Jewelry and watches: brand report 96

It was the best of times, it was the worst of times.

On the up side, early projections based on government figures show an overall modest 4% growth in sales of watches, diamonds and karat jewelry, to a $13.5 billion market. Jewelry store sales alone, estimated by the 1977 retail census to have a 52.7% share of the market, were up 8.4% for the first 11 months of 1983.

But negative pressures, more widespread, may have a greater effect on all three industries. The current relative stability of diamond prices may be a relief to jewelers, but the industry as a whole is on less firm ground. Sales are up on the low end, but most of the prestige houses are being forced to increase their inventories of high-quality stones.

As the price of gold continues to slip down, consumers are buying once again. Mike Roman, chairman of Jewelers of America, notes that daily gold prices helped maintain awareness of the precious metal even in the recession.

“Even when the price of gold was at its peak, sales weren’t bad. A disproportionate amount of jewelry is bought as gifts, and daily quotes helped establish gold’s worth as a lasting value.” Even so, some jewelers fear that a continued downward trend in prices may forestall consumer spending, in anticipation of yet further price drops.

But the real bad news is reserved to the watch industry. Technology has turned a once-skilled industry into a battle of the bulk. As usual, the pressure has come from Japan and Hong Kong. Mechanical watches, which accounted for over 40% of the market in 1980, have dropped to an estimated 15% for 1984, while digital watches, most priced under $25, dominate with an almost 50% share.

Economies of scale in digital production have prompted the glut. Last year, Japanese and Hong Kong manufacturers put some 382 million units on the market, about 30% more than the demand for watches in the world. As a result, prices have fallen dramatically, to as low as $2, and some U.S. companies like Texas Instruments, once a major player in digital watches, have beaten a hasty retreat.

“Everything points to a continued glut,” says Roman, who adds that the high volume of utility watches has sharply segmented the market. “There has been a great expansion in outlets for these watches. They’re stamped out with a cookie cutter, with no care about where they will go.”

Tony Collado, executive director of the American Watch Association, says that the majority of the 140 million units that entered the country last year — about twice the level of American demand — were grey market goods: “Watches sold in this country by unauthorized dealers, containing a trademark but produced overseas to be sold through channels other than the U.S. registered trademark owner.”

It might be tempting to think, as Roman does, that a highly segmented marketplace would reduce competitiveness overall. Not so, says Collado. Even though the wide array of watches are sold through different types of outlets to different buyers, even if the average rate of ownership has increased to 3.5 watches per person — the highest ever — the American marketplace is approaching saturation. Some even think the point may be already passed.

Fear, or at the very least concern, has gripped the larger manufacturers. Low-end producers will continue to compete with price wars and competitive discounts, while high-end producers are falling back on the quality of their products.

“The companies that will fall by the wayside first,” says Roman, “are likely to be in the middle range. The greatest strength is being seen among the more accepted brands, although it’s difficult to pinpoint where weaknesses lie. But the casualties are sure to be the watches brands that have no identity with either of the two strong segments, price and quality, dominating the future.”

Individual manufacturers have been devising distinct strategies to combat an anticipated high volume of imports. Some of the lesser spenders, like Hamilton, Elgin or Gruen, have been relying more on mail order, while the larger manufacturers are making an effort to build recognition and tighten links with traditional outlets–jewelry stores and jewelry departments of department stores.

Hattori

The Japanese firm of K. Hattori & Co. covers all price ranges with the Seiko, Pulsar and Lorus brands. By far the biggest part of the business is carried by Seiko, which is first in world unit volume.

Even though Hattori manufactures only quartz watches, the three divisions do not compete. Set apart by price, the watches are also marketed and sold distinctly by each division.

David Straus, vp, marketing at Seiko, says the watches, priced between $80 and $300, will not be “too affected by the glut.” Seiko has been the leading brand for the past five years because it has concentrated distribution of its watches in jewelry stores and jewelry departments, and maintained a high advertising to sales ratio.

After a level year in 1982, Straus says sales turned around in 1983 and show every sign of continuing to get better in 1984. Since the average price of a watch in 1983 was $177, he is confident that Seiko has its “mass-class” franchise well secured.

Of the $10 million spent in consumer advertising in 1983, 80% went into spot tv, and the rest into print, mostly magazines. Straus describes the target as between 18 and 45, “slightly skewed to higher income levels.” Digitals represent a decreasing percentage of the 490 models marketed under the Seiko trademark, while quartz analogs, up to nearly 30% of the total from 10% four years ago, make up 70% of the line. Advertising is so weighted.

Straus notes that the market for watches is becoming broader, both in terms of age range and occasion. “Even in the teenage market, they are buying better products than they used to. We’re finding that the tendency toward quality and a love for technology show up pretty early on.

“There’s also more multiple watch ownership than there used to be. People tend to buy watches for occasions now — sports, for example, and for dress.” Straus notes that this trend has just about eliminated seasonality in the watch industry: where Christmas and graduation used to account for about 80% of Seiko’s business, that proportion has dropped to little over 60%.

Pulsar Time was started at just about the time Seiko had fully stocked its authorized dealers. The brand, Pulsar, has just come out with a mechanism calculated to a revolutionize the industry: a solor-powered quartz analog watch that can run for up to 48 hours without exposure to any light source.

Arthur Cohen, president of the company, says that Pulsar’s marketing strategy is unlikely to change: “Our customer base is sound and has not been threatened by low-end digitals.”

He notes that Pulsar has adopted a “shotgun” approach to marketing, with a broadly determined target of 18-45 in the +$20,000 income range. With models currently priced between $50 and $200, he hopes that the target will be expanded to the +$18,000 range soon.

Media has been principally spot tv, with network interspaced throughout the year at key buying times. In the fall, Cohen says, tv advertising tends to be pretty evenly split between net and spot.

Print accounts for only 10% of the media mix, with a heavy seasonal emphasis on women’s books in the fall. In the spring, Pulsar uses Newsweek and Playboy, “trying to attract the male and gift-giving audience.” Media budget has been running at about $7 million for some 500 models, which represents about 65% of the total spent on advertising and promotion.

“The retailers depend on display and co-op, and we’ve found that an in-store feature is our best advertising.”

Lorus is the latest addition to the lineup, only a year old but already accounting for 35% of Hattori watches sold. Vern Louden, vp, sales and marketing for the company, says Lorus has just embarked on a five-year growth plan calculated to differentiate it from its “panic-stricken” adversaries.

Distribution is broad-based, covering outlets from jewelry stores to drugstore chains. Louden says the diversity of the product line reaches into both utilitarian and fashion-oriented interests. “We haven’t honed in on one particular area,” says Louden, stressing that the below-$55 price range answers a wide array of needs.

Advertising budget for the brand has been increasing at a startling pace, up 50% in 1984 from an estimated $2.5 million in 1983. Louden notes that marketing strategy has focused on media selection.

An eight-month consumer campaign is concentrated in the top 60 spot markets, with some cable thrown in for additional weight. “We don’t use print,” says Louden, “although we’re considering using it in 1985 to reinforce the tv.” The main reason to rely on broadcast, he explains, is that the company is “thirty years behind” in terms of exposure. The campaign has been calculated to render 928 grp’s in each four-month half.

The consumer campaign is supported, in a sense, by an equally heavy trade campaign, increased 100% over 1983. “We will be covering each trade publication — and there are some 20 of them — four to six times in the year.” Strong links with retailers, and an emphasis on service, will help to maintain high growth rates.

Timex

Long the volume leader, Timex Corp. has slipped to fifth place — and that’s not the only area that’s seen sliding. After an ill-conceived foray into computer marketing, the company has undergone some quick change. The new strategy: to put its weight and strength behind what it had done best: produce and market watches and clocks. More than $100 million have gone into a complete retooling and redesign of the entire line — which doesn’t include the investment pulled out from under the computer and health care items.

But if it was a squeeze on profits from low-end watches that prompted the diversification in the first place, can Timex seriously expect to regain lost ground, even with redesigning? Dave Rahilly, director of marketing, certainly hopes so.

“Timex had gotten complacent about its success until a few years ago,” he says, adding that the effort to regain its competitive position is reflected in the massive restructuring of the product line — to say nothing of executive changes.

He points to Timex’s traditionally superior manufacture of small parts and its high level of awareness among consumers as two strengths that will help the company. “We’re really not planning a change in marketing strategy,” he says. Budget has been increasing since 1982’s $15 million, and may reach twice that in 1984. Tv will continue to be the primary medium, with much of the emphasis on network. Print plays a more important role for some models, especially sporty ones. For women’s models, the emphasis is on styling, with ten-second vignettes created to be strung together for :30 spots, or used for :10 news breaks.

While price, as low as $9 for a digital model, has always been a dominant selling point for Timex, the new advertising, which broke on Mother’s Day, has been focused on function and styling. “We are going to be readdressing price for our quartz models,” Rahilly says, adding that these models are a growth area for the company, with a high potential for profitability.

A new move for the company is the introduction of a more expensive watch, a quartz analog priced as high as $120–perhaps to take a little heat off the lower end, where Lorus has been carving up Timex’s market share. The new line will be marketed differently, from its packaging and display, to its advertising. For tv, the watch is being included in the ‘Great Watch’ campaign Timex has launched, but in print, advertising will appear in upscale publications like The New Yorker–“not typical Timex vehicles,” says Rahilly. The skew is to a slightly older and slightly more affluent audience than the traditional Timex consumer, but still an audience “that recognizes a good value.” Rollout is scheduled for the middle of the year, but the weight of the advertising will be in the fourth quarter, because, Rahilly explains, “this is more of a gift item than an everyday purchase.” The watch will be marketed through jewelry and department stores, though potential competitors. Bulova and Hattori remain unconcerned about the incursion.

Bulova

Bulova came out of the recession “pretty well,” according to Jerry Josephson, vp, marketing at the company, and is now in its best position of the last five years.

But, even with help from its parent, Loews Corp., market share has dropped rapidly, to 2%, within the past decade.

By moving production out of the States and abandoning its digital line, Bulova hopes, at least, to see a profit in 1984.

Although relatively unaffected by low-end price wars, Josephson notes that the emphasis on price has turned watches into a commodity, instead of an image item. Bulova is the only manufacturer ready to tackle the problem head-on. Its advertising emphasis will be on the trade this year, in an effort to make the watch-maker the stabilizing force in the industry.

“We feel the major problem for 1984 is to get jewelers and jewelry departments to make a profit on watches,” explains Josephson. He says that the mark-up on which these outlets make their profits has been chipped away by forced competitive discounts — which he lays at the feet of Japanese and Hong Kong distributors. Watchers are important to jewelers, says Josephson, because they are the only name brand items in the store; they can’t afford to be loss leaders.

In a sense, the active trade campaign Bulova is embarking on will attempt to reestablish class lines in the watch industry: “Jewelers make a mistake when they compete with the low-end of the market.” The campaign will be marked by heavy use of multiple page advertising in all of the industry’s publications, as well as promotions.

For its consumer campaign, Bulova has revamped its old tag line with, “It’s Bulova time again.” The campaign will run in fashion magazines, to stress styling–55% of the line is new as of January 1984.

Part of the reason behind the resuscitation of a tag-line familiar to traditional Bulova customers is the target: at 25-50, it is slightly older than the regular watch audience. “We want to appeal to people review of bulova watches who are familiar with Bulova–after all, we’ve been around for 109 years.” By 1985, Josephson adds, the company hopes to reach an 18+ demographic, by adding more fashionable models in the Caravelle price range ($50 ot $100).

The consumer campaign will be supported by a tie-in promotion that offers rebates to Bulova purchasers, to be used toward travelling expenses. “There will be a separate advertising starting on April 1.”

But the main thrust, Josephson stresses, will be to the trade. “we think it’s a good idea, given the amount of money the Japanes will spend to grab market share. And research shows that 60% of consumers, despite what the “Buy American” studies show, are uncommitted. Only 40% ask for a particular brand. The other are influenced by point of purchase material, by the salesperson. We’re after that 60%, so we’re investing with the dealers.”

And how much will all this good-neighborism cost? Josephson is reluctant to pin down a figure, but estimates range upward from $5 million.

“We’re looking to have a good year,” he concludes.

North American Watch

Four brands on the fine watch end come out of this company: Corum, Concord, Movado and Piaget, all of them handled by an in-house agency. Expenditures have risen from $12 million, to an anticipated $15 million in 1984, with the recent addition of Movado.

Each of the four brands has a distinct campaign. “We advertise each product differently, with a different media mix,” says Harry Viola, president of the in-house agency, Harry Viola & Associates. “Even if we were to base media selection on demographics alone, the difference in each audience wouldn’t be hard to pinpoint.”

Movado, at the low end with prices ranging from $200 to $300, is the closest product to a mass item. Viola uses spot tv, mostly news, to reach a mass audience that is more affluent and more educated than the average tv viewer. He says the television part of the plan allows him more flexibility, with room for specials and prime time: “We’re looking for the numbers.”

Print is divided into two categories: fashion and “intellectual.” He notes that the Movado is the only watch included in the Museum of Modern Art’s design collection — hence the intellectual slant. Magazines include Vogue and People, for the first category, and Smithsonian, National Geographic, Atlantic and The New Yorker, for the second. “Movado gets very different positioning from any of the other brands,” says Viola of his schedule.

Concord, at $900 is targeted at incomes of +$60,000. Positioning has been shifted from simply upscale to focus on sporty attributes. Media has changed accordingly. Television is news and sports. Print is the two newsweeklies, with Sports Illustrated, a useful vehicle, since advertising features well-known sports personalities, such as Mark Spitz and Bjorn Borg.

“The Concord is positioned as a sports watch in the copy. We use the personalities to reinforce that with a tag line, ‘Makes the bulky watch passe,’ that emphasizes the styling.”

In ever-increasing price range, the Corum line uses print alone. Two of the models, the Admiral’s Cup and Clipper Club, get some attention in special interest books like Sailing and Motorboat. Tagged a watch for achievement, the line is also featured in business books, with a similar schedule to the highest priced line, Piaget.

Piaget is perhaps the best-known name in the high price categories, with ultra-thin models that run as high as $10,000. The target for the brand is household incomes of +$150,000. “No matter what we do in terms of media, we’ll have some waste.”

Advertising is uniquely print, and concentrated on the fashion books — Town & Country, Vogue, Harper’s, with some support from business books like Forbes, and regionals like Texas Monthly, LA Monthly and the New York Times Sunday Magazine. Even With sponsorships such as the World Cup for polo, “advertising has been and will continue to be an important part of the whole picture.”

Viola emphasizes that the brands are all distinct companies, each with its own sales force and ad budget.

Diamonds

The industry divides the market into three segments: diamond engagement rings, which represent about 10% of the market; women’s diamond jewelry, which accounts for an overwhelming 80% of all diamonds sold in the U.S.; and diamonds for men, a relatively new category, but one that has shown much promise in the post-men-can-cry-too years.

It is in second category that a significant trend has been developing over the past ten years, according to Harkness Cram, senior vp, management supervisor for the De Beers consortium at N W Ayer.

“With the advances in mining and cutting, we’ve seen a democratization of the diamond. The stones are now available in all sizes, at all price points; they’re no longer exclusively for the very rich. And they have been popularized without losing mystique, or their desirability.”

Diamond jewelry for women can be subdivided into three groups. Diamond anniversary rings are but a small part of the segment, since they are occasion-specific. The basic gift of diamond jewelry is a category that has grown, especially in the range of commercial grades of the stone.

Diamonds of one carat or more, a segment one might assume to be self-defining, actually has a very precise target audience. About 25% of the women’s diamond jewelry budget goes after these women, in the 25-50 range, with incomes over $50,000.

“The bulk of likely prospects are actually in the 34+ range, with incomes higher than $50,000,” Cram says, adding that television advertising for this segment of jewelry “doesn’t turn off people with more moderate incomes. And we’ve found that there’s a halo effect. The advertising seems to reinforce that diamonds are a highly desirable gift.”

Among older, more affluent women, the catch seems to be size. “At that point, it’s less a gift of love, than one of status. This isn’t a first purchase, but a third, a fourth, a fifth.”

Despite the fact that “the dynamics of diamond acquisition soar with incomes over $100,000,” Cram says that the diamond industry has been making an effort to broaden its messages. De Beers itself has just initiated a new campaign that focuses on quality, in an effort to educate consumers an potential consumers about the stone.

Not that past campaigns haven’t been effective. Cram says that the diamond industry tends to be recession resistent. The dollar volume of diamond jewelry sold at the rental level rose form $5.5 billion in 1982, to “close to” $6.25 billion in 1983, with more pieces sold in that year than earlier.

De Beers itself plays a watchdog role in the industry. An ever-increasing ad budget “helps the industry generate spending for diamonds.” Out of a total budget of $26 million in 1983, $22 million went to advertising–the rest, to promotions. 1984 will see a 26% increase in the total, to $34 million, with about $25 million allocated to advertising.

“De Beers’ principle responsibility,” says Cram, “has been to provide stability.” Hence, he explains, some price cutting measures in an effort to reduce inventories of high-quality stones that continue to block complete recovery.

De Beers’ own use of media varies by segment, with advertising weight allocated by each segment’s relative importance.

The diamond engagement rings are advertised only in print–a more effective way to reach that has continued to be, despite a ballooning divorce rate, a young demographic. For the 500,000 repeat marriages each year, Cram points out, there are 1.2 million first go-rounds. “We acknowledge the repeat marriages in our creative without actually addressing them.” He notes that, where the age range used to be 18-24 fifteen years ago, it has risen to 18-34 now.

Magazines range from Seventeen, Glamour, Mademoiselle, and the bride books, to Cosmopolitan and Playboy.

The mix for women’s diamond jewelry is evenly split between tv and print, itself covering a broad range of titles. “We don’t buy dayparts, we buy programs,” Cram says. He describes the buys as “quality-related, upscale and romantic — avoiding gratuitious sex and violence.” This characterization covers programming such as the U.S. Open (tennis and golf), footbalL, some specials like Kennedy, and some prime time–60 Minutes and Dallas.

“We also look for markets of opportunity, markets where diamonds are more likely to be bought.” These tend to be largely in the sunbelt, in cities, predictably, like Dallas, Houston, Oklahoma City, Atlanta and L.A., “–not because of a population shift, or anything, but simply because the measure of a diamond jewelry acquisition is greater there than in more traditional, conservative, and older established communities.”

As an example, Cram says that the national average in 1982 showed 9.6 out of every 100 women bought a new piece of diamond jewelry.

In Boston, the index was 6.0%. In Dallas, the highest in the world, it was 13.5%.

Diamond jewelry for men is currently exclusively in print. Acquisition has been increasing, to 2.0% in 1981, up from 1.5% a few years before.

“We find that the trend has been similar to the one for cosmetics–men are more willing to give in to self-expression, to wear jewelry.” Vehicles include GQ, Esquire, Playboy and some women’s magazines–“the overwhelming percentage is bought by women for their men, especially round Christmas.”

Cram says that seasonality varies in each segment, but that it tends no longer to be as pertinent as it had been, except for women’s diamond jewelry, 60% of which is bought in the Christmas season.

Despite continued bottlenecks at the high-end of the market, prospects for diamond jewelry sales are very good, according to a survey conducted by Jewelers Circular/Keystone. The trade publication found that 78.1% said diamond jewelry was a good or very good sales prospect for 1984, with almost half the sales expected to come from necklaces and earrings. Larger, high quality stones are still expected to be sticky; the most popular price range is below $1,000.

Cram does not seem concerned. “It’s a strong business. And the desire to give gifts — and diamonds’ share of that does not seem to have diminished over time.”

Gold

The mood at International Gold Corp., the industry leader, is optimistic, after what Jana Brady, general manager of the U.S. Jewelry division, calls “an excellent year.” By Christmas, she notes, sales were 15% to 20% over 1982’s holidays and some chains reported an increase of as much as 30%.

Surveys conducted by International Gold indicate that most of the major chains expect the price of gold to remain stable throughout 1984. “This year will be an opportunity to build. The business and economic indices are good. We expect to see a continuation of consumer spending, barring any economic or international crises–unlikely in an election year.”

Ad budgets have been increasing steadily since 1982’s $3.3 million. Brady, loathe to release a figure, notes that the media budget for 1984 will be double the 1983 allocation. Apart from a co-op program with jewelers and manufacturers for certain name brands like Saks and Kristin Moore, most of the advertising is generic. Brady says that advertising for gold is divided into three segments: adult gift-giving, targeted at men and women; female self-purchase, and men’s jewelry. All three groups are in the 25-54 demographic, with household incomes of +$25,000.

“Our media selection differs for each group. People is the only magazine in common to all three. For the first group, we use dual audience books, like U.S. News, Food & Wine, Atlantic, New Yorker. The second group tends to be more affluent, since you’re talking about a single income of +$25,000. We go into fashion and lifestyle books, like for the adult gift-giving segment, but with a female skew. The third group, we advertise to in dual audience books and male skewed ones, likes Money, Fortune, Forbes, Travel & Leisure.”

Brady adds that all three campaigns are supported by advertising in regional magazines in the areas where the research has shown a higher level of gold buying: Boston, California, New York, Philadelphia, Texas and Washington, D.C. “Basically, it’s an overlay to our national campaigns.”

Patterns in gold buying have been changing, much as diamond purchases have. A stable, favorable price has encouraged consumers to buy more gold. And refined manufacturing techniques now allow a variety of price points, making gold jewelry available to anyone. “Anyone can afford it now,” says Brady says, is the growth of the female self-purchase category.

That segment, Brady adds, is grow-with the gift-giving opportunities ranging from Valentine’s Day to graduation, and Christmas–are giving way to a year round buying. One reason, Brady says is the growth of the female self-purchase category.

That segment, Brady adds, is growing so fast that it is eroding the 60% share of the adult gift-giving segment. Much of the growth comes from the use of gold jewelry as a fashion accessory. “You’re seeing gold more in depatment stores and boutiques,” says Brady.

Advertising weight is distributed propotionately, with 60% of the budget behind the adult gift-giving segment, and 40% behind women’s gold jewelry. “We have very little advertising for the men’sjewelry, and it comes out of a different budget,” says Brady. “If it were added to the total, it would represent maybe 10% to 15%, mostly out of the adult gift-giving segment, where there is an overlap.”

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