Risk and other factors

Short term variations in consumer preferences, merchandise selection, inventory and pricing

The Group’s sales performance depends on consumer fashions, preferences for jewellery in general and the demand for particular products. The consumers’ preference for jewellery over other product categories varies over time and influences the total size of the jewellery market. For example, in 2000 jewellery was very popular with consumers, while in recent years electronic products was a strong category and jewellery comparatively weaker. Design trends in jewellery normally only change over relatively long periods and there is little seasonality in the merchandise mix. The ability to predict accurately future changes in taste, respond to changes in consumer preferences, carry the inventory demanded by customers, deliver products of the appropriate quality and price correctly and implement effective purchasing procedures, all have an important influence in determining sales performance and achieved gross margin (see Merchandising and purchasing (US) and Merchandising and purchasing (UK) for more details of the Group’s merchandising and purchasing procedures).

The price of jewellery compared to other products influences the proportion of consumer’s expenditure that is spent on jewellery. The comparative price, particularly of easily comparable pieces of jewellery, of the same quality, sold through similar stores impacts the Group’s share of jewellery sales. However the Group believes price, so long as it is broadly comparable to other speciality jewellery retailers, is not a primary factor in determining the jewellery retailer chosen by consumers. Other factors, such as customer service, are relevant in consumers’ decision and discounting may therefore increase sales, but not profit. If the factors influencing the consumers’ decision changed it would require the Group to adapt its business model. Therefore market research of consumer attitudes is carried out, merchandising trends are closely monitored and different pricing strategies are tested.

If any significant price changes are implemented across a wide range of merchandise, as occurred in the US division in early 2008/09, the impact on sales will depend on, among other factors, the pricing by competitors of similar products and the response by the consumer to higher prices. Such a price increase may result in disruption to sales and may have to be amended.

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