Gold Demand Trends Q3 2016

Focus:
US jewellery - motivations and opportunities for growth

Published 08th November 2016

Categories: Jewellery

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Almost two-thirds of respondents own gold jewellery; 11% intend to buy in the next 12 months

Silver and costume jewellery account for a significant portion of US consumers’ jewellery purchases, pushing ownership rates and purchase intentions significantly higher than those for more expensive, enduring and emotive types of jewellery, including gold. This is partly because consumers feel more comfortable buying silver and costume jewellery for themselves and are more likely to buy them spontaneously; there is less ‘meaning’ attached to these purchases. It is also because they are typically lower value transactions.

Our research indicates that fine jewellery is more likely to be received as a gift, often bought by a spouse or partner, more likely to be a planned purchase, and is more likely to be a high value transaction.

Despite the competitive marketplace, gold still plays an important role in the US jewellery market: almost twothirds of respondents owned gold jewellery and 11% said they intended to buy gold jewellery in the next twelve months (Chart 6). Unsurprisingly, gold ownership and intention to buy is closely correlated to peoples’ income levels: as household income rises, so too does ownership and intention to buy.

Gold jewellery purchases are typically 14 carat and unbranded, usually bought to celebrate special moments in one’s life

The survey provided further supportive evidence of the dominance of 14k in the US jewellery market. Of the consumers that had bought gold jewellery during the previous 12 months, 46% bought 14k, while 22% bought 18k. While the dominance of 14k is unsurprising, it’s reassuring to see that 9k gold did not gain a meaningful foothold in recent years when the rising gold price led some retailers to push lower purity products in order to meet key price points; 9k gold accounted for only 1% of recent purchases. However, a surprisingly high 15% did not know the caratage of the jewellery they bought.

Branding, while important, does not seem to play a strong role in gold jewellery: 45% of consumers who had bought gold jewellery said it was unbranded, compared to 29% and 35% for diamond and platinum jewellery respectively. This is reflected in the structure of the market and appears to be a growing trend: multi-line retailers dominate, and have been gaining market share at the expense of speciality jewellery merchants, who have suffered severe sales shrinkage so far this year.

Gold resonates particularly well with those consumers looking to buy a piece of jewellery that they feel is associated with tradition or reminds them of a special moment in their life. A key strength of gold for these consumers is that it keeps an inherent emotional and financial value over time and can be passed to the next generation. And this segment of the luxury fashion and jewellery market is valuable, accounting for 42% of the total value of purchases we surveyed.2

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Chart 6: Gold is prominent in the national jewellery box: almost two-thirds of respondents own fine gold jewellery

% saying they own/have purchased gold jewellery in the last 12 months/will purchase in the next 12 months

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While online is important, the in-store experience remains crucial

The in-store experience remains an important part of the purchase journey for jewellery and luxury fashion items, with 55% saying it was where they sought ideas before making a purchase. Friends, family and colleagues was the next most important source of inspiration. As one might expect, ‘millennials’ are a little bit different. While in-store browsing and friends, family and colleagues remain the most important sources of inspiration, online blogs were significantly more important: 21% used them to generate ideas compared to13% in the general population.

This preference for the in-store experience may encourage the evolution of so-called ‘clicks and bricks’ retailing, where retailers integrate their traditional bricks-and-mortar stores with their online offerings. An example of such innovation is Blue Nile’s opening of a number of ‘webrooms’ across the country.3 These offer customers the best of both worlds: giving them the in-store experience of touching, handling and trying on jewellery pieces before ordering them online – either via the in-store iPads or at home.

US jewellery demand should consolidate recent growth

The US gold jewellery market is still a considerable way off where it was ten years ago: in Q4 2015 demand was valued at US$1.6bn, significantly lower than the high of US$2.5bn set in Q4 2007.4 But demand volumes have been on a gradual upward trend in recent years, averaging more than 1% growth in tonnes of gold jewellery bought each quarter since the beginning of 2014. And our consumer research suggests it could continue to grow.

As part of the survey we assessed the degree to which actual purchases of gold were satisfying desired purchases. We did this by comparing gold jewellery’s share of mind5 to its share of purchase. Where share of mind is greater, it suggests there is latent demand. Encouragingly, this was very much the case for the US, with share of mind for gold jewellery outstripping its share of purchase by 11:4. (Chart 7).

That is not to say it is easy to convert this latent demand into sales. There are barriers preventing people buying gold jewellery. The most obvious one is people’s price perceptions: 13% of respondents said gold jewellery was totally unaffordable, while 38% said it was quite unaffordable. This compares to India and China – the largest gold jewellery markets in the world – where gold is perceived to be far more affordable.

And fine jewellery – not just gold jewellery – underperforms for millennials. When offered US$1,000, only 24% of those between 18–25 would buy fine jewellery, compared to 47% of those aged over 34. Luxury fashion and technology does a better job at engaging with millennials, who are increasingly focused on ‘experiential’ purchases. And this trend is clear in data presented by JPMorgan Chase, which revealed that in 2015, on average, 34% of spend by millennials was on experiences such as travel and entertainment, compared with 28% for the nonmillennial population.6

For retailers looking to grow their gold jewellery business, the latent demand in the market is encouraging. And it is reassuring that gold performs well in the most valuable part of the jewellery and luxury fashion market. But converting this demand is not simple. Retailers will need to tackle consumers’ price and affordability perceptions, for example by continuing to develop and market pieces at lower price points, and by developing online strategies to engage more effectively with the younger generation: Blue Nile’s roll out of ‘webrooms’ might be a strategy for the industry to look towards.

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Chart 7: % share of mind/share of last 12 month purchase for gold jewellery

Footnotes:
  1. We commissioned TNS to survey 2,000 females, aged between 18–65. Respondents were non-rejectors of jewellery who had either purchased or asked for – and received – as a gift a piece of jewellery or a designer/luxury item in the preceding 12 months. The competitive set included jewellery and luxury fashion purchases (e.g. gold, platinum, diamond, silver and costume jewellery, smartphones/watches and designer/luxury fashion).

  2. Value measured by a spend index.

  3. Read more: http://www.bluenile.com/jewelry-stores

  4. The US jewellery market shows strong seasonality, with demand peaking in Q4 each year.

  5. 'Share of mind’ and ‘latent demand’ are measures commonly used in market research to assess the growth potential of a product or category. Put simply, share of mind measures what would we expect consumers to purchase based on their ideal preferences

  6. Read more: https://www.jpmorganchase.com/corporate/investor-relations/document/2016-barclays-presentation.pdf

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