The COVID-19 pandemic was a seminal experience for the fine jewelry and watch industries, which suffered a 10 percent to 15 percent revenue decline, but will see its market return, albeit not in quite the same way they existed prior to 2020, writes McKinsey & Company in a report entitled “The State of Fashion: Watches and Jewelry,” co-published with The Business of Fashion.
“With combined annual sales of over $329 billion in 2019, as estimated by McKinsey, fine jewelry ($280 billion) and watches ($49 billion) are highly significant industries in terms of their contribution to global business,” the report states. “They also represent meaningful cultural assets that have for centuries reflected human preoccupations with creativity, status, symbolism and self-expression. Yet today, both sectors find themselves at an inflection point.”
Two key factors influenced the falloff in revenue experienced at the start of the crisis, the report stated. The first was both industries’ previously slow transition to digital sales, with online sales representing about 13 percent of the jewelry market and only 5 percent for the watch market. The second was the abrupt halt to global travel, which pre-pandemic accounted for about 30 percent of sales by value for both sectors.
Both failings should be short-lived, however. The jewelry and watch industries have shifted dramatically into the digital environment, making up for lost time and also possibly winning new devotees from the younger, more technically savvy consumer base. Global travel is picking up, but is not expected to return to pre-pandemic levels before 2024, according to McKinsey recovery scenarios.
“By 2025, we expect demand to increase from younger consumers as well as those shopping domestically, amid continuing restrictions on international travel and the rise of domestic duty-free zones in China,” the report states.
RISE OF BRANDED JEWELRY
McKinsey forecasts that the fine jewelry market will grow at a compound annual growth rates of 3 to 4 percent through 2025, expanding to between $340 and $360 billion.
It sees an even brighter future lies ahead for branded jewelry, which it predicts will experience compound annual growth rates of between 8 and 12 percent through 2025.
As price points in branded jewelry can be around six times higher than of unbranded products, it notes, competition between established luxury jewelry brands, fashion brands and new direct-to-consumer companies will become more intense.
Branded jewelry currently comprises less than 20 percent of the total market, the report states. However, McKinsey predicts that it will grow to represent between 25 to 30 percent of the market by 2025.
Branded purchases from Asian consumers will unlock 10 to 14 percent CAGR for the Asian market through 2025, the report predicts, which is the highest growth in branded jewelry sales worldwide.
COMPETITION FROM EXPERIENCE-ORIENTED LUXURY EXPECTED
Signet expects stronger sales performance in the first half of the fiscal year. However, at the same time, as the vaccine rollout matures, it believes there will be a shift of consumer discretionary spending away from the jewelry category toward experience-oriented categories, like travel and vacations, but the magnitude and timing of this shift is difficult to predict.
As such, the company is planning for increased marketing expenses to continue to proactively manage against shifts in consumer spending as the year progresses.
“We are entering this next phase of Signet’s transformation from a position of financial strength,” said Joan Hilson, Signet’s Chief Financial and Strategy Officer. We are continuing to increase liquidity with ongoing cash, cost and inventory discipline, enabling accelerated investment in innovation and growth.”
“Even as we expect some current tailwinds from stimulus and slower than anticipated return to travel and experience spending to subside in the back-half of 2021, we are confident in our ability to deliver strong shareholder return and generate cash,” she added.