It’s the Second Birthday of the Great Recession …

THE SECOND BIRTHDAY of the global financial crisis has come and gone, and I don’t mind admitting it’s a celebration I would have preferred to miss. Our newborn financial offspring has developed into a robust, yet stroppy toddler, and is still throwing its weight around where employment numbers and consumer spending are concerned. [/dropcap]

So are we any better off than we were at the first birthday party? Let’s have a look at some numbers from the corresponding periods in 2008 (just before it began), 2009 and now.

The above table compares the YTD 12-month figures for August 2008, 2009 and 2010. The average store retail sales for the 12 months ended August 2008 showed a healthy annual sales figure of $1,095,823 per store. Not surprisingly, by the time August 2009 rolled around, this figure had declined to $946,802, a drop of just under $150,000 per store, or 14 percent. As a snapshot, this doesn’t show the full extent of the fall, but gives a pretty good indication of what was happening.

Fast-forward to August 2010 and we see a definite improvement. Sales of $1,015,607 are a pickup on 2009 of 7 percent — normally the sort of growth rate the Chinese economy would be proud of. A good rebound but sales are still trailing by $80,000, or 7.3 percent, below the figures of August 2008. In summary we have recovered half our ground from the lows of 2009, but we still have some way to go.

Not surprisingly, as we have pointed out in earlier articles, the volume of sales through jewelry stores has been climbing steeply. 2008 saw yearend unit sales at the end of August of 5,321 per average store. During the depths of the downturn, (August 2009), annual sales volume actually grew to 5,987, an increase of 666 items, or 12.5 percent. 2010 is even better, with unit sales for the year ended August 2010 of 7,345, a further increase of 1,358 units, or 22.7 percent, on 2009. Compared to 2008, two years earlier, the volume going through jewelry stores has increased by 2,024 items, or 38 percent. Not bad for an economic downturn!

It certainly shows there has been no shortage of customers — what it also shows is that less is being spent by each of them.

Yes, we’ve mentioned it before, and here’s a graph we have shown in the past that illustrates the trend happening each month with average sales. Unfortunately we’re a little like the frog that, when dropped into boiling water, jumps straight out, but when put into cold water that is gradually heated doesn’t realize it’s in trouble until it’s too late. In that regard you don’t tend to notice a slight drop every month in average sale until you look back and realize the extent of the downhill slope behind you.

What is a plus (if we can call it that) is that at least the rate of decline in average sale has slowed (the red monthly line is showing a flattening out). The initial drop, from the August 2008 average sale of $206, to the $158 average in August 2009, was a fall of $48, or 23 percent. The last 12 months has seen a drop of only $20, or 12.6 percent. This appears to be due to the maturing of the bead market rather than any resurgence in diamond jewelry sales. The percentage contribution from diamond jewelry continues to decline, although diamond rings are fairing a little better.

Is there a short-term solution? A re-emergence in the market for diamond jewelry other than diamond rings would certainly help, as this area seems to have suffered the most. The bridal market can be justified as slightly more of a need, whereas other diamond pieces are more likely to fit into the category of wants.

Steps can be taken to help however:

Review all existing inventory of non-bridal jewelry. Look carefully at your pendants, earring and bracelets and, with a printout in hand, determine how many pieces are past their use-by date. Are they unfortunate victims of the global financial crisis or are they pieces that were never going to sell anyway? Comparative information is now available on whether these items are proven performers elsewhere. Use this data to determine whether these pieces should have a second chance.

Look at your window displays. Do they say diamonds? Are you featuring your best pieces where the customers can see them?

Talk to the staff. Make them aware of the need, not want, but NEED to sell diamonds. Offer incentives to sell this product. Celebrate the victories so everyone knows, and make sure your best performers are recognized, privately as well as publicly.

Like any undisciplined infant, a degree of patience is required. But persistence is the best ingredient of all. Once this little fellow realizes his behavior won’t be tolerated forever things will finally settle back down.

Let’s look forward to a third birthday with improved behavior.