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07 Sep, 2018

The Jewelry Industry in 2020

The Jewelry Industry in 2020

The jewelry industry seems poised for a glittering future. Annual global sales of €148 billion are expected to grow at a healthy clip of 5 to 6 percent each year, totaling €250 billion by 2020. Consumer appetite for jewelry, which was dampened by the global recession, now appears more voracious than ever.

But the industry is as dynamic as it is fast growing. Consequential changes are under way, both in consumer behavior as well as in the industry itself. Jewelry players can’t simply do business as usual and expect to thrive; they must be alert and responsive to important trends and developments or else risk being left behind by more agile competitors.

Internationalization of brands and industry consolidation

Today, the jewelry industry is still primarily local. The ten biggest jewelry groups capture a mere 12 percent of the worldwide market, and only two—Cartier and Tiffany & Co.—are in Interbrand’s ranking of the top 100 global brands. The rest of the market consists of strong national retail brands, such as Christ in Germany or Chow Tai Fook in China, and small or midsize enterprises that operate single-branch stores.

Some industry observers expect that a handful of thriving national or regional jewelry brands will join the ranks of top global brands by 2020—Swarovski is an oft-cited example. In addition, some local brands will almost certainly become known globally as a result of industry consolidation: international retail groups will acquire small, local jewelers. Most probably, project that the ten largest jewelry houses will double their market share by 2020, primarily by acquiring local players. And if the apparel industry does indeed hold any lessons for the jewelry industry, incumbent jewelry houses will soon be fighting bidding wars against private-equity players with deep pockets.

The apparel industry is about ten times the size of the jewelry industry as measured in annual sales, but the average M&A deal value in apparel (€12 billion) is almost 20 times that in jewelry (€700 million). That said, average deal value in jewelry has been rising—by a compound annual growth rate of 9 percent between 1997 and 2012, compared with 5 percent in apparel. Recent deals include British company Signet Jewelers’s 2012 acquisition of US-based retailer Ultra Diamonds and the Swatch Group’s acquisition of Harry Winston in January 2013.

Growth of branded jewelry

Branded items already account for 60 percent of sales in the watch market. While branded jewelry accounts for only 20 percent of the overall jewelry market today, its share has doubled since 2003. Branded jewelry will claim a higher share of the market by 2020 and it will account for 30 to 40 percent.

In the past, most of the growth in branded jewelry came from the expansion of established jewelry brands, such as Cartier and Tiffany & Co., and new entrants such as Pandora and David Yurman. By contrast, future growth in branded jewelry is likely to come from non-jewelry players in adjacent categories such as high-end apparel or leather goods—companies like Dior, Hermès, and Louis Vuitton—introducing jewelry collections or expanding their assortment.

Every jewelry company should seek to strengthen and differentiate its brands through unique, distinctive designs. The trend toward branded jewelry will be especially hard on small artisans, who don’t have the marketing muscle of the large jewelry groups. One option for smaller players would be to seek distribution through ventures like Cadenzza, Swarovski’s chain of curated multibrand jewelry stores featuring well-known luxury brands as well as up-and-coming designers.

Reconfiguration of the channel landscape

In all major markets over the past decade, online sales of apparel have grown at double-digit rates. Online jewelry sales are only 4 to 5 percent of the market today, with substantial variations across regions, brands, and types of jewelry and it will reach only 10 percent by 2020: most consumers prefer to buy expensive items from brick-and-mortar stores, which are perceived as more reliable and which provide the opportunity to touch and feel the merchandise—a crucial factor in a high-involvement category driven by sensory experience.

Jewelry manufacturers can use digital media as a platform for conveying information, shaping brand identity, and building customer relationships. The offline landscape is also evolving. In apparel, monobrand stores have been gaining ground at the expense of mail-order players and some multibrand boutiques; department-store sales are stagnating. The same is happening in jewelry. Pandora, for example, quadrupled the size of its store network in just four years—from 200 locations in 2009 to more than 800 in 2012. In 1990, there were just 2 Swarovski boutiques; by 2012, there were 860.

Jewelry players might consider focusing on mono-brand retail, which gives them more control over their brands, closer contact with consumers, and higher margin potential. Another potentially promising channel is multibrand boutique chains that provide a carefully curated assortment of brands and products as well as a unique shopping experience.

Polarization and hybrid consumption

In apparel, both the high and low end of the market are growing—while the middle market stagnates. High-end apparel players have been able to create a substantial premium: our analysis shows that a Gucci suit that cost €1,200 in 2000 now sells for €1,700, rather than the €1,300 one would expect based on inflation. At the same time, mass-market prices have dropped: an H&M suit that cost €106 in 2000 now sells for €103, not the €119 that inflation rates would lead us to expect. The jewelry industry is starting to see evidence of this hybrid consumption.

Furthermore, the previously clear-cut boundaries between fine jewelry and fashion jewelry are starting to blur. For example, fine jewelry used to be almost exclusively a gift purchase, but today’s consumers are buying higher-end items for themselves. Some fine jewelry is available at bargain prices: Tchibo in Germany sells gold diamond rings starting at €99. On the flip side, brands such as Lanvin and Roberto Cavalli sell fashion jewelry for thousands of euros.

Segments will increasingly be defined by price points and brand positions rather than purchase and wearing occasions. In light of this trend, fine jewelers might consider introducing new product lines at affordable prices to entice younger or less affluent consumers, giving them an entry point into the brand. Alternatively, fine-jewelry players could decide to play exclusively in the high end and communicate that message strongly through its advertising, in-store experience, and customer service.

Fashionability and acceleration

Clothes inspired by haute couture are now available at bargain prices faster than ever before—sometimes within days of a fashion show. Fine jewelry has so far been immune to the effects of fast fashion, but the same can’t be said of the fashion-jewelry market.

In the fast-fashion world, flexible companies with adaptive business systems reap disproportionate rewards. Innovative jewelry players will emulate fast-fashion apparel companies: they will react to trends quickly and reduce their product-development cycle times.

(with McKinsey)

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