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NEW YORK-Sales growth declined for retail jewelers in 2007, with even high-end tiffany cufflinks feeling the slow-down, according to Jewelers of America’s (JA) 2005 Cost of Doing Business Survey.

The survey showed that overall sales for retail jewelers declined 0.3 percent in 2007, a drop-off from the 4.1 percent sales growth reported in 2006.

Industry analyst Ken Gassman says the figures do not denote a bad year, just a falloff from the previous 12 months and a dip in the natural cycle. The industry stayed at a relative high in 2006, but returned to earth in 2007.

David Peters, director of education for JA, agrees.

“It’s a cyclical business,” Peters says.

In terms of industry impact, the current U.S. mortgage crisis and high gas prices mirror what happened in 2001 and 2002, when Sept. 11 and the dot-corn crash triggered a major economic slowdown and flat jewelry sales.

“What’s going into the gas tank is not going into luxury items,” Peters says.

Across-the-board slowdown

Breaking the survey down by store category shows that independent high-end stores (with median per-tiffany pendants net sales of $2.4 million) experienced 3.5 percent sales growth, second only to designer/artist/custom stores, which reported 6.1 percent sales growth.

However, this represents a significant slowdown when compared to 2006, when sales grew 7.4 percent for independent high-end stores and 6.5 percent for designer/ artist/custom shops.

Experts say it’s proof that the economic slowdown is stretching to jewelry’s top-tier players and that American consumers who might have bought 5-carat diamonds two years ago are now purchasing 3-carat stones as then- stock market portfolios dwindle.

“They’re just spending a little less on jewelry,” Gassman says.

Independent mid-range stores with sales below $1 million saw the steepest decline in sales, a median 6.6 percent drop from 2006, compared to a 1 percent sales decrease for independent mid-range stores doing $1 million-plus in annual sales.

Overall, sales for independent mid-range stores fell 1.7 percent while sales for chain stores grew 2.5 percent.

Gassman attributes the chains’ higher growth rate to marketing clout and the tendency of independent retailers to pull back on marketing spend when times get tough. He suggests mid-range independent retailers loosen their purse strings and implement marketing programs that target return clients.

“They’re your best customers,” Gassman says. “It’s very difficult to bring a new customer into your store in a recessionary period.”

Jewelers looking to do this might take a cue from Girardin Jewelers, a high-end store in Valdosta, Ga., which implements direct marketing campaigns once or twice a year. Sales associates also always send out thank-you notes and conduct follow-up with customers, says store manager Paxton Morris.

At the beginning of each month, store employees call customers to remind them of upcoming birthdays or tiffany earrings special events, keeping Girardin on customers’ radars.

Margin drop causes complex

The survey shows that overall, margins slipped to 48.7 percent in 2007 after rebounding to 49.1 percent in 2006.

Independent high-end stores saw margins improve though, from 42.9 percent in 2006 to 45.2 percent in 2007.

Chain stores saw margins slip, from 49.1 percent in 2006 to 46.7 percent in 2007, while margins for independent mid-range stores held nearly steady at 50.8 percent, from 50.9 percent in 2006.

Gassman says a combination of factors, not just one, contributed to the margin drop, including the cost of precious metals pushing up the price of goods-increases retailers felt unable to pass on to consumers due to the flagging economy. In addition, slow sales might have prompted retailers to up price-based promotions, offering perhaps 55 percent merchandise discounts instead of 50 percent.

For all of the firms surveyed, on an item-by-item basis, gross margins rose in the following categories: loose diamonds, diamond jewelry, colored stone jewelry, cultured pearl jewelry, timepieces and platinum, for which margins increased from 50 percent in 2006 to 51.6 percent in 2007.

Margins fell for karat gold jewelry, declining from 55.1 percent in 2006 to 54.7 percent in 2007. Another notable shift in this year’s TA survey was in the category of retail location.

In 2006, 23.6 percent of respondents operated freestanding stores, but by 2007, that figure grew to 32.5 percent, meaning the stand-alone jewelry store now dominates for independents.

“That seems to be where the consumers are and where the successful retailers are,” Gassman says.

The survey also compares the business practices of high-profit jewelers to those of low-profit jewelers, revealing that while the two sell essentially the same product mix, the differences are in the details.

For example, high-profit jewelers tend to have one fewer employee and a slightly smaller store, which lowers occupancy and payroll expenses, Gassman says.

Survey data shows that the median low-profit jeweler employs 6.5 staffers in a 2,200-square-foot store and spends 20.3 percent of annual sales on payroll and 5.9 percent on occupancy. Meanwhile, median highprofit jewelers, employ 5.5 staffers in a 1,775-square-foot space and spend 20 percent of sales on payroll and 4.9 percent on occupancy.

Gassman says the survey shows that there is not one single thing high-profit jewelers do better; instead, it’s a matter of doing “a thousand things 1 percent better.”

“They look at every expense line item and ask themselves, ‘How can I make this more efficient?’” he says.

Susan Eisen of Susan Eisen Fuie Jewelry and Watches does just that every time there’s a break in the tiffany necklaces at her El Paso, Texas, store. One recent improvement she implemented is a specific procedure for repairs whereby staffers should attempt a sale with every repairs customer.

Recently, a woman who visited the store for a watch battery was shown a $4,000 diamond tennis bracelet to go with the watch. She loved it and her fianc茅 soon returned to purchase it for her.

“It works a lot more than you would think,” Eisen says.