewelry sales by value is predicted to grow by 3%; however,
the economic turmoil is more likely to reduce the overall units sold by 4-5% in 2008.12
E-commerce provides an easy entry for the market, leading to the decline of jewelry wholesalers. In 2007,
the number of jewelry wholesalers in the U.S. declined to the lowest level over the past 12 years.13
9
Online jewelers are poised to create major challenges for the industry, IDEX Online research, Feb 21 2008
10
First Research Industry Profiles: Jewelry Retail, Jan 7 2008
11
Sundale Research 2007
12
State of jewelry industry, IDEX Online Research, Jan 28 2008
13
Net decline of specialty jewelers in the U.S. slows in 2007, IDEX Online Research, Jan 30 2008
Source: Department of Commerce & IDEX Online Research
Growth of online jewelry sales is expected to slow down,
but still higher than the specialty jewelry stores

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Jewelry Sales Trend
In 2007, U.S. retail jewelry store sales increased an estimated 3.7% to $31.2 billion, compared to a 6.7%
growth ($30.1 billion) in 2006. The slower growth rate is a reflection of poorer economic conditions, a trend
that is perceived to continue through 2009.14
The core market for jewelry is women between 25 and 54 with high household income.15
The primary
segment is 50+ women with household income over $100,000, known as the Boomers. IDEX research
indicates that a high income household will spend as much as 15 times more on jewelry annually than a
household with lower income. The next favorable market is young, tech-savvy, working women with six-
figure income, known as the Millennials. The Millennials are the core of bridal market and are likely to
spend heavily on bridal jewelry. In addition, jewelry for gay Americans is the next growing market, along
with minority markets such as Asian Americans and Hispanic Americans.16
14
15
16
IDEX Research 2007
Source: Jewelers Board of Trade
The number of jewelry wholesalers dropped to
the lowest level since 1996

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According to survey conducted by Jewelry Consumer Opinion Council's (JCOC), rings, for the second
consecutive year, led the most-popular list yearlong, most likely due to the extensive coverage of diamond
right-hand rings and big, bold gemstone cocktail rings that have become fashion favorites. They were the
most sought-after item purchased monthly for about one-third of respondents, with diamond-set jewelry
favored. Colored-stone jewelry ranked a close second in the months of March, May through July, September
and October, with semi-precious gems in particular beating out diamonds in August. Watches showed
strength during key gift-giving months, including May, June and September through December.17
Style-wise, watches remained popular among gift-givers with 30% of them purchasing watches as gifts in
2007, followed by necklace (23%) and earring (21%). The success of the right-hand ring campaign has not
only made it the most desirable item among self-purchasers but also increased the demand for fashion rings
as gifts by 5% in 2007. An interesting survey finding reveals that while the most popular Mother’s Day
jewelry items are earrings and necklaces, for the second year, moms preferred a fashion ring. It is worth
noting that purchases of pendants also grew by 6%, partially due to the success of Journey diamond styles.18
Data from U.S. Department of Commerce reveals a slight change in consumer preference on jewelry.
Despite the high cost, consumers still prefer platinum for engagement ring, which caused sales on platinum
jewelry to increase by 9.8% in 2007.19
On the other hand, the sharp rising price of platinum has created a
17
Despite economy, jewelry shoppers ambivalent in ’07, National Jeweler Network, Feb 6 2008
18
JCOC 2007 year in review, Jan 2008
19
Retail Jewelry Store Sales
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$Million
Retail Sales $24,988 23,728 24,816 25,543 27,543 28,216 30,096 31,198 32,291 33,572 35,730 37,528
2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011*
Source: U.S. Dept. of Commerce
6.7% increase in 2006

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new wave of demand for palladium, which is rapidly gaining popularity among fine jewelry designers and
manufacturers such as Scott Kay and Cartier.20
Fueled by the price of gold, another white precious metal,
silver, is also becoming highly desirable, especially among men and young women. To create higher margin
and to bring in a fashion-forward look, more and more fine jewelry designers introduced jewelry made with
both silver and gold, or increased silver in their jewelry mix.21
The Wall Street Journal also reported pearl
jewelry sales spikes after Speaker Nancy Pelosi wearing it on C-Span,22
a total of a 9.9% increase to
estimated sales of $1.09 billion.23
In the meantime, sales on estate jewelry slipped 5.8%, which confirms the
fact that consumers want something new and different.
20
This Valentine’s Day, discriminating jewelry shoppers overlook gemstones and designer names in favor or the new
metal: This is the year. Palladium is now, PR Newswire, Feb 13 2008
21
22
Women in power: Finding balance in the wardrobe, WSJ, Jan 24 2008
23
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Diamond
Jewelry
PearlJewelry
OtherGemstoneJewelry-AllJewelryItemsi...
LooseGemstones,incl.Diam
onds
KaratGold
Jewelry
W
atches
Estate/AntiqueJewelryPlatinum
JewelryAllOtherJewelry
AllNonm
erchandiseReceipts,incl.PartsInstal...
$Million
2006
2007
Platinum increased by 9.8%
Pearl increased by 9.9%
Estate decreased by 5.8%
Source: U.S. Dept. of Commerce

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The Watch Market
Even under economic uncertainty, jewelry retailers reported good sales in watch category, especially in
luxury timepieces. In 2007, watch sales generated $3.5 billion, accounting for 11% of total jewelry sales, a
2.7% increase compared to the prior year.24
According to National Jeweler year-end sales survey, 24% of
jewelry retailers reported watch sales were up, whereas 30% reported down. However, the percentage
reversed among jewelers with revenue above $1.5 million: 32.8% reported the watch sales up versus 26.5%
reported down.25
In February, Luxury brand LVMH reported an 8% increase in revenue, including a 13% increase in watches
and jewelry sector for the year 2007. The company credited the increase to TAG Heuer’s upscale
positioning and continued innovation, including its concept watches and the popular ambassador program.26
Among all jewelry items, watches remain the top choice for holiday gifts. The 2008 Affluent Consumer
Spending Survey reports that 88.9% of the Super Rich spent $121,700 per household on watches for the
holidays, compared with 16% of the Mass Affluent, who spent $2,300 on watches.27
According to Europa
Star, luxury watch shoppers are moving towards individuality and less mainstream branding. The consensus
is that consumers want to be different and more exclusive. Recognizing people want things that other people
cannot have, manufacturers are releasing models in limited numbers to increase desirability.28
The greatest growth in 2007 occurred in men’s watches with price range between $5,000 and $10,000, a 42%
increase from 2006. Although the same price range showed strength in women’s watches, most growth in
women’s watches remained at the under $1,000 level. Distribution-wise, chains and department stores
accounted for more than 1/3 of all watch sales, with strong sales in entry-level (under $1,000) and just above
entry-level ($1,000-$3,000) watches.29
Although the U.S. market continues to stay influential, watch sales in Asian market are growing strong. To
increase its global market share in luxury watch category, Tiffany partners with Swatch Group in design and
distribution of the Tiffany watch collection with retail price between $1,500 and $10,000, comparable to
Cartier and Bvlgari. Under the current agreement, Swatch will be responsible for marketing outside the U.S.
and Tiffany will sell the watches at the Tiffany stores within the U.S. market30
On the supply side, the Swiss watch industry reported a 16.2% increase in export value in 2007. The U.S.,
after Hong Kong, represented the second largest market with $184.1 million in Swiss watch imports.31
The
increasing demand in high-end mechanical watches raises a major concern regarding the availability of parts,
which are generally produced with traditional methods.32
All the indications have shown that, despite the turmoil in the overall U.S. economy, watch industry insiders
expect consumer demand high-end watches to remain strong in 2008.
24
U.S. Department of Commerce
25
National Jeweler year-end sales survey 2007
26
LVMH achieves record results in 2007, National Jeweler Network, Feb 6 2008
27
Despite economy, Super Rich still spending, Feb 4 2008
28
Europa star, Jan 2008
29
Guilds, department stores move in on higher-priced watches, National Jeweler, Jan 2008
30
Swatch Group, Tiffany alliance expected to pay off in time, National Jeweler Network, Jan 20 2008
31
Swiss watch exports see record growth, National Jeweler Network, Jan 30 2008
32
Europa star, Jan 2008

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Seasonality
Jewelry sales are highly seasonal with 40% of revenue generated in the 4th
quarter. December has always
accounted for the largest share of jewelry sales, followed by November. In 2007, 22.5% of the U.S. jewelry
store sales were generated in December, compared to 22.4% in 2006 and 23.5% in 2005. The percentage of
sales generated in May has increased over time from 7.9% in 2005, 8.5% in 2006 to 8.7% in 2007. In the
meantime, the sales generated in February, fueled by Valentine’s Day, have slightly decreased from 8.6% in
2006 to 8.1% in 2007.33
According to a survey conducted by JCOC, the main reason for not getting jewelry as a Valentine’s Day gift
is “unsure what to get.” The same research also shows that among all jewelry items, watches were the most
popular gift item for Valentine’s Day, followed by necklaces and earrings. In addition, 32% of parents
purchased jewelry and watches for their children for Valentine’s Day.34
According to a National Retail Federation survey earlier this year, the average consumer planned to spend
$122.98 on Valentine’s Day, a slight increase from last year’s $119.67. Total spending on Valentine’s Day
was expected to reach $17.02 billion. Among people who celebrate Valentine’s Day, adults aged 25-34
planned to spend the most, an average of $160.37 per person, followed by 18-24 with $145.59, 45-54 with
$117.91, and 35-44 with $116.35.35
Despite the economy, National Jeweler reported encouraging Valentine’s Day sales. According to an
exclusive report, 2008 Valentine’s Day sales exceeded the expectation with high demand on branded jewelry
and sterling silver such as Scott Kay and David Yurman.36
33
U.S. Department of Commerce; Sundale Research 2007
34
35
Jewelry to fall slightly as Valentine’s Day gift, JCK, Jan 29 2008
Exclusive: Retailers report stable V-Day sales,36
National H=Jeweler Network, Feb 15 2008
(Source: JIRI)
Jewelry and watch sales are projected
to have modest growth in 2008

13
The holidays are not only big gift seasons but also big for proposing as well. According to
WeddingChannel.com, an estimated 40% of proposals take place during Valentine’s Day, Thanksgiving,
Christmas and New Year’s Eve.37
Forbes survey indicates that 9% of the weddings are proposed on
Valentine’s Day, with the average of $4,435 for a ring.38
37
When just handing over a ring won’t do, The New York Times, Feb 2 2008
38
The cost of showing you care, Forbes, Feb 6 2008
% Sales by Month
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
January
February
M
arch
A
pril
M
ay
June
July
A
ugustS
eptem
ber
O
ctoberN
ovem
berD
ecem
ber
2005
2006
2007*
(Source: U.S. Department of Commerce; Sundale Research)
Mother’s Day sales increased 0.6%
in 2006 and another 0.1% in 2007
Valentine’s Day sales dropped
by 0.5% in 2007
Holiday season sales dropped
by 1.4% in 2006 and increased
only by 0.1% in 2007
% of Sales by Channels
0%
10%
20%
30%
40%
50%
60%
Jan Feb Mar Ari May Jun Jul Aug Sep Oct Nov Dec
Retail
Online
TV
Mail Order
(Source: JCOC 2007)
Retail sales peaked around holidays:
Feb, May, and Dec., indicated major
gift purchases

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Merchandise Profile
There are many ways to segment jewelry merchandise: by material, by product type, or by value/purchase
occasion. From consumer’s point of view, there are at least four categories: bridal, luxury, designer fine
jewelry, and economic selection.
Bridal
The bridal jewelry business is crucial for most jewelry stores. According to a survey conducted by JCK,
bridal jewelry accounts for 36% of total sales of jewelry stores, with an average $809,433 in annual revenue.
The average center stone size for an engagement ring is 1.1 carats with an average price of $3,200. The
same research also shows that white gold and platinum are the most popular metals for the setting, and the
colored center stones and palladium are growing in popularity.39
It is worth noting that the price point of
diamond engagement rings in second marriages ($8,425) is significantly higher than the first ($5,241), which
means consumers are generally willing to pay more for their second marriage.40
Brand-name settings such as
Tiffany & Co., A. Jaffe, Stuller, Martin Flyer, Tacori, Hearts on Fire, Jeff Cooper, Art Carved, Simon G.
Ritani, Verragio nd Me’moire are heavily promoted via bridal magazines and in store displays.
Target:
- First marriage: The Millenials. They are more likely to get married and spend heavily on bridal
jewelry.41
According to Simmons Consumer Survey, over 30% of people who get married for the
first time are between the ages of 25-34.42
U.S. Census 2004 reported the median age of first
marriage is 24.2 for men and 21.9 for women, with Asian American being significantly older (27.8
for men and 24.9 for women).43
- Second marriage: The Boomers. Simmons Survey shows over 40% of people who got remarried are
ages 55 and above.44
U.S. Census 2004 reported the median age of second marriage is 35.3 for men
and 32.6 for women, with Asian men being almost three years older but no major difference in Asian
women.45
Luxury Pieces ($8,000+)
Designer pieces (including luxury timepieces) and fine diamond jewelry made with precious metals and
sizable stones. Graff, Cartier, Harry Winston, Jack Kelege, Chopard, Charriol, and Bvlgari are commonly
seen in fashion-related publications as well as publications target affluent readers such as the Wall Street
Journal and Forbes. In addition to advertising, their designs are often seen on celebrities, resulting in free
39
This Valentine’s Day, discriminating jewelry shoppers overlook gemstones and designer names in favor or the new
metal: This is the year. Palladium is now, PR Newswire, Feb 13 2008
40
Bridal by the numbers, JCK Jewelers, Jan 1 2008
41
42
Simmons Consumer Survey 2007
43
U.S. Census Bureau 2004
44
Simmons Consumer Survey 2007
45
U.S. Census Bureau 2004

15
publicity for product placement. The exclusivity and fine quality make jewelry in this category popular
among upper income customers who are less vulnerable to recession than the general population.
Target:
- Upper income boomers. They are the highest income segment of the population, which means they
are less vulnerable to economic downturns; in addition, they appreciate fine quality goods in life and
have high brand awareness.
Designer Fine Jewelry ($300-8,000)
Traditionally, fashion jewelry has been a sideline of designer brands. Traditional high-end fashion brands
such as Bvlgari, Chanel and Gucci have always had presence in fashion designer jewelry category, along
with outfits and other accessories.
The difference in the past couple of years is the rise of designer fine jewelry brands. Even with the sluggish
economy and price hike, the designer brand jewelry section is on the rise. Jewelry designers such as David
Yurman, John Hardy, Di Modolo, Roberto Coin, Marco Bicego, Jude Frances, Gregg Ruth, Charles Garnier,
and Scott Kay with their wide range of merchandise and high visibility have gained name recognition and
brand preference among fashion-conscious customers. According to a survey by National Jeweler, out of all
jewelers who sell designer jewelry, 44% reported that designer jewelry sales were up for holiday 2007.46
In specialty jewelry stores and high-end department stores, designer fine jewelry dominates fashion category
with brand names such as David Yurman, Roberto Coin, John Hardy, Marco Bicego, Scott Kay and Simon
G. Most the brands have wide range of design from under $200 silver pieces to couture jewelry. However,
majority of the designer fashion lines are falling into the price range. With extensive marketing efforts,
designer fashion jewelry has created high name recognition and broad appeal to the mass market.
Target:
- Young female professionals: According to JCOC 2007 research, on average, at least 11% of
consumers purchased jewelry in any given month, with a higher percentage occurring in February,
April through June, November and December. The same research also indicates that most jewelry
purchases are for the purchasers themselves.47
In addition, jewelry.com’s annual survey reports 30%
women stated they have bought themselves gifts for Valentine’s Day.48
- Boomers: High discretionary income, tendency to spend money on self, with appreciation of fine
quality products.
Economic Selection (Under $300)
This price category is popular among mass merchants, mass discounters, and economic chain stores. This
category includes a large portion of gift jewelry and some custom jewelry for young customers. It is worth
46
47
48
Women still want jewelry for Valentine’s Day, Jan 29 2008

16
noting that “personalized jewelry” such as Pandora is gaining market share, especially among younger
customers for its highly versatile, personalized touch.
Target:
- Young women: Highly self-expressive, fashion-conscious customers who cannot afford high fashion
products.
- Parents/grandparents: Purchase jewelry for children/ grandchildren as birthday, graduation, or
holiday gifts.
- Middle to lower-middle income couple who purchase jewelry for special occasions.
Advertising Efforts
Independent jewelry stores have high tendency to use co-op ads and tag along with brand name campaigns.
In the meantime, designer brands place image ads in national magazines to increase brand awareness and
stimulate desire. Compare to the year before when GUCCI, Le Vian, CHANEL and Tiffany & Co. were
seen in most fashion magazines, more brand diamonds such as Hearts on Fire and De Beers as well as
designer fashion brand such as David Yurman, Roberto Coin and Simon G were heavily advertised in 2007
and expected to continue in 2008.
To encourage post-holiday sales and promote “Journey” diamond jewelry, the Diamond Promotion Service
(DPS) contributed $250,000 to a co-op fund for retail jewelers’ television commercials during last week of
December and the first two weeks of January.49
In addition, bridal jewelry A. Jaffe is scheduled to launch a new advertising campaign, new packaging and
retail displays, all to be rolled out in June. The new advertising campaign will focus on the concept of
“intimate relationships” and seek to capture the essence of the real emotions shared in relationships. The
campaign includes print, outdoor and interactive components.50
49
More TV Co-op dollars from DPS, Online Marketing, Nov 29 2007
50
A. Jaffe to focus on change, JCK, Feb 11 2008

17
Challenges
In 2008, jewelry stores are facing serious challenges including economic downturn, cost inflation, online
competition, and the rapid changes of consumers’ preference in jewelry and gift items.
- Economy downturn
Jewelry business has always moved with economic condition, and U.S. is in the middle of economic
downturn caused by poor housing market, tighten credit, uncertain job market and high fuel costs.
o Anticipating a slow market, Diamond Trading Company (DTC—De Beer Group’s
marketing arm) is cutting its marketing budget by 50%.
o According to National Jeweler Network (NJN), Zale last quarter sales down 7.3%, and
Signet same store sales down 6.7%.51
- Rising cost of raw materials
o Gold price has risen sharply for the past year and is expected to remain high, so have other
precious metals.
o Fueled by sharply rising prices for gemstones three carats and larger, global polished
diamond prices increased nearly 5% in January 2008 than a year ago.
o The shortage in the raw material supply has caused a steep price hike in both manufacturing
and retail markets. As a result, the growth of sales is expected to slow down to an estimated
4.6% annually, compared to an average of 5.2% since 2000.52
o IDEX online research points out the spikes of wholesale jewelry price in 2006 and 2007, yet
the price surge has not completely reflected on the retail level. It is expected that most
jewelers will have to increase the prices eventually. However, the industry is too fragmented
for any single jeweler to take the first step.53
o The U.S. government is expected to ban imports of Burmese gemstones. Burma produces an
estimate 90% of the world’s rubies, fine blue sapphire, spinel, peridot, and almost all the
world’s jadeite. Over 11,000 jewelry retailers have voluntarily stop trading Burmese
gemstones, including Tiffany & Co, Cartier, and Bvlgari; Sterling has its no-Burma policy
posted on its Kay Jewelers website. In addition, the European Union banned trading of
gemstones with Burma on October 15 2007.54
51
National Jeweler Network, Feb 7 2008
52
Fashion Jewelry, FashionProducts.com, Jan 31 2008
53
Cost inflation rages; retail prices must rise, IDEX Online Research, Feb 7 2008
54
Burma ban likely, ModernJeweler.com, Dec 20 2007

18
- Online competition
Online jewelry outlets provide competitive price, infinite product selection and intensive product/
category information along with the benefit of convenience. Customers are able to compare quality
and price online through numerous sites, which makes diamond more of a commodity. According
the IDEX research, online jewelry merchants have far more market share than online merchants in
most other retail categories.55
o GemFind, owner of business-to-business wholesale-jewelry website Gemfind.net,
announced the launch of a new business-to-consumer website, Gemfind.com, where
shoppers will be able to search for and purchase diamonds and jewelry directly from local
stores. In addition to showcasing its intensive inventory, it allows customers to visit a local
store then decide whether to buy it online or at the store. GemFind also offers members
access to their worldwide diamond database, which includes listings for more than 50,000
diamonds.56
o Blue Nile, the leading online jeweler with an established reputation and low price on high-
end merchandise, has gained huge market share from traditional jewelry retailers. It reported
24% growth in the fourth quarter of 2007 over the prior year.57
In addition to its expansion
of 12 new international markets, it also reported record-high 2007 sales of $17.2 million, an
over 100% increase over a year.58
o Due to adding 2,269 new styles of diamond jewelry to its collection, including popular
“create your own engagement ring” and 14-karat white gold “Journey” pendant, Amazon
reports a 75% increase in diamond sales in the 3rd
quarter of 2007, 59
and more than 100% in
the 4th
quarter, 60
compared to the same period in prior year.
55
Net decline of specialty in the U.S. slows in 2007, IDEX Research, Jan 30 2008
56
GemFind launches consumer website, National Jeweler Network, Feb 5 2008
57
Blue Nile announces Q4 revenue growth of 24%, PR Newswire, Jan 14 2008
58
Blue Nile expands global reach, National Jeweler Network, Feb 4 2008
59
Research industry profiles: jewelry retail, Jan 7 2008
60
Amazon.com 4Q diamond sales top 100 percent growth, National Jeweler Network, Feb 12 2008
(Source: U.S. Dept. of Commerce)

19
o Online jewelry retailers placed more emphasis on Cyber Monday, and it paid off in 2007. A
study by ComScore reports that online traffic on Cyber Monday increased 38% and sales
were up 21% to $733 million in 2007.61
o According to Modern Jeweler, 46% of buyers of luxury fashion, fashion accessories, jewelry
and watches used the Internet in support of their recent luxury purchase, and spent 12.5%
more on average.62
o Knowing the strong challenges online, most jewelers are slow to react: 47% of jewelers do
not budget for online retail operations; 51% of jewelers do not use email marketing; 42%
jewelers do not use their websites differently during holidays, according to National
Jeweler’s annual survey.63
- Consumers are unimpressed with their in-store jewelry shopping experience
o A Retail Landscape Study done by J. Walter Thompson shows that consumers only rated jewelry
shopping experience as “average” with comments like “jewelry merchandise seems too similar
from store to store” and “traditional jewelry stores are boring.”64
61
Cyber Monday sales up 21%, Modernjeweler.com, Jan 31 2008
62
MyLuxury: Affluent use social sites too, Modern Jeweler, Nov 16 2007
63
64
Jewelry shopping a dull in-store experience, IDEX, Feb 14 2008
Online sales shows constant growth year
after year
Online sales surge 2 weeks before holiday and
remain strong during the holiday week, indicating
consumers take full advantage of its timeliness

20
- Competition from other categories for gift sales
Jewelry is no longer the predominating gift option for holidays. More and more consumers choose
“experiential gift” such as vacation, special dinner, and electronics instead of jewelry.
o According to BIG Research, 22.2% of consumers planned to buy jewelry over the past
holiday, down from 26.4% in 2006. Furthermore, JCOC reported only 16% of survey
respondents purchased fine jewelry or watches as a holiday gift, down fro 20% in 2006.65
o A separate study done by JCOC reports only 14% of respondents gifted jewelry for
Valentine’s Day.66
o ComScore reported a decline in holiday jewelry sales online whereas video games, consoles
and accessories grew 129% in 2007.67
o Jewelry.com’s annual survey reveals an interesting finding: While the most popular
Valentine’s Day gift among gift-givers is a special dinner (74% men and 62% women), more
than half of women stated that they would like to receive a piece of diamond jewelry for
Valentine’s Day.68
- Other impact on fashion and jewelry awareness
Less buzz on fashion and jewelry caused by canceled events in entertainment industry.
o The writers’ strike had forced the Golden Globe Awards and People’s Choice Awards to
cancel their extravagant red-carpet events, where jewelry designers traditionally use the
opportunity to gain brand awareness and celebrity placement. The fashion industry is
hoping to gain the benefit on the Grammy Awards and the Academy Awards.69
65
Signs of the season, MoneyCNN.com, Dec 17 2007
66
Despite economy, jewelry shoppers ambivalent in ’07, Feb 6 2008
67
ComeScore.com Jan 7 2008
68
Women still want jewelry for Valentine’s Day, IDEX Online Research, Jan 29 2008
69
Red-carpet ripped out from jewelry designers, Feb 5 2008

21
Industrial Trends and Opportunities
Bridal Market
- Extravagant proposal, especially in the second marriage market
o The growing business of proposal planning becomes popular among affluent males in their
30s to 40s. The average cost of a proposal is between $5,000 and $15,000.70
Bifurcation of Demand
- While the middle-market and lower-end jewelers are expecting continued decline in sales, upper-
end jewelers are likely to report strong gain.
New Market Segments:
- Male jewelry with concentration in gay Americans
Merchandise Development
- High-end watches with large case and mixed metals
- Palladium gain popularity among fine jewelry designers and consumers
- Functional jewelry with technological or medical alert benefit
- Jewelry with alternative metal or less gold design
- Color gemstones continue to be popular, blue hue is the color of choice for 2008; large
gemstones, shorter earrings and cocktail rings take center stage in fashion.71
o The National Color Diamond Association (NCDIA) launches its new MarketScope program
in Feb 2008, which provides qualified customers for natural colored diamonds to retail
members. Members also have access to turnkey direct-mail programs to reach these profiled
customers, as a result of its partnership with The Nielsen Co.72
- Luxury customers care where their products are manufactured; a recent survey shows they prefer
goods made in the USA, Italy, France and Germany.73
- Consumers want something “new and unique”74
which either leads to higher-priced designer
pieces or innovative, personalized, jewelry design.
o Customized jewelry gives personal touch, gaining popularity among young consumers.
Marketing
- Branding: To increase consumer confidence and profit margin, gemstone sellers, especially
diamond, are trying to establish brand names such as Hearts on Fire and Christopher Designs’
Crisscut.
70
When just handing over a ring won’t do, The New York Times, Feb 2 2008
71
Red-carpet ripped out from jewelry designers, Feb 5 2008
72
NCDIA launches MarketScope program, National Jeweler Network, Feb 14 2008
73
Italian goldsmith facing troubling times, luxist.com, Feb 19 2008
74

22
- Socially responsible jewelry.
o “No dirty gold” campaign and the new pledge to shun gold from Alaska mine near salmon
stream.75
o “No blood diamond” pledge.
o Ptak launched the Conscience Collection, a line of colored-diamond jewelry that utilizes
recycled metals and lab-grown diamonds and gemstones as being more socially and
environmentally aware.76
o Simmons Jewelry Co.’s “Green Initiative” collection donates part of its proceeds to the
Simmons-founded Diamond Empowerment Fund (DEF), which supports education initiative
in African nations.77
- Working women express independence by buying jewelry for self.
o 75% of QVC shoppers purchased jewelry for themselves, as did 60% of online jewelry
shoppers. 56% of jewelry store and department store jewelry purchasers were buying for
themselves.78
o A recent JCOC survey shows that nearly 70% of customers have purchased fine jewelry for
themselves; the most popular price range was $500-$1,000, and 12% of self-purchasers
spent between $1,000 and $2,500 on a piece of fine jewelry.79
 30% of women admit that they have bought a Valentine’s Day gift for themselves.80
 66% self-purchasers find right-hand ring most desirable, followed by 54% for three-
stone rings.81
 When women buy jewelry for themselves, it is about fashion, personal style, and
emotion. 71% of women choose one store over another based on how they are
treated.82
75
Jewelers shun gold from Alaska mine, Associate Press, Feb 12 2008
76
Ptak introduces eco-conscious collection, National Jeweler Network, Feb 5 2008
77
Pretty is as pretty does, National Jeweler, Dec 2007
78
79
80
Women still want jewelry for Valentine’s Day, IDEX Online Research, Jan 29 2008
81
82

23
Competitive Landscape
The U.S. jewelry industry generates annual revenue of $25 billion from over 30,000 stores. The average
annual sales per jeweler are nearly $2.7 million. Large chains like Zale and Sterling Jewelers have presence
in almost every shopping center in the U.S. However, the industry is fragmented: no retailer claims more
than 6% market share, and the top 50 jewelry chains hold less than half of the market.83
Performance-wise, national and regional jewelry chain stores began the year as the most popular shopping
destination for fine jewelry and watches; department stores took the lead from April through June, and then
led again in September, November and December. Mass discounter stores led in August, revealing the
demographic hurt the most by the weakened economy. Independent retail jewelers were the top choice for
Valentine’s Day shoppers, and remained important throughout the year, capturing the lead in October.84
E-commerce increased in importance throughout 2007. Blue Nile, Bidz.com and eBay were among the top
destinations where approximately 60% of customers purchased jewelry for themselves. In TV shopping,
QVC was preferred, especially among self-purchase shoppers.85
Specialty Jewelry Stores
Specialty jewelry stores are facing challenges from economic downturn and competition from mass
merchants, particularly from discount stores. The chain jewelry stores can be categorized into three tiers:
High-end chains such Bailey, Banks & Biddle; mid-range chains like Jared, Helzberg and Littman; economic
chains such as Zales, Kay, Gordon’s, Shaw’s and Whitehall. In addition, there are independent local
jewelers comparable to all three tiers. Consumers who shop at jewelry stores expect service and expertise,
which generally is associated with reputable chain or well-known local stores.
Facing the challenges from slipping economy and online competition, most specialty jewelry stores try to
create more positive in-store experience by improving service and increasing visual appeal. A survey
regarding visual merchandising reveals that 38% of the jewelers want to improve lighting at the store,
followed by 26% to replace the showcases and 25% to jazz up the display accessories inside the showcases,
according to National Jeweler.86
High-end Single-Brand Jewelry Stores
Most specialty jewelry stores carry merchandise from multiple manufacturers, very few stores are single-
brand jewelers. Single-brand jewelers such as Cartier, Graff, Harry Winston, Tiffany and Movado, with
long-established reputation and limited retail locations, generally are considered more exclusive and
prestigious. However, to generate revenue from mass luxury, Tiffany & Co. plans to open 70 new mid-
market concept locations called “Tiffany & Co. Collections.” The stores will not carry bridal jewelry, but
offer only fashion-focused designs with price range $100 to $15,000.87
83
84
85
86
Keys to the store, National Jeweler, Jan 2008
87
Tiffany expands U.S. presence via luxury-for-the-masses store concept, National Jeweler, Dec 2007

24
Department Stores
High-end department stores such as Neiman Marcus, Saks Fifth Avenue and Nordstrom provide large
selection of designer fashion jewelry. The joint marketing efforts help promote designers’ brand image and
generate traffic to the stores.
Although high-end department stores are more resistant to economic downturn than the mass chain stores,
the weakened economy’s impact has started to show. For January 2008, Nordstrom reported a 6.6% decline
in same-store sales, along with a total sales decrease of 20.3%, or $124 million; Saks Inc. and Neiman
Marcus both posted modest gains of 4.1% and 3.3%.88
Mass Merchants
Mass merchants include department stores such as Macy’s, Lord & Taylor, J. C. Penny, and discount stores
such as Filenes Basement, TJ Maxx, and Wal-Mart (the largest jewelry retailer in the U.S. with 4.6% market
share89
). Because the gross margins are high, mass merchants are able to cut price on a regular basis. They
tend to have limited selection in brands and design; as a result, they are more likely to appeal to customers
who value cost over design and quality.90
Stores in this category are hit by the economic downturn harder than the luxury department stores. Macy’s
Inc. reported a 7.1% drop in same-store sales; Wal-Mart reported a below expectation 0.2% rise in same
store sales in January 2008.91
88
January worst on record for retailers, AdAge.com, Feb 7 2008
89
US jewelry marketplace, National Jeweler
90
91
January worst on record for retailers, AdAge.com, Feb 7 2008

State of the Jewelry Industry-022008

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