Competitive factors in the jewellery sector are discussed in the US and UK operating reviews (see here). If the Group falls behind competitors with respect to one or more of these factors, the Group’s operating results or financial condition could be adversely affected.
In the US, the Group has an estimated 8.8% market share of the speciality jewellery sector with one major national competitor, that has a 6.4% share. While another major national brand could develop, the sector is highly fragmented. As a result of the growth of Jared and the development of Kay outside of its enclosed mall base, the Group is increasingly competing with independent speciality jewellery retailers rather than national or major regional chains. In the UK, only three other speciality jewellery chains have more than 100 stores and the Group’s main competition is from independent retailers.
The channels through which consumers buy jewellery continually evolve and a major non-speciality retailer could enter the wider jewellery market. The Group monitors the competitive environment and the development of possible new channels of distribution. In the US, for example, sales by discount retailers have increased, while those of the department stores have been in relative decline and catalogue retailers have withdrawn from the market. In the UK a number of fashion and general retailers have introduced jewellery into their ranges. The Group regularly “shops the competition” to monitor their merchandising, pricing and service standards.
In both the US and the UK, internet retailers of jewellery have gained market share.
H.Samuel added an e-commerce capability to its website in 2005/06 and both the Ernest Jones and Kay websites introduced e-commerce capabilities during 2006/07. The future success of these websites is uncertain, but their performance to date has been encouraging although their sales are not significant to the Group. While internet sales now account for 7.4% (calender 2006: 6.4%) of US jewellery sales (source: US Department of Commerce), their primary impact has been on pricing visibility, particularly for certified diamonds, solitaire diamond rings and diamond stud earrings. This can have an adverse impact on gross margins.