Jewellery: The new frontier for luxury groups
The jewellery sector has never looked as glittery as it does now, and is very appetising for leading luxury groups in constant search of new growth drivers. There is vigorous interest in this highly promising industry. On Tuesday, LVMH made a $16 billion bid to acquire US jeweller Tiffany & Co. In other words, it put on the table a little more than one extra billion dollars, compared to the first bid it made at the end of October. A month earlier, Richemont bought Buccellati from Chinese group Gangtai. Not to mention the significant sums forked out by fashion labels to launch their own fine jewellery lines, as Gucci and Giorgio Armani have done.
“With jewellery, they can search for the whole of eternity!” quipped an industry expert, summing up the growing attraction of a segment that sits in a unique position in the world of luxury products. Significant in this respect are the transformations that occurred in the last few years in Paris in rue de la Paix and place Vendôme, jewellery’s iconic stronghold. Several leading brands have upgraded their presence there, resulting in a facelift to the palace that hosts Boucheron, the opening of Gucci’s fine jewellery boutique, and the renovations and upgrades already carried out or planned by many labels, like Van Cleef & Arpels, Cartier, Bulgari and Chopard, all systematically involving extensions in the stores’ retail area.
After a slow-down in Paris and elsewhere in Europe, in the wake of the terrorist attacks of the winter 2015-16 when footfall fell by at least 30%, the jewellery sector has been growing robustly in the last three years and, in these turbulent times, it promises an appealing degree of stability. Especially fine jewellery, which in 2017 was back on the growth track, growing by 9.7% after the 4% downturn recorded the previous year, according to Deloitte. Market research specialist Marketline indicated that the jewellery and watches sector was worth $61 billion in 2017, equivalent to 20.6% of the entire luxury goods sector worldwide.
“It the course of a decade, it was like a trek across the desert. Jewellery had lost its iconic status and powers of attraction, while 20 years ago a gift of gold or jewels was a must for every important event or anniversary,” said the director of a major jewellery house, adding that “the focus had switched to high-tech gadgets, but in the last few years we are witnessing a renewed interest [in jewellery].” A return to grace confirmed by Federica Levato of Bain & Company: “In the last three years, the leading jewellery brands have exceeded expectations, and the trend is forecast to continue in 2019, since the gap with the watch market has shrunk, the latter having been negatively hit by some disaffection and by China’s anti-corruption policies.”
A study recently carried out by PwC using figures by Euromonitor International, slightly different from those of Marketline, estimated that the jewellery and watches market will grow from $44 billion in 2018 to $55 billion in 2023. And while its growth rate between 2013 and 2018 was 2%, it is expected to speed up to 4.6% in the next five years. A growth likely to stem from a 4.5% increase in women’s luxury jewellery, which accounts for 85% of the market, and a 5.1% increase in men’s. “Together with fashion accessories, especially footwear, jewellery will drive the luxury market worldwide in the next two years, though it still is a niche segment compared to apparel, the only sector to post a downturn in 2018,” said Erika Andreetta, a partner at PwC Italy.
“Fine jewellery is benefiting from renewed optimism in countries like the USA and also in Europe, and from the rise in numbers of the most affluent clientèle, high net worth individuals. In general, we are also witnessing a parallel rise in the purchasing power of younger generations, like Generation Y and Z, attracted by brands and responsive to the sector’s increased visibility on the web, in travel retail and in department stores, as was shown for example by Bulgari trebling its retail area at Harrods,” she added.
French jewellery brand Messika recently opened a concession in the same London department store, while Hermès introduced sections dedicated to fine jewellery in its Faubourg Saint-Honoré flagship in Paris and in several other branches worldwide. A few months ago, fashion and luxury e-tailer YNAP, owned by the Richemont group, began to sell fine jewellery creations. Farfetch has also introduced this product category, and so did 24S, which last year began to sell both costume and fine jewellery.
“Jewellery has become both more visible and more appealing, thanks the broader range of prices on offer. Slotting in between costume and fine jewellery, the ‘semi-fine’ or ‘bridge’ jewellery category of sterling silver and gilded silver products has gained traction in the last five years, due to the rising price of gold and to changes in the purchasing behaviour of consumers, who are increasingly blending fashion and luxury,” said Andreetta. She also noted how “the segment has been able to tap the rising influence of tourism. When on holiday, people like to indulge themselves. Jewellery is an ideal gift when travelling, as it is easy to transport.”
“Currently, all labels are positioning themselves in this segment and we’re witnessing a genuine acceleration. In strategic terms, and notably for major groups, costume and fine jewellery are genuine growth drivers, enabling groups to balance out their brand portfolios and to navigate more easily through good and bad times,” said Fabrice Gautron, former general manager France, Benelux and Switzerland for Tiffany & Co. “Brands are also able to reach a new, more extensive audience, which sometimes has a very different focus compared to fashion consumers,” he added.
“This type of consumer, having the means to buy [jewellery], will enable brands to build up a customer base they will manage to maintain and reward, and whose loyalty they will be able to tap for the long term. Thanks to this new and/or strengthened foundation, brands will then be able to sell their fashion and accessories products to the same clientèle,” said Gautron.
Besides, the fine jewellery business is a more robust one. “Greater retention is possible with this clientèle, which is highly specific but can also grow regularly if it is approached in the right way. From the collections point of view, there are far fewer cycles compared to fashion. This guarantees more regular results. Brands are therefore able to rely on stable, enduring growth rates and to make even more rational investments,” said Gautron.
Another observation is that the fine and costume jewellery markets are still highly fragmented and ‘underbranded’, offering huge opportunities for luxury labels keen to carve out more market share. “Only 12% of the world jewellery market is controlled by major brands or by jewellers well-known to the public. There is a fertile market still to be explored, one that could generate significant rewards. In the last few years, new players, like fashion labels, have entered the arena, but we aren’t afraid of this kind of competition,” said Simona Zito, general manager of Chopard Italy.
The long-established Swiss brand, owned by the Scheufele family since 1963 and one of the rare independent groups still operating on the market, has been able to rise to the sector's challenges by investing on sustainable development through products made with 100% certified gold, and by diversifying its range. “We reached out to a younger clientèle by developing, alongside our classic products, a more affordable, more directional line. Young people see costume jewellery as a fashion accessory, to be worn every day and not to be stowed away in a safe! They also want iconic, recognisable products,” said Zito.
“The jewellery market is still fragmented because it has always been a business based on personal contacts and relationships, with an emphasis on trust. It’s a market still dominated by specialists and individual operators like small jewellers and family firms, which are dealing with the generational handover within a tough economic environment,” said Francesca Di Pasquantonio, a financial analyst in charge of the luxury sector at Deutsche Bank.
“Between 10 and 15 years ago, this model began to break down at a faster rate, enabling major brands to now reach a market share of up to 20%. There is therefore a clear interest in the jewellery market, and also in what can be done with it,” said Di Pasquantonio. There are actually only a handful of major brands, the two giants Cartier and Tiffany & Co. above all, and the transformation of this market, until now a relatively traditional one, is well under way.
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