Can Jewelers Stay Afloat in Sea of Sales?

It’s almost as if someone turned on the switch for the blue-light special and forgot to flip it back off.

From exclusive boutiques to nationwide chain stores, retailers were slashing prices up to 70 percent storewide, and offering buy-one, get-one-free specials over the past holiday season.

Even jewelers indulged in the markdown madness: Of the 434 retail jewelers who participated in National Jeweler’s exclusive 2008 Year-End Sales Survey, 50 percent reported offering higher discounts than they did during the 2007 holiday season.

In a new year that hasn’t brought much good news for the economy, it appears those sales are continuing.

At Laura M. Jewelry, which caters to some of Los Angeles’ wealthiest residents, Mark Geller found himself offering holiday discounts for the first time in the store’s history, and the promotions didn’t end with Christmas.

“We’re still discounting everything but bridal and diamonds,” he says. “I think it’s almost impossible not to.”

Promotional sales at Rosanne’s Diamonds and Gold in South Bend, Ind., which caters to a middle-class clientele, haven’t stopped either, says Rosanne Kroen.

Her competition, including Macy’s, Kohl’s and J.C. Penney Co., continues to discount jewelry, and Kroen says she sees discounting as the only way to go.

“This year, we’re a little more flexible,” she says. “If you’re not going to bargain with them, then you’re not going to make the sale.”

Both Geller and Kroen, who service very different markets, don’t believe that jewelers are going to be able to return to their regular markups anytime soon.

Yet this widespread discounting mentality has created a retail environment in which simply mounting a “sale” sign isn’t enough, says Pam Danziger, president of luxury research firm Unity Marketing.

In the fourth quarter of 2008, Unity Marketing conducted a consumer survey on discounting that included about 1,200 consumers and examined 21 separate retail categories. The number of discount-indulgers ran high across the board, with 78 percent of luxury consumers reporting that their last clothing and apparel purchases were discounted, while 77 percent bought on-sale linens and bedding.

Asked about jewelry, 53 percent of luxury consumers surveyed said the last piece of jewelry they bought was discounted, and 60 percent reported the same for watches.

“Discounts today just aren’t compelling,” Danziger says. “You have to make a difference.”

Zale Corp., which blamed discounting for its disappointing holiday sales results, is now offering promotions on certain items only, and is focusing on emotional advertising and unique merchandise.

Armando Gonzalez of Blue Marlin Jewelry in Islamorada, Fla., who abandoned discounting after relocating his store in 2000, has found creative ways to get customers in the door–tactics that don’t involve a 50 percent off sign.

For Valentine’s Day, Gonzalez held a contest challenging entrants to come up with the most creative way to say, “I love you,” through some artistic act, be it a poem, a painting or a song that also incorporated his store’s logo.

The winner–a woman who painted a special scene on a magnum of champagne–received a prize package that included a diamond-and-sapphire necklace.

More important than the giveaway was the local buzz created in the Florida Keys town that the jeweler calls home.

“You have to be creative these days,” Gonzalez says. “If you’re going to crawl under a shell and hide and stop advertising, nobody’s going to come in.”

While Gonzalez stays away from discounting, Kroen isn’t afraid to hold an occasional sale, like the “March Madness” special she ran as a nod to Indiana’s love of college basketball.

“It brings them in the door,” Kroen says. “If we didn’t have the sign that said we have deals, they pass you by. But it doesn’t mean every item in the store has to be discounted. You have to give them some reason to make it here.”

A closer examination of National Jeweler’s holiday survey results reveals that it is those that take a disciplined approach to discounting, like Kroen, who come out on top.

Though the holiday season had few success stories, retailers who stayed middle-of-the-road with their discounting fared best, the survey showed.

Of those retailers with flat or increased sales, 26.3 percent reported that they offered the same discount in 2008 as they did in 2007.

A total 33.6 percent of those with flat or increased sales reported offering a discount that was just slightly higher or slightly lower than in 2007.

And 20.7 percent of those with flat or increased sales reported that they did not discount merchandise at all.

Meanwhile, 83.3 percent of those who said they offered a significantly lower discount reported their same-store holiday sales fell more than 10 percent, and 75.3 percent of those who offered a significantly higher discount reported the same losses.

At Metal Works Fine Jewelry in Yorktown, Ind., Gene Gragg says he runs monthly specials on his Web site emphasizing one category at a time, such as diamonds or colored gemstones, and he also holds additional specials during the holiday season.

But Gragg does not discount his custom-design work, and hasn’t let the recession change the way he does business.

“I really haven’t noticed an increase in people wanting a discount, although there is always the occasional customer who makes a game out of getting the lowest price,” Gragg says. “I stand firm on my price with that sort. I think when your store is known for customer service and quality–and not discounting–you will win in the long run.”