Sunday, November 29, 2009

Jewelry Biz - A Tale of Two Cities, Akron and Geneva

Jewelry has the distinction of being one of the few luxury goods that has both a high end and a low end, in the way that a private jet does not. The high end of course is the private client and auction business and the low end is the retail chain store business like Zales and Kay Jewelers.

On the high end:
I really don't know how to describe the high end other than tremendous.
Take this month's Sotheby's Geneva Magnificent Jewelry Auction for example

Magnificent Jewels of Important Historical Provenance
& Rare Coloured Diamonds Soar at Sotheby’s Geneva,
Bringing CHF 37,011,375 ($36,682,714, €24,553,028)

Magnificent Vivid Green Diamond Sells for CHF 3,106,500 ($3,078,914, €2,060,825),
a New World Auction Record Price Per Carat for a Vivid Green Diamond--

--The Roxburghe Rubies Bring the Unprecedented Sum of CHF 5,821,000, ($5,769,309, €3,861,602),
A World Record Price for a Ruby Suite

Since extraordinary jewels are bringing extraordinary prices
The Wall Street Journal asks
They are rare, beautiful, valuable and a girl's best friend but traditionally diamonds haven't really been considered an asset class in their own right.
Diamonds do not have the "safe haven" status of gold, and their prices are more volatile than the precious metal. While spot gold has gained around 25% in value this year, diamond prices have fallen by at least 10%, in line with the poor performance of the luxury industry, according to U.S.-based IDEX Online Diamond Prices, which tracks global asking prices for polished diamonds.
While respected authorities in the jewelry business advise against buying diamonds for investments
David Bennett, Geneva-based chairman of jewelry for Europe and the Middle East at Sotheby's, says: "Like art, we would not advise someone to buy diamonds for investment purposes. People should buy diamonds for the joy of wearing them."
we've still got
the growing demand for tangible assets and portfolio diversification has led to the launch of a number of diamond investment funds this year, which believe they can achieve double-digit returns for investors.

Have a few extra dollars in your bank account?
Here are some investment options:

KPR Capital launched a Cayman Islands-domiciled open-ended investment diamond fund with a minimum buy in of $250,000.
Alfa Capital, the Russian investment group, launched a diamond investment fund with a minimum investment of €1m and an estimated yield of 15% to 17%.
Emotional Assets Fund was launched, investing in a number of assets from fine art and rare stamps to diamonds and diamond jewelry. The fund is targeting a growth rate of 15% per annum with a minimum investment of £100,000.
Dazzling Capital, a London-based company investing directly in period jewelry, also opened its doors this month, co-founded by former Christie's auctioneer Humphrey Butler.
The company, which accepts a minimum investment of £10,000 with an estimated return on investment of 11%

Names like Emotional Assets Fund and Dazzling Capital certainly sound contrived
especially when we know that white diamonds are not rare, they are scarce due to controlled distribution, yet returns have gone up because sales at the high end are off the charts.
But given that diamonds will bring an 11-15% return, why would you buy into a fund when you can just buy actual diamonds and get the pleasure of wearing your investment?

I'm dubious about buying diamonds, individually or in funds, unless they are rare and colored (fancy) "If you want to buy diamonds for investment purposes, they should be big and fancy (colorful)," says Holly Midwinter-Porter, a gemologist at U.K. jeweler Boodles. "Red and green are the rarest, and unlike white, man-made diamonds, are finite as they are only found in one or two areas in the world." She says returns on rare diamonds can enjoy double digit growth a year, and their portability makes them more appealing than gold or art to some investors. And if you are looking for a big red diamond I have one for sale.

But I do think that buying period diamond jewelry, like the emerald set in this photo, is an intriguing investment.
Another option for investors is the vintage diamond jewelry market -- considered capable of more lucrative returns because of the added value of provenance. Mr. Butler brokered a $4.5 million deal with the Louvre in 2004 for an antique emerald and diamond necklace and ear rings by Nitot, presented as a wedding present by Emperor Napoleon to his second empress, Marie Louise of Austria. The owners had bought it for a fraction of the sale price 10 years before.
With fine vintage jewelry, intrinsic value + provenance = return on investment.
So I will be interested to see the results of tomorrows Sotheby's London sale of

After last year's horrendous holiday season, and the subsequent some 1,500 retail jewelry stores that went out of business, the big corporate chains such as Kay Jewelers and Zales are hoping for an increase in same store sales due to less overall competition.

Akron Ohio based Signet, which owns Kay and Jared, sees the demise in the industry as an opportunity. "Our balance sheet puts us in a stronger position competitively," Terry Burman, chief executive of Signet Jewelers Ltd., said in an interview.

In the current quarter, which includes the holidays, Wall Street analysts estimates Signet will post a 2% increase in sales at stores open at least a year. Last year, Signet's fourth quarter sales slumped 16% in the U.S. and 9% in the U.K.

I certainly hope that the analysts are correct given

The holiday season is crucial for jewelry chains, many of which record the majority of their sales and up to 100 percent of their profit in the period. Signet, for instance, books 40% of its sales and 70% of its profit in November, December and January, with the bulk of its sales coming in the last two weeks of December.


For the fiscal third-quarter ended Oct. 31, Signet, the largest chain jeweler in North America, posted a loss of $7 million, or eight cents a share, compared with a year-earlier loss of loss of $15.1 million, or 18 cents a share. Results for the company's latest quarter included a $5 million benefit from a change in U.S. vacation policy.

While I can afford an investment in Signet or Zales (versus a diamond fund)
Shares of Zale were up 10%, or 47 cents, to $4.40, while Signet shares were off 56 cents, at $26.32, both in 4 p.m. trading Tuesday on the New York Stock Exchange.
I'd still rather not invest in any retail jewelry business that caters to the low end.
My money is on fine vintage jewelry because that is what savvy consumers buy.
And my last word on the subject
London based estate jeweler Humphrey Butler, yes he of Dazzling Capital and the Napoleonic Emeralds, is selling the same set of Tiffany diamond bird brooches for $10,500
that is selling for $5950.
So even in the vintage estate jewelry market it pays to be discerning when making any purchase.
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1 comment:

Vintage Jewelry Store said...

I like your posts about jewelry because you elaborate everything and there is no hidden thing thanks for this post

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