Photo: Telechhe via Flickr
This Valentines Day, if you’re thinking about buying your loved one a ring rather than a scarf, you could be in for a shock at the till.That’s because jewellers are better at passing on commodity inflation to consumers than clothing stores, according to Bank of America Merrill Lynch analyst Lorraine Hutchinson.
Here’s why, according to Hutchinson:
Contrary to apparel which is eventually discarded, jewelry is viewed as a long term investment with a value that can increase with time. When it is given as a gift, it also creates a strong emotional element to the purchase. Consumers view jewelry fundamentally differently than apparel and historical data indicates that consumers accept price increases when commodity costs rise.
So the shine of a diamond has the power to overcome the specter of inflation. But what’s this mean for jewelry stocks like Signet, Tiffany’s, and the broader jewelry market? Well, not much.
Historical data indicates that US jewelry sales can increase in 2011 despite their strong rebound in 2010. Jewelry sales declined in 2008 and 2009 by 5% each year. The last time jewelry sales declined two consecutive years was during 1970-71. This period was followed by 10 consecutive years of sales growth averaging 14%.
No reason to think next year is going to be a huge year for the market, but certainly a good reason to be confident jewellery retailers can handle the spike in commodity prices.
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