Houston, we have a problem!
The jewelry sector has been struggling mightily since the recession began, as it's heavily reliant on consumer discretionary spending for its survival.
On the bright side, whether the economy is good or bad, there will always be weddings, anniversaries, and special occasions, so there will always be a need for jewelry to mark those occasions. However, the magnitude of those purchases appears to be waning, which could be bad news for the jewelry sector as a whole.
Until recently, luxury buyers were largely responsible for keeping sector optimism high. Luxury buyers are the reason extremely high-end retailer Harry Winston Diamond
Recently, Tiffany missed Wall Street's expectations for a second straight quarter and lowered its full-year forecast after noting softness in North American spending. Harry Winston ran into similar troubles when it noted that the selling price of rough diamonds fell to $88 per carat in its latest quarter from $132 carat in the year prior. The company attributed this to simply moving out lower-quality inventory, but I see it as a sign that higher-end buyers are holstering their pocket books.
The big question now is what's next for jewelry stores now that luxury buying is drying up? Surprisingly, the higher the price point, the lower the margin generally is, so it may not be as bad as you think. What would really be troublesome is if John Q. Public suddenly began toning down his purchases, which, unfortunately, could also be happening.
The one company that looks like it'll struggle regardless of what happens is online diamond and mounting retailer Blue Nile
Only time will tell whether the jewelry sector is turning the corner to the downside, but having worked in the sector for a decade when I was younger, I can say with relative certainty that I don't like jewelers' growth prospects over the near term.
What's your take on the fine jewelry sector? Would you say "I do," or would you leave it standing at the altar? Tell me and your fellow Fools in the comments section below.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He has taken multiple diamond grading courses in his lifetime. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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