Global Jwellery

Global Jewellery Retailing
2008
Asia Pacific switches on to brands
Reference Code: DMVT0450
Publication Date: 7/08

ABOUT VERDICT RESEARCH
Verdict Research is the UK’s leading authority on retailing and publishes unrivalled
independent analysis of the retail industry. With almost 20 years experience, Verdict
has close relationships with major UK retailers and access, at the highest level, to key
executives working in the Top 300 retailers to hear their views at first hand. Verdict
reports provide clients with a complete picture of the retail sector and unique
forecasts to help UK retailers, manufacturers, service suppliers, investment analysts,
consultants and the media with strategic planning.
Verdict Research Ltd is a wholly owned subsidiary of Datamonitor Plc. Datamonitor

plc is a premium business information company specialising in industry analysis. It
helps over 5,000 of the world's leading companies to address complex strategic
issues. Through proprietary databases and wealth of expertise, it provides clients
with unbiased expert analysis and in-depth forecasts for seven industry sectors:
Automotive, Consumer Markets, Energy, Financial Services, Pharmaceuticals &
Healthcare, Technology, and Transport & Logistics. Datamonitor maintains its
headquarters in London and has regional offices in New York, Chicago, San
Francisco, Sydney and Frankfurt.
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by
any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of
the publisher, Datamonitor plc.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed.
Please note that the findings, conclusions and recommendations that Datamonitor delivers will be based
on information gathered in good faith from both primary and secondary sources, whose accuracy we are
not always in a position to guarantee. As such Datamonitor can accept no liability whatever for actions
taken based on any information that may subsequently prove to be incorrect.
GLOBAL JEWELLERY RETAILING 2008 DMVT0450

© Datamonitor (Published 07/2008) Page 2
This report is a licensed product and is not to be photocopied
Table of Contents
TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 13
Key Findings 13
Main Conclusions 14
CHAPTER 2 MARKET ANALYSIS 18
Jewellery Market Definition 18
Introduction 19
Regional Markets 21
Japan 23
Asia-Pacific 25
Americas 29
Europe 30
Middle East & Others 32
Product Trends 34
Company Market Shares 37
Key Operating Statistics 40
CHAPTER 3 OUTLOOK & FORECAST 42
Key Issues 42
Where Will Global Economic Slowdown Bite? 42
Rise and Rise of Controlled Retail 43
Internet 44
Value Chain Integration 45

Table of Contents
Ethical Concerns 46
Rapid Rise in Commodity Prices 47
Forecast 49
Forecast Expenditure 2008-2013 49
Regional Expenditure 2008-2013 50
Expenditure by Product Group and Market Segment 2008-2013 53
Polarisation 55
Action Points 58
CHAPTER 4 BULGARI 60
Company Overview 60
Recent Key Developments (Jewellery & Watches) 61
Sales Performance 62
Current Trading 63
Store Portfolio 66
Outlook 67
CHAPTER 5 FINLAY 69
Company Overview 69
Recent Key Developments 70
Current Trading 71
Stores 73
Outlook 74

Table of Contents
CHAPTER 6 GITANJALI GROUP 75
Company Overview 75
Stores 79
Outlook 80
CHAPTER 7 LVMH 81
Company Overview 81
Recent Key Developments (Watches & Jewellery) 82
Current Trading 85
Outlook 87
CHAPTER 8 RICHEMONT 89
Company Overview 89
Recent Key Developments (Watches & Jewellery) 90
Product Split 94
Stores 96
Outlook 97
CHAPTER 9 SIGNET GROUP 99
Company Overview 99

Table of Contents
Current Trading 103
Store Portfolio 107
Outlook 110
CHAPTER 10 SWATCH GROUP 112
Company Overview 112
Current Trading 116
Stores 116
Outlook 117
CHAPTER 11 TIFFANY 118
Current Trading 120
Store Portfolio 123
Outlook 124
CHAPTER 12 TSUTSUMI 125
Stores 127

Table of Contents
Outlook 128
CHAPTER 13 ZALE CORPORATION 129
Current Trading 131
Stores 132
Outlook 133
CHAPTER 14 GLOSSARY 134
Abbreviations 134
Financial Statistics – VAT 134
Jewellery Market Definition 135

Table of Contents
LIST OF TABLES
Table 1: Jewellery market – global consumer expenditure on jewellery and

watches 2003-2008e 18
Table 2: Jewellery expenditure by region 2003-2008e 19
Table 3: Y-o-y change % in global jewellery spend by region 2003-2008e 20
Table 4: Jewellery expenditure by market segment 2003-2008e 21
Table 5: Jewellery and watch expenditure by product group 2003-2008e 34
Table 6: Jewellery brands global market shares 2003-2008e 37
Table 7: Jewellery and watch brands key operating statistics years ending
2007/08 40
Table 8: Jewellery and watch brands key operating statistics in US$ years
ending 2007/08 41
Table 9: Jewellery market – global consumer expenditure on jewellery and

watches 2003-2013 49
Table 10: Global expenditure by region 2008-2013e 50
Table 11: Y-o-Y change in jewellery spend by region 2008-2013 50
Table 12: Jewellery & watch expenditure by product group 2008-2013 53
Table 13: Jewellery expenditure by market segment 2008-2013 54
Table 14: Summary of spend and growth in luxury and mass market segments
2008-2013 56
Table 15: Summary of global jewellery expenditure by region 2008-2013 57
Table 16: Bulgari company overview 2008 60
Table 17: Bulgari trading record 2003-2008e 62
Table 18: Bulgari trading record in US$ 2003-2008e 62

Table of Contents
Table 19: Bulgari retail stores 2002-2007 66
Table 20: Finlay company overview 2008 69
Table 21: Finlay trading record 2004-2009e 71
Table 22: Finlay number of retail locations 2003-2008 73
Table 23: Gitanjali company overview 2008 75
Table 24: Gitanjali group trading record 2004e-2009e 77
Table 25: Gitanjali Jewellery division trading record 2004e-2009e 78
Table 26: Gitanjali group trading record in US$ 2004e-2009e 79
Table 27: Gitanjali jewellery division trading record in US$ 2004e-2009e 79
Table 28: LVMH Group company overview 2008 81
Table 29: LVMH trading record 2003-2008e 83
Table 30: LMVH watches & jewellery division trading record 2003-2008e 84
Table 31: LVMH trading record in US$ 2003-2008e 84
Table 32: LMVH watches & jewellery division trading record in US$ 2003-
2008e 85
Table 33: Richemont company overview 2008 89
Table 34: Richemont trading record 2003-2008 92
Table 35: Richemont trading record in US$ 2003-2008 92
Table 36: Richemont jewellery and watch maisons trading record

2003-2008 92
Table 37: Richemont brands number of retail stores 2003-2008 96
Table 38: Signet Group company overview 2008 99
Table 39: Signet Group trading record in $ 2003-2008 101

Table of Contents
Table 40: Signet divisional trading record in $ 2003-2008 102
Table 41: Signet Group retail stores 2002/03-2007/08 107
Table 42: Signet US stores 2006-2008 108
Table 43: Signet UK stores 2006-2008 109
Table 44: Swatch Group company overview 2008 112
Table 45: Swatch group trading record 2003-2008e 114
Table 46: Swatch Group watches & jewellery division trading record 2003-
2008e 114
Table 47: Swatch Group trading record in US$ 2003-2008e 115
Table 48: Swatch Group watches & jewellery division trading record in US$
2003-2008e 115
Table 49: Tiffany & Co. company overview 2008 118
Table 50: Tiffany & Co. trading record 2004-2009e 120
Table 51: Tiffany & Co number of retail stores 2003-2008 123
Table 52: Tsutsumi company overview 2008 125
Table 53: Tsutsumi trading record 2004-2009e 126
Table 54: Tsutsumi trading record in US$ 2004-2009e 127
Table 55: Zale Corporation company overview 2008 129
Table 56: Zale Corporation trading record 2003-2008e 131
Table 57: Zale Corporation number of retail stores 2003-2008e 132

Table of Contents
LIST OF FIGURES
Figure 1: Global jewellery expenditure per region, % share 2003 & 2008e 21
Figure 2: Share of global jewellery expenditure per region 2003 22
Figure 3: Share of global jewellery expenditure per region 2008e 23
Figure 4: Japan jewellery retail spend and growth 2003-2008e 24
Figure 5: Asia-Pacific jewellery retail spend and growth 2003-2008e 26
Figure 6: Americas jewellery retail spend and growth 2003-2008e 29
Figure 7: European jewellery retail spend and growth 2003-2008e 31
Figure 8: Middle East jewellery retail spend and growth 2002-2007e 32
Figure 9: Product share of jewellery expenditure 2003 35
Figure 10: Product share of jewellery expenditure 2008e 36
Figure 11: Operating margins of jewellery and watch brands 2007/08 39
Figure 12: Key issues for global jewellery retailing 2008 42
Figure 13: Y-o-Y growth by region 2008-2013 51
Figure 14: Global jewellery expenditure per region 2008 & 2013 52
Figure 15: Polarisation in global jewellery retailing 2008 55
Figure 17: Bulgari product sales split 2003 & 2008e 64
Figure 17: Bulgari regional sales split 2003 & 2008e 65
Figure 18: Finlay sales % by product area, 2003/04 & 2008/09e 72
Figure 19: LVMH regional sales, watches & jewellery 2003 & 2008e 86
Figure 20: LVMH sales by product area, 2003 & 2008e 87
Figure 21: Richemont product sales split 2002/03 & 2007/08 94

Table of Contents
Figure 22: Richemont brands regional sales split 2002/03 & 2007/08 95
Figure 23: Signet Group product sales split 2002/03 & 2007/08 104
Figure 24: Signet Group geographic sales split 2002/03 & 2007/08 106
Figure 25: Tiffany & Co regional sales, watches & jewellery 2003 & 2008e 121
Figure 26: Tiffany & Co. sales by product area, 2003 & 2008e 122

EXECUTIVE SUMMARY
CHAPTER 1 EXECUTIVE SUMMARY
Key Findings
• Global expenditure on jewellery & watches will accelerate over the next
five years, growing by 35% to $318bn by 2013
• The fastest growing regions will be Asia-Pacific and the Middle East –
up by 60.7% and 49.4% respectively
• The Asia-Pacific region, which includes China and India, will overtake
current leader, the Americas, in 2011
• The Middle East, Russia, China and India are set for rapid growth
despite current economic turbulence – unlike the US where significant
pressure is being put on the middle and lower end
• Luxury brands are driving growth and spending in the luxury segment
will double over the next five years to $94bn
• The luxury segment will grow its share of global expenditure from 20%
to just under 30% by 2013
• The global significance of brands is highlighted by the Richemont and

Swatch groups commanding 7.2% each of global expenditure ......
• ...... while a retail business such as the Signet Group only commands
1.8% despite its dominance in the US and UK markets
• Vertically integrated businesses with control of their supply chain are

the most profitable
• Rising commodity prices and lower demand are squeezing mass

market margins, whereas the luxury segment appears insulated
• Mass market retailers need to differentiate on more than price and

should look at other sectors for inspiration
• The Internet is rapidly becoming a significant channel and is an

opportunity to target and grow the male market extensively

EXECUTIVE SUMMARY
Main Conclusions
• Global expenditure on jewellery & watches will accelerate over the next
five years, growing by 35% to $318bn by 2013. As rapid rises in newer
markets compensate for slowdowns in mature markets we expect an
average of 6.0% growth per year over the next five years, taking the market
from $236bn in 2008 to $318bn in 2013.
• The Asia-Pacific region is set to consolidate its position as the largest

market. Sales will grow by 61% over the next five years adding $41bn to
existing spending and contributing 51% to total global growth as millions of
consumers in India and China, as well as other fast-growing economies in
the region, start to spend more money on jewellery as a status and fashion
statement rather than just a store of wealth. Their focus will move from
purchasing by carat weight to branding and design, boosting the value of the
market.
• Asia-Pacific will overtake the Americas as the leading region for

jewellery sales in 2011. The Americas (dominated by the United States)
currently account for 34.0% of global spending on jewellery and watches.
Slow growth in 2008 and 2009 will cost its crown. Asia-Pacific will grab top
slot, going from 29% in 2008 to 35% share by 2013 widening the gap to 3.7
points.
• The Middle East and Other will be the second fastest growing region
over the next five years at 49%. Up to 2008 the smallest region in the
world in terms of spending, the Middle East and Other market is seeing
explosive growth as income from oil and other commodities is spent on
consumer goods, and luxury brands open up stores in new regional super-
malls. The market will overtake Japan this year and be worth $32bn in 2013
– for a 10.2% global share compared with Japan’s 6.9%.
• The economic slowdown in the United States is putting significant

pressure on the largest national jewellery market. The US market,
particularly important for diamond sales, is suffering from the pressure on
consumers' budgets, especially from higher oil prices and the effects of the
credit crunch, with many retailers seeing falling comparable store sales. We
expect slow growth in 2008 and 2009, with some recovery in 2010.

EXECUTIVE SUMMARY
• Despite the current economic turbulence, the rapid growth in markets

like the Middle East, Russia, China and India will sustain the rate of
increase in demand worldwide. Despite rises in precious metal prices
affecting gold consumption in India, we predict that increasing incomes will
encourage consumers to spend more at the luxury branded end of the
market, sustaining global growth in 2008.
• Luxury brands are driving growth. Spending in the luxury segment will
double over the next five years to $94bn. This will increase its share of the
market from 19.9% to 29.6%. The turnover of major luxury retailers and
brand owners like Richemont, LVMH, Swatch Group and Tiffany & Co is
expanding faster than the market as a whole. They are benefiting from
exposure to the top end of the market (which has so far seen little net impact
from economic problems like soaring oil prices and the credit crunch) and
from having brands with global appeal.
• The global significance of brands is highlighted by the Richemont and

Swatch groups commanding 7.1% each of global expenditure. The
jewellery and watch market is led by two Swiss-based companies that have
capitalised on the reputation of watchmaking in Switzerland to corner a major
share in the luxury watch market, with sales of prestigious mechanical
watches, rather than electronic ones, and jewellery watches performing
particularly strongly.
• However a retail business such as the Signet Group only commands

1.8% despite its dominance in the US and UK markets. As retail brands
rather than product brands, mass market retailers have little to differentiate
themselves from each other apart from price and service proposition.
Expansion in mature markets is via acquisition of competitors or of resident
local players if moving into new markets.
• Luxury brands also enjoy higher profit margins than mass market
retailers. The likes of Richemont and LVMH have a stable of high profile
brands that have global appeal and which they can sell directly to consumers
via their own stores or via wholesale and franchise accounts. Greater brand
control over their distribution channels has meant that these brands are
retaining their status and this is reflected in their margins. Also, jewellery &
watches are often an extension of a luxury clothing or accessories brand and

EXECUTIVE SUMMARY
can be presented in a much more inspiring environment than a typical

jewellery specialist’s store.
• Vertically integrated businesses with control of their supply chain are

the most profitable. The most profitable and successful brands and
retailers are those that have control of their supply chain from raw materials
to sale in the store. The common factor to the most profitable groups profiled
in this report is that they control the production of a large proportion of what
they sell. This gives them reliable supply, control over quality and unique
designs. Those that do not have this are likely to be under greatest pressure
from competition on price for similar product.
• Rising commodity prices and lower demand are squeezing mass

market retailers’ margins further. Whereas the luxury segment also has to
deal with rising commodity prices in precious metals and skill shortages, its
premium price position – enforced by strong design values – and affluent
customer base make rises easier to pass on, insulating it from margin
squeeze. Mass market retailers on the other hand, with their less affluent
customers who feel the pressures of the global credit crunch much more, find
it harder to pass on price rises because there is little obvious justification or
benefit to customers.
• Mass market retailers need to differentiate on more than price and

should look at other sectors for inspiration. Jewellery specialists need to
focus on innovation – in product, service, delivery channels and store
environment. Investment in unique product with continual range innovation,
as happens in the fashion sector, backed up with high quality service and
distinctive store environments builds loyalty and ensures a retailer is top of
mind when jewellery shopping. It also removes the focus on price and
events to drive sales.
• The Internet is rapidly becoming a significant channel and should reach

$15bn of sales in the US, Japan and Europe alone by 2013. The Internet
provides vast opportunities to widen both geographical and customer bases
and provides new ways of encouraging shoppers to buy – particularly men
who are inveterate online shoppers and tend to feel intimidated by traditional
jewellery retail environments. This offers high growth opportunities in watch
sales and gifting.

EXECUTIVE SUMMARY
• Indeed men are creating new growth potential. The market in both
jewellery & watches is set to grow consistently over the next five years with
fashion driving the former and men the latter. Men are a strong target for
watches – an acceptable piece of jewellery for men – and for gifts for
partners. As men spend more money on their appearance in many
developed markets and, indeed, developing ones we believe that expensive
watches will increasingly be seen as an essential part of the male wardrobe.
• We predict that sales of jewellery will grow from $194bn to $263bn over
the next five years while the smaller market segment of watches will
rise from $42bn to $55bn. We expect both major market segments to see
rapid growth in spending as consumers in developing markets acquire a
taste for branded jewellery and status symbol watches.

MARKET ANALYSIS
CHAPTER 2 MARKET ANALYSIS
Jewellery Market Definition
• This report focuses on the retailing of jewellery made of precious metals,

diamonds and other precious stones (i.e excluding costume jewellery) and
watches, including both the mass and luxury branded segments. Our market
is made up of consumer expenditure on these goods.
Table 1: Jewellery market – global consumer expenditure on jewellery

and watches 2003-2008e
Total Sales Y-o-Y Change

Year $bn %
2003 174,616 4.5

2004 184,485 5.7
2005 194,514 5.4
2006 208,109 7.0
2007 221,840 6.6
e2008 236,123 6.4
Change %
2003-2008e 35.2%
Source: Verdict Research VERDICT
• We have divided the market regionally into Japan and the rest of Asia-Pacific
(which includes China, India, and Australasia); the Americas, which is
primarily the USA; Europe, which includes Russia; and the Middle East and
Others, which is primarily the Middle East.
• Key industry players have been selected for a range of profiles, based
primarily on size of turnover: from middle and mass-market operators like the
Signet Group and Zale Corporation to top end luxury goods groups like
Richemont and LVMH. Other smaller operators, like India's Gitanjali Gems
are also considered on the grounds of their future potential for growth.

MARKET ANALYSIS
Introduction
Table 2: Jewellery expenditure by region 2003-2008e
2003 2004 2005 2006 2007 e2008

Region $m $m $m $m $m $m
Americas 64,107 67,614 69,532 74,111 77,732 79,913

Rest of Asia Pacific 41,284 45,434 50,291 55,727 61,897 68,304
Europe 40,274 41,229 42,527 44,120 45,791 47,348
Middle East & Others 12,406 13,575 15,037 16,436 18,108 21,650
Japan 16,545 16,634 17,126 17,715 18,313 18,908
Total World 174,616 184,485 194,514 208,109 221,840 236,123
Note: Figures subject to computer rounding, which may affect totals
• The largest regional market is Asia-Pacific including Japan while the single
largest market globally is the United States. Though the US grew healthily
along with consumer spending levels, up to 2007, it has been of declining
importance relative to the rapidly-growing Asia-Pacific region, which includes
China and India as well as numerous other fast growing smaller economies
like Korea and Taiwan.
• At the same time, the recent rise in the oil price as well as the absence of
severe outside shocks – like the Gulf war in 2003 – has helped a rapid take-
off of the Middle East region. Africa has also seen faster economic growth
on the back of rising commodity prices, with the first signs of the emergence
of a market for luxury goods in countries like South Africa.
• Jewellery and watches have in most markets traditionally been sold through
either small independents or, particularly in Japan, through department
stores. This situation is being modified by the expansion of major luxury
groups and their business model of 'brand control' involving the opening of
either wholly-owned or franchise stores.
• Department stores have come under pressure in markets like Japan and
Germany as they have struggled to attract footfall from a less confident
consumer. Also, there has been the emergence of mass market non-
specialist competition from retailers like Wal-Mart in the US and, more
recently, the rise of Internet pureplay operators like Amazon and Blue Nile.

MARKET ANALYSIS
• Another key channel is duty free – particularly airport retailing. A lot of

expenditure on premium jewellery and watches, as with other areas of luxury
spending, is linked with travel. Companies like Swatch aim to exploit this
with their own retail operations, but it can be a volatile channel, as was
demonstrated by the problems following SARS in Asia in 2003 and 2004.
• The overall market is not as volatile as the luxury component, tending to be

stabilised by the middle and lower segments. Growth was slightly below
average in 2003, but accelerated to reach a peak in 2006 of 7.0% driven by
faster growth in the Americas, Europe and the Middle East. The following
year saw a slowdown in the Americas, expected to intensify in the rest of
2008, but other areas, particularly Asia excluding Japan, have remained
exceptionally buoyant.
Table 3: Y-o-y change % in global jewellery spend by region 2003-2008e
2003 2004 2005 2006 2007 e2008

Region % % % % % %
Americas 4.6 5.5 2.8 6.6 4.9 2.8

Rest of Asia Pacific 9.4 10.1 10.7 10.8 11.1 10.4
Europe 2.3 2.4 3.1 3.7 3.8 3.4
Middle East & Others 0.0 0.0 0.0 0.0 0.0 0.0
Japan -0.2 0.5 3.0 3.4 3.4 3.2
Total World 4.5 5.7 5.4 7.0 6.6 6.4
• The extent of the problems suffered in 2003 and 2004 by the luxury market
segment, defined as premium watch and jewellery brands like Tag Heuer
and Bulgari, is demonstrated by the following figures. These are taken from
the Verdict Research report, Global Luxury Retailing 2007. They show a
marked contraction in the upper end of the market at a time when the rest of
the sector was undergoing rapid expansion.
• With the upturn in luxury spending since 2005 and the recovery from factors
like the Gulf war and SARS, the upper segment has actually been leading
the market as the main luxury brand groups have seen buoyant sales. This
has been particularly true of the very top end which, according to groups like
Richemont, has continued to expand despite the problems being felt by the
global economy such as financial instability and rising commodity prices.

MARKET ANALYSIS
Table 4: Jewellery expenditure by market segment 2003-2008e
2003 2004 2005 2006 2007 e2008

Market Segment $m $m $m $m $m $m
Luxury 29,602 27,840 31,028 37,253 42,549 47,062

Y-o-Y change % -6.4 -6.0 11.5 20.1 14.2 10.6
Mass Market 145,014 156,645 163,486 170,856 179,291 189,061
Y-o-Y change % 7.0 8.0 4.4 4.5 4.9 5.4
Total 174,616 184,485 194,514 208,109 221,840 236,123
Note: Figures subject to computer rounding, which may affect totals
Regional Markets
Figure 1: Global jewellery expenditure per region, % share 2003 & 2008e
% 40
36.7
35 33.8
30 28.9
25 23.6 23.1
20.1
20
15
9.5 9.2
10 8.0
7.1
0
Americas Asia-Pacific Europe Japan Middle East
and Other
2003 2008

MARKET ANALYSIS
Figure 2: Share of global jewellery expenditure per region 2003
2003
Middle
East and
Other
Japan 7.1%
9.5% Americas
36.7%
Europe
23.1%
Asia-
Pacific
23.6%

MARKET ANALYSIS
Figure 3: Share of global jewellery expenditure per region 2008e
2008
Middle
East and
Other
Japan 9.2%
8.0% Americas
33.8%
Europe
20.1%
Asia-
Pacific
28.9%
Japan
• Japan spearheaded the growth of luxury retail brands in the 1980s and
1990s and accounted for around a quarter of all global luxury sales – more if
the spend Japanese tourists make abroad is included. It remains an
important market for many of the premium watch and jewellery brands, for
instance making up 13.0% of LVMH's sales of watches and jewellery in 2007
and 17.0% of Tiffany & Co's.

MARKET ANALYSIS
Figure 4: Japan jewellery retail spend and growth 2003-2008e
$bn 40.0 8.0 %
3.4 3.4 3.2

30.0 3.0 4.0
0.5
-0.2
20.0 0.0
10.0 -4.0
16.5 16.6 17.1 17.7 18.3 18.9

0.0 -8.0
2003 2004 2005 2006 2007 2008e
• However, we estimate Japan’s share of the world market has shrunk to 8.0%
in 2008. The weakness of the Japanese economy and its currency have
been the major factors behind this. The decline in the strength of the yen
against the euro has meant brands have had to increase prices for imported
luxury goods in Japan, which has had a further negative effect on sales.
• However, it is not just about money. Consumer spending patterns have

changed, with a trend that is likely to become evident in other mature luxury
markets in the future. Some Japanese luxury consumers are becoming tired
of expensive goods, instead investing in studying or on spas and recreation –
an area luxury brands are expanding into themselves, with hotels and spas.
• Department stores are particularly important for the distribution of jewellery

and watches in the Japanese market. They have recently undergone

MARKET ANALYSIS
significant consolidation, with mergers between the larger groups aimed at

cutting costs. Most recently Isetan and Mitsukoshi, which host a third of
Tiffany & Co’s Japanese boutiques, completed a merger in April 2008.
• In response to this stagnant environment, luxury brands have been extending

existing spaces or opening architecturally flamboyant flagship stores in
Tokyo’s upmarket retail area of Ginza to lure back their wealthy Japanese
consumers by offering a luxury retail experience.
• In 2002, seven luxury brands: Bulgari, Burberry, Cartier, Hermès, Harry

Winston, Louis Vuitton and Tiffany & Co established the Ginza International
Luxury Committee to orchestrate joint marketing campaigns to enhance the
image of Ginza as a top shopping destination. Since then, Ginza has been
witnessing the opening of innovative brand-conscious architecture, as luxury
brands seek to outshine each other’s pioneering store designs.
• Despite its economic problems Japan is still an important market. Tokyo

shoppers, with their discernment for quality and design, offer an insight into
how new products will be received elsewhere in the world. For instance
Bulgari launches some designs in Japan to measure market reception before
launching in the US and Europe.
• Other specialist retailers have sought to cater for Japanese consumers’

fashion awareness by creating their own product ranges and so a point of
difference from the rest of the market. For instance, jewellery chain Tsutsumi
makes 90.0% of its own product in its own factories. It achieves high
operating margins and slow but steady growth in a very difficult market.
• It is also considered an attractive market for outsiders despite its difficulties.

In April 2008 the Hong Kong based company Digico Holdings bid for the 100
store chain specialist Verite. Digico is affiliated with the Indian specialist
Gitanjali which has entered the US market via the acquisition of the Rogers
and the Samuels retail chains.
Asia-Pacific
• The rest of the Asia-Pacific region includes two major jewellery consumer
markets – China and India – as well as numerous smaller fast-growing ones

MARKET ANALYSIS
like Taiwan and South Korea. Australia’s economy has also seen rapid
expansion in the past few years, partly due to the commodity price boom.
• As a consequence, Asia-Pacific excluding Japan is the second most

important region in terms of jewellery expenditure, ahead of Europe and only
behind the Americas. But it has made the greatest contribution to growth in
the global market over the past five years, adding $27bn to expenditure.
Figure 5: Asia-Pacific jewellery retail spend and growth 2003-2008e
$bn 100.0 12.0 %
10.8 11.1
10.7
10.1 10.4
9.4
75.0 8.0
50.0 4.0
25.0 0.0
41.3 45.4 50.3 55.7 61.9 68.3

0.0 -4.0
2003 2004 2005 2006 2007 2008e
• Now that the Japanese market is virtually saturated, China is regarded as the
industry’s Promised Land. It has been estimated that a country acquires an
appetite for luxury goods when the average output per person reaches
$5,000 to $7,000 a year, which was the level of prosperity in Japan at the
end of the 1970s. In China’s wealthiest cities GDP per person was around
$7,000 in 2006.
• China is a major consumer and producer of jewellery, exporting $8bn worth a

year, according to industry estimates. It has a large volume watchmaking

MARKET ANALYSIS
industry which, according to the Federation of the Swiss Watch Industry,

exported 638m watches in 2007, but at a very low average price of just $2.
• The size of the potential market is enormous. In 2007 there were estimated
to be currently over 40m Chinese consumers of luxury goods, which is set to
rise to 160m by 2011. China has 11 cities with a population of over 4m and
around 34 cities with a population of at least 2m people.
• Though offering huge potential there are some challenges for investors in
this market. Unlike the mature luxury department store formats of the West,
in China there is a lack of suitable distribution channels as well as various
economic and political concerns. The jewellery sector is highly fragmented,
with an estimated 10,000 retailers. Most are small and operate only on a
regional basis. With income inequality rising and mounting criticism of
ostentatious consumption, the Chinese government increased taxes in 2006
on a number of items including imported luxury goods.
• China also has complex structures that are difficult for foreign luxury brands
to deal with. For instance, there are four administrative districts in central
Shanghai: each has its own VAT rate, requiring trading units to set a transfer
pricing policy for moving stock from one store to another.
• That said there is considerable investment in retail taking place. Shanghai is

China’s commercial capital and richest city and US department store Saks
plans to open its first luxury store in Shanghai before the end of 2008 to sell
branded high end fashion, shoes, jewellery, accessories, handbags,
fragrances and cosmetics. Taiwanese group Pacific Sogo and the owner of
Harvey Nichols, Dickson Concepts with its Seibu stores, is rapidly opening
more stores throughout the region. Bulgari opened its biggest store in China
in 2007, not in Shanghai, but in the industrial city of Shenyang, at the heart of
China’s North-eastern rust-belt.
• The Chinese tend to spend on luxury goods when they travel. Visits to Hong
Kong are characterised by spending on luxury goods, where taxes are lower.
While establishing a brand can be expensive and complex, once it is
established in China, tourists can be tapped further when they travel – and
Chinese visits are overtaking Japanese in many European countries.
• India is another attractive market for luxury products, with its expanding
middle class and relaxation on foreign investment in the retail sector.
However in both regions it is hard to find the type of retail areas that will fulfil

MARKET ANALYSIS
customers’ requirements of a luxurious environment. While China has seen

huge growth in big shopping malls, particularly in Shanghai, India lags far
behind in retail infrastructure. In India many brands are forced to trade in
hotel complexes rather than on high streets or in malls, which severely limits
retail space and expansion. Like China, jewellery retailing is also highly
fragmented, with around 97.0% of sales being made through traditional
small, often single-store, operators.
• While finding suitable retail space represents one of the biggest problems for
expansion in the Indian market, there are signs that this is beginning to
improve. As many as 600 new malls are reported to be in the pipeline,
though often on a much smaller scale than in the Gulf countries. The
influential Gitanjali Group said it is planning a string of high-end wedding and
luxury malls in eight cities across India. Other developments include United
Breweries Group, which is planning a 120,000 sq ft luxury development in
Bangalore due to open before the end of 2008. It is reported to have signed
up luxury brands including Rolex, Omega and Mont Blanc.
• India, like China, is an exceptionally important player in the production and

trade of jewellery, particularly for diamonds. In the year to March 2008, it
exported $20.9bn worth of gems and jewellery, up 9.0% in local currency
terms. It also has a traditionally high level of consumption of jewellery, with
consumers seeing gold and diamond jewellery as an investment and
purchasing large amounts of jewellery for the wedding season at the end of
the year – which presents huge potential for the likes of the Bulgari and
Richemont brands. The Akshaya Thritiya festival, held at the end of April and
the beginning of May and believed to be an auspicious time for jewellery
purchases, is also an important buying occasion.
• However, current high import duties in India make luxury goods expensive
and affluent Indian consumers have a tradition of travelling overseas to make
their luxury purchases – particularly to Dubai.
• Local manufacturers are keen to exploit opportunities presented by the

market including the potential to develop local brands. The Tanishq brand,
owned by watch and jewellery manufacturer Titan Industries, which is part of
the TATA group, now has 91 stores with an annual turnover of $275m.

MARKET ANALYSIS
Americas
Figure 6: Americas jewellery retail spend and growth 2003-2008e
$bn 125.0 6.6

8.0 %
5.5
4.6 4.9
100.0 2.8 2.8 4.0
75.0 0.0
50.0 -4.0
64.1 67.6 69.5 74.1 77.7 79.9

25.0 -8.0
2003 2004 2005 2006 2007 2008e
• The Americas are the second largest market in the world if Japan is included
in the Asia-Pacific region – though as a mature market it has very different
dynamics to the rest of the region. The Americas is dominated by the United
States, with an estimated 78.6% share of the expenditure on jewellery and
watches. Though it is host to major specialist multiple operators like Signet
Group and Zale Corporation, their shares of the US market remain in low
single figures and the leading retailer of jewellery is actually a non-specialist,
Wal-Mart. The specialist sector is highly fragmented with over 23,000 retail
operators, a figure which has been only gradually falling over the last
decade.
• It is the largest market for diamond jewellery, which makes up 55.0% of sales
according to industry estimates, with the US accounting for 50.0% of all

MARKET ANALYSIS
jewellery of this kind sold globally. Other product areas including gold
jewellery, are correspondingly less important than in other markets.
• The US jewellery market has also seen strong growth in Internet operators’
share, estimated to make around 7.0-8.0% of all retail sales, up from just
over 2.0% a decade ago. Leaders in this channel of distribution include
specialist Blue Nile and jewellery auction site Bidz.com, as well as Amazon.
• Other markets in the Americas such as Mexico and Brazil are much smaller
but are seeing more dynamic growth and this is expected to provide some
support to the region’s market in 2008. Mexico in particular has a
comparatively well developed department store sector, led by local retailers
El Puerto de Liverpool and Palacio de Hierro, which is an attractive channel
of distribution for major brands.
• There is a divergence in the US market in 2008 between the upper and

middle-to-lower segments. Zale Corporation has been forced to close stores
and cut costs, as well as discounting heavily, while Signet Group has seen
declining like-for-like sales in the US but, on the other hand, the upmarket
retailer Tiffany & Co, has kept same store sales level, partly due to buoyant
tourist trade at its New York flagship.
Europe
• The European market for watches and jewellery is led by Italy which, as well
as being a major producer and exporter of jewellery in its own right, has very
high consumption levels per capita. The value of the Italian market is also
boosted by tourist spending in major cities like Venice, Rome and Florence.
• The second largest market in Europe is the UK, concentrated on the London
market which has been supported both by wealthy expatriates from other
countries as well as by high earners in the financial sector. Taking advantage
of this, major luxury brands have recently invested heavily in store
refurbishments and openings. Tiffany & Co, for instance, makes more than
half its European sales in the UK and in March 2008 opened a store in
Terminal 5 at Heathrow Airport. It plans to open a further store at the
Westfield shopping centre in West London in Autumn 2008.

MARKET ANALYSIS
• Redundancies in the City of London in response to losses caused by the

collapse of the US sub prime mortgage market could slow sales, but we
believe this will not hit the core luxury market as much as products not
covered here, such as prestige cars, private planes and yachts.
Figure
T 7: European jewellery retail spend and growth 2003-2008e
h %
$bn 80.0 8.0
e
t
3.7 3.8
h 60.0 3.1 3.4
4.0
2.3 2.4
i
r
d
40.0 0.0
l
a
r 20.0 -4.0
g
e
s 40.3 41.2 42.5 44.1 45.8 47.3
t 0.0 -8.0
2003 2004 2005 2006 2007 2008e
E
• The third highest European expenditure on jewellery and watches is in

Germany. While Germans are not heavy spenders on jewellery, its spend
per head on watches is higher than other markets. As the German economy
recovers, its retail culture is beginning to move away from its discount bias
towards higher spending as its economy improves and we expect it to
generate much higher growth for luxury retail brands.
• Though not part of the EU 27, Russia is becoming a key influence on the
performance of luxury brands. For example, jewellery and watch house
Cartier opened its third store in Moscow in 2007 and parent Richemont saw
its sales in Russia rise 38.0% in the year to March 2008. Enjoying the

MARKET ANALYSIS
prosperity that rising oil prices have brought them, wealthy Russians are not
just buying high end goods from luxury brands’ new stores in Moscow but
travelling throughout Europe and buying in the brands’ home markets, too.
• To limit their exposure in a market still considered risky, most luxury brands
have operated through franchises or with local partners, such as Mercury,
Bosco di Ciliegi and JamilCo, which reduces their profit. Mercury is Russia’s
largest luxury goods retailer which works in partnership with global brands
including the jewellers Tiffany & Co and Bulgari.
• The European market overall has shown fairly sluggish growth since 2003,
never exceeding 4.0% a year, held back by slow consumer spending
increases in key countries like Italy and Germany, even if 2006 and 2007
have seen some acceleration. In 2008, despite the rapid increases in
Russian spending, we expect the region’s market as a whole to slow again.
Middle East & Others
Figure 8: Middle East jewellery retail spend and growth 2002-2007e
$bn
40.0 30.0
19.6
30.0
15.0
10.8 10.2
9.4 9.3
20.0 %
1.7
0.0
10.0
12.4 13.6 15.0 16.4 18.1 21.6

0.0 -15.0
2003 2004 2005 2006 2007 2008e

MARKET ANALYSIS
• Though political unrest in the Middle East and war in Iraq had a negative
impact in the early part of the century, the Middle East has enjoyed
particularly strong growth from 2004, thanks mainly to the development of
huge luxury shopping areas.
• Dubai has been a main factor in the rapid growth of the past three years.
Luxury retail is all about mall development – with bigger and more
spectacular malls being unveiled every year. For instance, the giant Mall of
the Emirates opened in stages from 2005 onwards with 2.4m sq ft of retail
space hosting branches of Bulgari, Mont Blanc and Tiffany & Co. It is set to
be surpassed later in 2008 by the giant Mall of Arabia, with around 1,000
stores and a gross leasable area of 4.0m sq ft just in its first phase.
• Local operators have sprung up to cater for the rapid growth in the local
jewellery market, for instance Damas Jewellery which has around 75 stores.
It is one of the four companies that in 2003 formed a joint venture, Style
Avenue Middle East, to own and operate Saks Fifth Avenue department
stores in the Gulf region under licence.
• A number of other upmarket department stores are considering opening

branches in Dubai malls. In March 2007, French operator Galeries Lafayette
announced it would be opening a 192,000 sq ft branch in the Dubai Mall by
the end of 2008. Meanwhile the $825m sale of Barneys New York in 2007 to
the Dubai-based Istithmar investment firm may open up the possibility of an
opening of the US luxury goods department store in the Middle East.
• Coinciding with the retail expansion is the increase in tourist traffic through
Dubai, especially of high-spending European and Japanese visitors. Dubai’s
projection of 15m visitors by 2010, once dismissed as optimistic, now looks in
reach, despite conflict in the Middle East. India is proving to be another
captive market for luxury retailers in Dubai as affluent Indians fly there for
regular shopping trips.

MARKET ANALYSIS
Product Trends
Table 5: Jewellery and watch expenditure by product group 2003-2008e
2003 2004 2005 2006 2007 2008e

Product Group $m $m $m $m $m $m
Jewellery 142,791 151,690 159,893 171,208 182,362 193,967

Y-o-Y Change % 4.5 6.2 5.4 7.1 6.5 6.4
Watches 31,825 32,794 34,621 36,900 39,177 41,770
Y-o-Y Change % 4.3 3.0 5.6 6.6 7.0 6.8
Total 174,616 184,485 194,514 208,109 221,840 236,123
• Jewellery is by far the larger of the two product sectors, making up some
82.1% of the market in 2008, while watches comprise just 17.9%. Jewellery
purchases have been affected by the rise in the price of precious metals. In
the case of gold, while in value terms many markets have continued to grow,
volumes sold have declined markedly. This is particularly the case in price
sensitive markets like India. This effect is expected to reduce the potential for
growth in the jewellery sector for 2008 below that for watches.
• The watch market lagged at the beginning of the decade, hit in the middle
and lower segments in some regions by the rise of the mobile phone both as
a status toy and more practically as a means of telling the time.
• However, the upper segment is now booming on the back of considerable

product innovation and the prestige status of really expensive watches
incorporating precious metals, mechanical movements and even ornamental
jewellery.
• These high end watches are predominantly sourced from just one country,
Switzerland, which has recently seen a boom in its exports. In 2007 they
were worth Sfr 16.0bn ($13.1bn), up 16.2% on 2006, with watches in 18
carat gold up 24.9% on the previous year. Sales value of mechanical
watches rose 19.3%.

MARKET ANALYSIS
• As a result, the watch sector has outgrown spending on jewellery in three of

the last four years. The principal beneficiaries of these trends have been
Swiss-based groups like Rolex, Richemont and Swatch, whose sales of top
end brands have boomed in the past year.
• Other luxury companies with less exposure to the premium watch market
have expanded their presence in the sector. Tiffany & Co signed a 20-year
agreement with the Swatch Group in 2007 for the production, marketing and
distribution of watches under the Tiffany name. Meanwhile, LVMH acquired
top end watch brand Hublot in April 2008, widening its brand portfolio in the
sector further.
Figure 9: Product share of jewellery expenditure 2003
2003
Watches
18.2%
Jewellery
81.8%

MARKET ANALYSIS
Figure 10: Product share of jewellery expenditure 2008e
2008
Watches
17.9%
Jewellery
82.1%

MARKET ANALYSIS
Company Market Shares
Table 6: Jewellery brands global market shares 2003-2008e
2003 2004 2005 2006 2007 e2008

Company % % % % % %
Richemont 6.0 6.0 6.5 6.8 7.1 7.1

Swatch Group 5.7 5.8 6.0 6.0 6.7 7.1
Signet 1.7 1.7 1.8 1.8 1.9 1.8
LVMH 1.6 1.5 1.6 1.8 1.8 1.8
Tiffany 1.4 1.4 1.5 1.5 1.6 1.7
Gitanjali Gems --- 0.2 0.3 0.4 0.7 1.0
Bulgari 1.4 1.4 1.4 1.3 1.3 1.2
Zale 1.5 1.5 1.5 1.4 1.2 1.2
Gitanjali Gems --- 0.2 0.3 0.4 0.7 1.0
Finlay 0.4 0.4 0.4 0.4 0.4 0.5
Tsutsumi 0.4 0.4 0.4 0.4 0.4 0.3
Total Market Share 20.1 20.3 21.4 21.8 23.1 23.7
Note: Market shares are for calendar years, based on companies’ estimated brand sales at full retail prices
• For market shares we have estimated individual companies' global sales at

full retail prices, taking account of the mark up that retailers can be expected
to make on what they pay on a wholesale basis.
• There is a virtual tie at the top of the table between Richemont and Swatch
Group, both of which benefit from their importance in the high end watch
market. They have both profited from having a portfolio of high profile names,
including Cartier, Jaeger-LeCoultre and Vacheron Constantin for Richemont
and Blancpain, Breguet and Omega for Swatch.
• It is no coincidence that they also enjoy similarly high operating margins of

just under 21.0%, ahead even of their rival international luxury group LVMH.
Some of the common factors that make them so profitable include the
ownership of almost all the watch brands they sell, their scale of operations

MARKET ANALYSIS
and their control of the whole value chain, in many cases right from watch
component level up to the sale to the final consumer.
• The Signet Group, which does not have the same market penetration as the
largest two players because of its lack of wholesale distribution, is
nevertheless the largest specialist player in the largest jewellery market, the
US. Though it suffers from competitive pressures in fragmented markets, it
also enjoys considerable scale economies in areas like marketing, sourcing
and store operations. Its operating margin, though low by comparison with
the luxury players, is respectable when set against local rivals like Finlay and
Zale Corporation.
• Luxury giant LVMH is a comparative newcomer to the field of jewellery and

watches, having only set up its division in this sector in 1999. Its profitability
is not as great as its luxury competitors Swatch Group and Richemont, but is
rising rapidly as it acquires scale and efficiency. Its concentration on store-
based retailing rather than wholesale distribution means the overall value of
its brand share is nowhere near as great as these two.
• Tiffany & Co has increased market share gradually over the past five years
due to store expansion. As with the two leaders, it enjoys high margins
because it is seen first and foremost as a product brand just as much as a
retail brand, with consumers paying to have Tiffany & Co on their jewellery
and watches. It, too, controls the production process, manufacturing more
than half of its jewellery and processing two-fifths of the diamonds it sells.
• Indian-based jewellery manufacturer and retailer Gitanjali is the newcomer to

the pack of leading global players, having moved into the US market with its
acquisition of Samuels Jewelers in December 2006 and Rogers Jewelers in
November 2007. It also operates 38 stores in the Indian market and its
brands have around 1,250 points of sale across India. It is intent on moving
in the opposite direction from the luxury groups, up the value chain from
manufacturing into branded distribution and retailing. It is also an affiliate of
Hong Kong based Digico Holdings which has ventured into the Japanese
market with the bid for local Japanese specialist Verite.
• Bulgari, though close to average in profitability, has actually seen a slight

decline in its share of the market for a number of reasons. First its sales
growth has not been as dynamic as some players. Also it has diversified into
other areas such as accessories and perfumes.

MARKET ANALYSIS
• The smallest brand listed here, Tsutsumi, is one of Japan's largest specialist
operators and has a record of steady, profitable growth. Again it controls its
own production – and reaps the benefit of an above average profit margin.
Figure 11: Operating margins of jewellery and watch brands 2007/08
Richemont 20.9
Swatch Group 20.6
Tiffany 18.0
LVMH 16.9
Tsutsumi 16.6
Average 15.6
Bulgari 15.1
Average 13.2
Signet Group 9.6
Gitanjali 6.9
Zale 4.2
Finlay 2.1
0.0 5.0 10.0 15.0 20.0 25.0

%

MARKET ANALYSIS
Key Operating Statistics
Table 7: Jewellery and watch brands key operating statistics years ending
2007/08
Y-o-Y Op Op
Year to Currency Sales Growth Profit Margin
Company % % %
Bulgari Dec-07 € 1,091 8.2 165 15.1

Finlay Jan-08 $ 836 13.1 17 2.1
Gitanjali Gems Mar-08 Rs 21,621 93.8 1,484 6.9
* LVMH Dec-07 € 833 13.0 141 16.9
Richemont Mar-08 € 5,302 9.8 1,108 20.9
Signet Group Jan-08 $ 3,665 3.0 351 9.6
* Swatch Group Dec-07 SFr 4,456 19.7 920 20.6
Tiffany Jan-08 $ 2,939 14.8 530 18.0
Tsutsumi Mar-08 ¥ 31,706 4.2 5,251 16.6
Zale Corporation Jul-07 $ 2,437 -0.1 103 4.2
* Jewellery & watches divisions only Note: Rs=Rupees, SFr=Swiss Francs

MARKET ANALYSIS
Table 8: Jewellery and watch brands key operating statistics in US$

years ending 2007/08
Year to * Revenue * Operating Profit

Company $m $m
Bulgari Dec-07 1,473 222

Finlay Jan-08 836 17
Gitanjali Gems Mar-08 537 37
LVMH Dec-07 1,125 190
Richemont Mar-08 7,514 1,570
Signet Group Jan-08 3,665 351
Swatch Group Dec-07 3,712 766
Tiffany Jan-08 2,939 530
Tsutsumi Mar-08 278 46
Zale Jul-07 2,437 103
* Converted at average exchange rates for financial years

OUTLOOK & FORECAST
CHAPTER 3 OUTLOOK & FORECAST
Key Issues
Figure 12: Key issues for global jewellery retailing 2008
Economic
slowdown
Ethical
Internet
concerns Key
issues for
global
jewellery
retailing Physical
Commodity 2008
prices rise distribution
channels
Value chain
integration
Where Will Global Economic Slowdown Bite?

• Many economic institutions, in particular the IMF, have become considerably
more gloomy about the economic outlook for 2008 and beyond. In April, the
IMF downgraded its forecasts for global economic growth in 2008 from 4.2%
to 3.7%, a pronounced slowdown on 2007's 4.9% expansion.
• The IMF forecasts the US economy will go into a mild recession in 2008 and
see virtually zero growth in 2009, while the Euro area, the UK and Japan will
all see it slow to under 2.0%. By contrast, China is forecast to grow at 9.3%
in 2008 and 9.5% in 2009, with India following it at 7.9% and 8.0%.

OUTLOOK & FORECAST
• The main risks it sees are from protracted financial market turmoil and knock-
on effects from the US housing sector and from the problems in controlling
inflation in emerging countries.
• The impact on growth in the global jewellery market is highly dependent on

the performance of two key markets: the United States and the Asia-Pacific
region. The Americas (79.6% of which is accounted for by the US) account
for 34.0% of the market and we expect it to create 22.4% of the growth in the
next five years, while Asia-Pacific (excl Japan) makes up 28.9% of spend,
but we expect it to generate half of the growth in the next five years.
Including Japan it makes up 41.8% of spend and 54.3% of projected growth.
• In both regions, economic problems can be expected to have their worst

effects on consumers lower down the economic spectrum. The sub prime
crisis and rising fuel costs are likely to impact on middle-to-lower income
consumers in the US, though there may be some effects at the upper end
from employment and bonus cutbacks in the financial sector.
• In emerging economies like China and India, inflation in basic items like
foodstuffs and fuel are likely to have a similar pattern of impact, with those at
the top end of the income scale remaining relatively unscathed because of
the low proportion of their spending accounted for by such basics.
• Results for the first quarter of 2008 are varied. For instance, while
Richemont and LVMH's sales growth actually accelerated, Bulgari saw a
marked downturn, particularly in Europe and the US. In the mass market, US
retailer Zales only managed to increase sales in February, March and April
by aggressive clearance activity, while Signet Group saw like-for-like US
sales in its Q1 fall by 4.7%. Tiffany & Co's sales in the first quarter to the end
of April were down 4.0% in the US, excluding the New York flagship, but up
strongly in Asia-Pacific and Europe. In this situation, short term forecasts are
difficult to make, but the balance of risk lies on the downside of current
economic projections – above all for mass market retailers.
Rise and Rise of Controlled Retail

• The trend towards brands opening their own stores where previously they
might have sold on a wholesale basis through other retailers has continued
unabated. This has been a strong trend for luxury brands and in their most
recent financial years, Bulgari and Tiffany & Co have opened 17 more stores
each and Richemont 65 more.

OUTLOOK & FORECAST
• The prime reason retailers give for this kind of investment is based on the
'brand control' business model, where the luxury houses are able to
determine every single aspect of how their brands are presented from store
interiors to staff training and how merchandise is ranged and displayed. It
also captures an additional section of the value chain in the form of mark-up
from wholesale to retail prices.
• In an upturn, this integration of retail is an advantage, with rising turnover

from stores more than compensating for the additional costs to which the
company is exposed. This upside from operational gearing is most evident
from the results of Richemont, which has gained 13.8 percentage points in
operating margin in the past five years, to place it top among the 10
companies profiled in this report at 20.9%.
• The potential downside to this strategy comes if there is an unexpected

worsening in the economy and a downturn in sales of jewellery. Having
increased their fixed cost base, brands could have to cut back their
operations without the flexibility they might have had before in simply
reducing production and wholesale turnover. In this light, while wholly-owned
stores offer the greatest control, they also endure the greatest risk, and
brands would be ill-advised to do away with the half-way house of franchise
operations, where some of the risk lies outside their field of responsibility.
Internet
• The Internet has made significant inroads into the jewellery and watch
market in a way that might not have been expected for such high value items
even as recently as five years ago. The prospect of security problems during
the delivery process might have put customers off and the inability to 'try
before you buy' might also have been an obstacle.
• In reality, in its most developed market, the United States, Internet jewellery
retail is booming. According to the US Department of Commerce, some 7.4%
of sales were made through this channel in 2007, up from 6.4% the year
before. The leading specialist player in the sector is Blue Nile, which
increased its sales in 2007 by 26.9% to $319.3m. In 2004 it entered the UK
market and in 2005 Canada, relaunching both of them in 2007. In the past
year, its international sales have grown 108.1%, demonstrating how
explosive growth can be in this distribution channel.

OUTLOOK & FORECAST
• A major part of its success has been due to the level of information and
guidance it offers its customers online, in particular allowing men to make a
much more informed gift choice when buying jewellery for their partners and
also overcoming consumers' fear factor in entering an upmarket jewellery
retail environment.
• Established players have also exploited the Internet as a means of

distribution. For instance, Tiffany & Co, which launched online sales in 1999,
achieved online turnover of $150m in 2007. As online retailing standards
improve in information and presentation, as well as quality of service, more of
the higher end brands and operators may consider this channel, but
expansion is more likely to be concentrated at the middle and lower end of
the market where the savings made on store operations combined with
geographical coverage make it a highly attractive channel..
• Given the rate of growth of online retail jewellery sales, it is quite likely that
they could reach a 10.0% share of the market in the next five years in the
regions where Internet retailing is most developed. Applying that to just the
US, European and Japanese markets alone, this channel could be worth
$15.0bn by 2013.
Value Chain Integration

• The most successful retailers in this report are principally the ones that have
the greatest level of value chain integration, often taking the product through
from raw material stage (in the case of diamonds) to sale to the final
consumer. This is true of all Top Three companies by operating profit margin
of the 10 profiled in this report.
• This trend is likely to intensify for a number of reasons. In the watch sector,
the recent expansion of demand at the top end has caused shortages of
skilled workers and manufacturing capacity. To guarantee supply continuity,
and as a means of supporting their reputation for quality, most of the major
watch houses are investing in manufacturing both through organic growth
and acquisitions, for instance of component makers.
• Similar considerations have driven the vertical integration of operations for

diamond sourcing. For instance, Signet Group's US business has recently
developed a rough diamond sourcing initiative to secure regular supply and
reduce costs.

OUTLOOK & FORECAST
• Taking control of jewellery manufacture has also been seen as a way of

ensuring unique design and rapid response to fashion trends. This is the
case with Japanese brand Tsutsumi, which has expanded profitably in an
exceptionally tough home market as a result.
• Value chain integration has been one of the driving forces behind profitability
in jewellery and watches in recent years, but in the longer term, it also has
potential downfalls. Companies involved in it need to avoid the possibility of
being trapped into product areas that are no longer fashionable in the
market. Disposing of a whole manufacturing division is considerably more
difficult and costly as an operation than simply terminating a supply
agreement with an outside manufacturer. Active management of these
production resources in line with long term consumer trends will be a crucial
part of brands' success in the future.
Ethical Concerns
• In the most developed markets – principally the US, Europe and Japan – the
purchase decision for consumers buying jewellery has become complicated
beyond initial considerations about choice of materials, price, design and
branding, with the rise of concerns about where the product comes from and
how it has been manufactured.
• Of particular concern have been so-called blood diamonds sold to fund

armed conflict in African countries. The industry's response has been the
Kimberley Process, launched in 2003, an international certification scheme
for diamonds to guarantee them as conflict-free and to make sure that
diamonds linked to conflict-torn areas did not enter the supply chain.
• The Kimberley Process Certification Scheme appears to have been largely

successful in cutting off the market for conflict diamonds and in increasing
the proportion sold through legitimate channels.
• Gold mining has also been an area of concern on environmental and other
ethical grounds. To tackle these concerns, the Council for Responsible
Jewellery Practices was set up in May 2005 and now has 70 members
including retailers, wholesalers, miners, diamond traders and cutters and
gold refiners.

OUTLOOK & FORECAST
• Despite these efforts, the jewellery industry continues to face criticism for its
sourcing policies. Deeper Luxury, a controversial report in November 2007
by conservation group WWF-UK criticised major jewellery groups including
Bulgari, Richemont, Swatch and Tiffany & Co. for their performance on
environmental and social matters and corporate governance. Its findings
were rejected by the CRJP, but it demonstrates that the issue of ethical and
sustainable sourcing is not one that is going to go away.
• As retailers and brands take more control of their supply chains, they will
become ever more accountable for what happens in them. At present,
concern among consumers about ethical consumption may be confined to a
minority in the most developed markets, but maintaining and extending
guarantees about how jewellery and watches are sourced and manufactured
will be of increasing importance in projecting global brand image in future.
Rapid Rise in Commodity Prices

• The rise in the price of precious metals, in particular those most commonly
used in the jewellery businesses – gold, silver and platinum – is potentially
one of the most important sources of cost increases for jewellery retailers.
• In the case of gold, the rise has been particularly steep since 2005, and
comparing an average for the first four months of 2008 with 2003, there has
been a rise of 154.0% in US dollar terms. Because of its appreciation, the
increase in price in euro terms has been more moderate, rising just 89.0%.
The rise in the price of silver has been even steeper, with a dollar increase of
261.0% and a euro price increase of 169.0%.
• This rise in prices has a number of causes, ranging from increasing industrial
usage of precious metals to speculative dealing on the future values of
commodities. The role of precious metals as a store of value in uncertain
times is also a major factor, particularly with the decline in value of the US
dollar and the growing impact of the credit crunch.
• The most profitable luxury players including Richemont and Swatch Group
are less likely to suffer from this trend, as they have both large operating
margins and a greater reliance on the watch market where, compared with
jewellery, raw materials are often a lesser determinant of value than
expertise in manufacturing. The same is not true of mass market jewellery
operators who are being forced to raise their prices – not an easy thing to
undertake when consumers' budgets are already under pressure.

OUTLOOK & FORECAST
• Both gold and silver reached a price peak in March 2008 at over $1,000 and
$21 an ounce respectively, but as this report was being compiled both had
begun to fall back again in response to slightly improved confidence in
financial markets.
• However, the price peak is not yet over for some precious metals, particularly
platinum. According to a poll of analysts published in May 2008, production
problems in South Africa and an increase in demand for platinum for use in
catalytic converters for cars will cause more than a 50.0% rise in the price of
platinum from $1,304 in 2007 to an average of $2,000 in 2008 and to $2,100
in 2009.
• While consumption of gold continues to rise in the most dynamic markets like
Russia, in some more price sensitive markets price increases are having a
major impact on consumption levels. According to the Bombay Bullion
Association there was a 54.0% decline in Indian gold imports in May 2008
compared with a year earlier.
• Though some moderation may be expected in commodity prices, a fall back

to levels seen earlier this decade is not likely and therefore a long term
impact on the profitability of jewellery retailing is almost certain. The question
is whether brands will be able to pass this cost increase on to their
customers. This is most likely to be possible where branding and design are
more important than how much precious metal or how many carats of
diamond consumers receive for their money. This is yet another factor that is
almost certain to boost the luxury end of the sector and hold back the mass
market in the next five years.

OUTLOOK & FORECAST
Forecast
Forecast Expenditure 2008-2013
Table 9: Jewellery market – global consumer expenditure on jewellery

and watches 2003-2013
Total Sales Y-o-Y Change

Year $bn %
2003 174.6 4.5

2004 184.5 5.7
2005 194.5 5.4
2006 208.1 7.0
2007 221.8 6.6
e2008 236.1 6.4
2009 250.9 6.2

2010 266.9 6.4
2011 283.7 6.3
2012 300.1 5.8
2013 317.8 5.9
Change %
2003-2008e 35.2
2008-2013 34.6
• We expect spending on jewellery and watches to continue to grow up to 2013

with fastest rise in 2010 as the US.
• We expect the health of the jewellery market to be supported in the next two
years by vigorous growth in the Asia-Pacific (excluding Japan) and Middle East
regions as these both continue to enjoy rapid economic expansion.

OUTLOOK & FORECAST
Regional Expenditure 2008-2013
Table 10: Global expenditure by region 2008-2013e
2008 2009 2010 2011 2012 2013

Region $m $m $m $m $m $m
Rest of Asia-Pacific 68,304 76,205 84,090 92,311 100,620 109,745

Americas 79,913 81,984 85,431 89,829 93,750 97,777
Europe 47,348 48,974 50,746 52,362 54,131 56,125
Middle East & Others 21,650 24,146 26,572 28,610 30,463 32,351
Japan 18,908 19,553 20,108 20,571 21,150 21,820
Total World 236,123 250,862 266,947 283,683 300,114 317,818
Table 11: Y-o-Y change in jewellery spend by region 2008-2013
2008 2009 2010 2011 2012 2013

Region % % % % % %
Rest of Asia-Pacific 10.4 11.6 10.3 9.8 9.0 9.1

Americas 2.8 2.6 4.2 5.1 4.4 4.3
Europe 3.4 3.4 3.6 3.2 3.4 3.7
Middle East & Others 19.6 11.5 10.0 7.7 6.5 6.2
Japan 3.2 3.4 2.8 2.3 2.8 3.2
Total World 6.4 6.2 6.4 6.3 5.8 5.9
• As it experiences rapid growth rates in the next couple of years, the Asia-
Pacific market (excluding Japan), already close behind the Americas, is set
to overtake the Americas by 2011 and finish the half-decade some $41.4bn
larger. This assumes that Asia-Pacific economies have sufficient momentum
to ride out any downturn in the US and continue to grow at a rapid pace over
the next five years – for the rapid increase of luxury consumers to continue.

OUTLOOK & FORECAST
Figure 13: Y-o-Y growth by region 2008-2013
25.0
20.0
15.0 Rest of Asia-Pacific
Middle East & Others

10.0
Total
Americas
5.0
Europe
0.0
2008 2009 2010 2011 2012 2013
• While we expect the established European economies to slow down in pace,

the regional market will be sustained by extremely rapid growth in the
Russian market, boosted by continued high oil prices and increasing
exposure to international luxury brands.
• The same factor is likely to be at play in the Middle East and other markets,
where high prices for oil and other commodities will allow economic growth to
continue and along with it the expansion of the infrastructure necessary in
terms of malls and branded jewellery stores. However, some decline in
commodity prices can be expected from 2008's unsustainable peaks as
importing nations find ways of conserving energy. This will cut back growth
rates in the Middle East and Other region, where economic prosperity is
heavily dependent on commodities, later in the period.

OUTLOOK & FORECAST
Figure 14: Global jewellery expenditure % share per region 2008 & 2013
% 40
33.8 34.5
35
30.8
30 28.9
25
20.1
20 17.7
15
10.2
9.2
10 8.0
6.9
5
0
Americas Asia-Pacific Europe Middle East Japan
and Other
2008 2013
• Japan's slow growth will lead it to be demoted to the role of smallest region
market by 2013, as it is overtaken by the Middle East and the rest of the
world. Japan’s generational attitude shift towards different spending patterns
and priorities and a less conspicuously label-led retail culture is likely to
contribute to lower rates of expansion. Japan’s ageing population will also
reinforce this situation by restraining overall consumer spending levels.

OUTLOOK & FORECAST
Expenditure by Product Group and Market Segment 2008-2013
Table 12: Jewellery & watch expenditure by product group

2008-2013
2008 2009 2010 2011 2012 2013

Product $m $m $m $m $m
Group $m
Jewellery 193,967 206,150 219,706 234,059 248,046 263,238

Y-o-Y
Change
% 6.4 6.3 6.6 6.5 6.0 6.1
Watches 42,156 44,712 47,242 49,624 52,069 54,579
Y-o-Y
Change
% 6.8 6.1 5.7 5.0 4.9 4.8
Total 236,123 250,862 266,947 283,683 300,114 317,818
• Watches are currently enjoying faster rates of growth than jewellery and we
expect this growth to remain strong. However, fashion trends do not last
forever, and it is possible there may be overexposure of major brands, which
leads us to believe there will be a slight slowdown from 2010 onwards.
Nevertheless, both sectors will continue to see a strong rise in spending
throughout the period.

OUTLOOK & FORECAST
Table 13: Jewellery expenditure by market segment 2008-2013
2008 2009 2010 2011 2012 2013

Market $m $m $m $m $m
Segment $m
Luxury 47,062 54,645 62,046 70,981 81,742 94,134

Y-o-Y
Change
% 10.6 16.1 13.5 14.4 15.2 15.2
Mass
Market 189,061 196,217 204,901 212,702 218,372 223,683
Y-o-Y
Change
% 5.4 3.8 4.4 3.8 2.7 2.4
Total 236,123 250,862 266,947 283,683 300,114 317,818
• Trends to growing income inequality in many countries, possibly as a

consequence of globalisation and the increasing mobility of the rich in choice
of domicile and tax regime, are likely to continue. This will boost the luxury
segment of the jewellery market. We expect it to see consistently higher
rates of growth up to 2013 than the mass market segment.
• At the lower end of the market, there is a greater sensitivity to price, together
with greater competition on comparable product. Unique design and branding
are less important than, say, precious metal content in determining price. In
an environment where consumers purchase from many different rival retail
sources, the growth in the value of sales is likely to be less buoyant.

OUTLOOK & FORECAST
Polarisation
Figure 15: Polarisation in global jewellery retailing 2008
Polarisation in the Global Jewellery Market
Luxury Mass market
High growth Low growth

High margins Low margin
Characteristics Global Local
Consolidation Fragmented
Branding/marketing
Occasions/events
Innovation
Marketing
Growth drivers Fashion trends
Fashion trends
Wealth
Price
Emerging markets
Commodity prices Commodity prices

Economic factors Economic factors
Growth inhibitors Supply/skill shortages Supply/skill shortages
Distribution channels Distribution channels
• Over the next five years the luxury segment will continue to outperform the
mass market, doubling in size, and increasing its share of the global jewellery
market from 19.9% to 29.6%. Not only does the luxury segment enjoy high
growth but also operators benefit from much higher margins than mass
market retailers – despite suffering from the same kind of problems of high
commodity prices and limited capacity and skills in the supply chain.

OUTLOOK & FORECAST
Table 14: Summary of spend and growth in luxury and mass market
segments 2008-2013
Luxury Mass Luxury Mass Luxury Mass

segment market segment market segment market
$m $m Growth % Growth % Split % Split %
2008 47,062 189,061 10.6 5.4 19.9 80.1

2013 94,134 223,683 15.2 2.4 29.6 70.4
Change
2008-13 47,072 34,623 100.0 18.3 +9.7points -9.7points
• Branding plays a huge part in this, particularly in building aspirational status

and conveying value that exceeds the actual commodity costs of similar
products. Innovation and fashion is more prevalent in luxury brands and
create more frequent reasons to purchase, whereas mass market jewellery is
largely dependent on events such as marriages and anniversaries to drive
demand.
• Furthermore luxury brands through their high profile marketing have global
appeal, and watches and jewellery are not as restricted by local tastes and
styles as other products. Consumers in emerging markets like India and
China are used to buying by carat (weight) but as their economies and tastes
develop are beginning to be influenced by branding in their purchasing habits
which offers retailers yet more potential.
• The development of directly owned store chains is retaining brand control

and establishing a physical embodiment of the brand values that is often
diluted when product is sold via third parties. However the operating costs of
a retail chain become a burden in economic downturns with rising operating
costs and lower demand – but luxury brands are very attractive to franchise
partners and wholesale customers, which means the brand can spread risk
not only over markets but also over different distribution channels.
• Mass market retailers on the other hand suffer the greatest risk. They are
often dependent on price as the differentiator, which in an era of rising
operating and commodity costs is increasingly difficult to sustain – evident in
the tight margins these businesses are operating on.

OUTLOOK & FORECAST
Table 15: Summary of global jewellery expenditure by region

2008-2013
Difference Difference
2008 2013 2008-13 2008-13
Region $m $m $m %
Rest of Asia Pacific 68,304 109,745 41,441 60.7

Americas 79,913 97,777 17,864 22.4
Europe 47,348 56,125 8,777 18.5
Middle East & Others 21,650 32,351 10,701 49.4
Japan 18,908 21,820 2,913 15.4
Total World 236,123 317,818 81,695 34.6
• The attraction of fast growing developing markets is far easier for luxury
brands to exploit than mass market retailers from mature markets as the
latter have little to offer that is different from local mass market operators.
Indeed the likes of Gitanjali in India and Tsutsumi in Japan are proving more
effective than Western counterparts. They have built fully integrated
businesses and Tsutsumi has established a distinct positioning in the middle
market which should be transferable in the fast growing Asia-Pacific region.
• Gitanjali meanwhile is expanding into the US via acquisitions. In this mature

market a major jewellery retailer, Friedman's, filed for Chapter 11 in January
2008 and other operators are not looking too healthy. This creates
opportunities for new entrants to pick up businesses very cheaply and
Gitanjali also has the advantage of controlling its supply chain. This fully
integrated system provides greater flexibility in meeting demand as well as
security of supply.

OUTLOOK & FORECAST
Action Points
• Global jewellery retailing is still highly fragmented and dominated by small,

often family-run, independent specialists, even in mature markets.
Increasing costs of commodities are making it not only more expensive to
buy in product but also more expensive to run a retail business. This is not
just restricted to mature Western markets but universally.
• Luxury brands are more insulated from the challenges in the market because
of their higher margins and global appeal and they have an affluent customer
base that is less affected by economic downturns than those on low incomes.
• Mass market chains are finding it the toughest. Their margins are being
squeezed despite their scale. To take advantage of growth opportunities in
developing markets they need to focus on adapting the successful factors in
luxury retailing to their own businesses:
1. Develop distinctive retail brands – for a mass market jewellery retailer this
means via its stores and service and its product selection. Too many mass
market jewellery chains are interchangeable to consumers, with little to
differentiate from each other. Yet smaller chains such as Boodles, Links of
London, Folli Follie in the UK demonstrate how it is possible to produce a
distinctive store proposition;
2. Innovate – in product, service, delivery channels, store environment. As

above there is little to differentiate from one jewellery store to another, but
investment in unique product backed up with high quality service builds
loyalty and ensures a retailer is top of mind when jewellery shopping. A
consistent programme of continual range innovation will give customers a
reason to come to a store repeatedly to see the latest season's collections.
The effectiveness of this approach has been shown in the fashion sector by
Spanish retailer Zara, which drives customer traffic in this way;
3. Create a vertically integrated business – to ensure supply and skills and to

generate higher margins through ability to maximise sales. This may not
necessarily come through direct ownership of manufacturing facilities, but
perhaps with close long term relationships with particular suppliers, for
instance for exclusive product ranges;
4. Invest in marketing – an integral part of brand building. Having unique

products and top quality service means that marketing does not have to

OUTLOOK & FORECAST
focus solely on price or events to drive footfall. Building relationships with

customers and having regular communication via direct communications can
drive traffic to stores and websites, generating higher sales;
5. Expand into new distribution channels. The Internet provides vast

opportunities to widen both geographical and customer bases. It also
provides new ways of encouraging shoppers to buy. American online retailer
Blue Nile has succeeded in reaching out to new customers, and winning over
other retailers', by using its website to educate them about jewellery in a
friendly, jargon-free way. This has allowed it to attract customer groups such
as the male gift shopper who perhaps might have felt intimidated by
traditional jewellery retail environments. Also, it provides excellent customer
service, giving additional reassurance in making a purchase;
6. Target new markets. Men are a big online opportunity for jewellery retailers.
Frequent online shoppers, they are easier to reach via this channel than
through stores. They are also a strong target for watches – an acceptable
piece of jewellery for men – and for gifts for partners. As men spend more
money on their appearance in many developed markets and, indeed,
developing ones we believe that expensive watches will increasingly be seen
as an essential part of the male wardrobe. In particular, their technical
specifications – such as the number of different complications (any feature
beyond the simple display of hours, minutes, and seconds), how they are
made and from what materials – are calculated to appeal to the male psyche.

BULGARI
CHAPTER 4 BULGARI
Company Overview
Table 16: Bulgari company overview 2008
Founded: 1884
Headquarters: Rome
Chairman: Paolo Bulgari

Vice-chairman: Nicola Bulgari
CEO: Francesco Trapani
CFO: Alberto Nathansohn
Share of global jewellery retail market

2008e: 1.2%
Brand Portfolio: Bulgari, Bulgari Accessori, Bulgari
Parfums, Bulgari Time, Cadrans
Designs, Crova, Daniel Roth, Gérald
Genta, Prestige D’Or
Source: Company information VERDICT
• The Bulgari company is publicly quoted on the Milan Stock Exchange but 52.0%
owned by the Bulgari family. Over the past 30 years, the company has
diversified from its original business of jewellery into complementary product
areas. Starting with watches, it has added perfumes, cosmetics and accessories.
Most recently it has extended into the leisure sector, with hotels and resorts.

BULGARI
• Bulgari was founded in 1884 when Sotirio Bulgari moved from Greece to Italy
and opened a store in Rome in Via Sistina. This was replaced in 1905 by a store
in Via Condotti, which is the point of reference of all international Bulgari stores.
• The popularity of its jewellery among celebrities in the 1950s and 60s led to
international recognition and the opening of stores in New York, Geneva, Monte
Carlo and Paris. In 1977, Bulgari launched its first watch, Bulgari Bulgari, and in
1980 founded a Swiss company, Bulgari Time, to design and produce its
watches. A period of strong growth followed during which it developed its
fragrance business through another new company, Bulgari Parfums, founded in
Switzerland in 1993. Later in the decade it launched its silk collection, leather
accessories and eyewear and in 2004 opened the Bulgari Hotel in Milan.
• In 2000 the group, together with other partners, created the private equity fund
Opera, investing in services and luxury goods including furniture, footwear and
speedboats. However in May 2007, the group disposed of most of its holdings in
the Opera private equity businesses to concentrate on its core activities.
Recent Key Developments (Jewellery & Watches)
• In December 2007 Bulgari bought Swiss watchmaker Finger, which specialises

in making cases for complicated and high end watches. This is the latest jigsaw
piece in its strategy of building a vertical watchmaking operation.
• Since the Millennium the company has expanded significantly through

acquisitions. In 2000 it acquired high end watchmaking brands Daniel Roth and
Gérald Genta followed in 2004 by Crova, a high end jewellery manufacturer.
• In 2005 Bulgari made three further investments: two Swiss companies in the
watchmaking sector – 50.0% of Cadrans Design producing dials for high end
watches and 51.0% of Prestige d’Or producing metal watchstraps; and 100.0%
of the Italian leather goods firm Pacini, renamed Bulgari Accessori.
• Bulgari also entered into a joint venture in 2004 with LLD Diamonds, a subsidiary
of the Leviev Group, the world’s largest producer of cut diamonds. This ensured
a constant supply of stones and at the end of 2005 the company launched the
Bulgari Diamond collection of one-off designs to exploit this buoyant market.

BULGARI
• To take advantage of strong growth in accessories Bulgari has begun a network

of 21 accessory stores, starting in 2005 with two dedicated stores. By the end of
March 2008 it had 20 stores that were either accessories standalones, dual
jewellery and accessories stores or stores with dedicated accessories floors.
• A joint venture between Bulgari and Luxury Group (a division of Marriott

International) led to the opening of the Bulgari Hotel in Milan and the Bulgari
Hotels and Resorts project was expanded in 2006 with a new resort in Bali. Both
these operations are performing well and a restaurant and café opened in Ginza
and Omotesando in Tokyo in 2007 have proved an ‘extraordinary triumph’ says
the company.
Sales Performance
Table 17: Bulgari trading record 2003-2008e
Year to December 2003 2004 2005 2006 2007 e2008
Sales €m 759.0 828.0 919.0 1,009.0 1,091.0 1,156.0

Y-o-Y Change % -1.8 9.1 11.0 9.8 8.2 6.0
Operating Profit €m 117.0 134.0 143.0 157.1 164.5 ---
Operating Margin % 15.4 16.2 15.5 15.6 15.1 ---
Source: Bulgari, Verdict Research VERDICT
Table 18: Bulgari trading record in US$ 2003-2008e
Year to December 2003 2004 2005 2006 2007 e2008
Sales $m 980.0 1,069.0 1,187.0 1,303.0 1,409.0 1,494.0

Y-o-Y Change % -1.8 9.1 11.0 9.8 8.2 6.0
Operating Profit $m 151.0 173.0 185.0 203.0 212.0 ---
Note: Exchange rate six year average 2003-08 see Glossary

BULGARI
• In the year to December 2007, Bulgari saw a marginal slowing in its sales
growth, from 9.8% in 2006, to 8.0%, reaching a total of €1,091.0m. Operating
profit rose by 4.7%, bringing the operating margin down to a still very healthy
15.1% from a peak of 16.2% in 2004.
• Apart from rising commodity costs, particularly in gold, and the growing strength
of the euro pulling operating margin down, the opening of three flagship stores in
the latter half of the year and the costs of setting up a skincare project – and
related marketing and promotion expenses – exacerbated the effect.
• Jewellery was the main driver of growth, with sales growth accelerating to 20.1%
at comparable exchange rates (14.4% in euros). By Q4 2007 jewellery had
produced 17 quarters of growth for Bulgari and growth was maintained in 2007
due to new product launches and updates.
• Watches were the next most successful category, with an increase of 8.2% in
comparable exchange rates terms (2.0% in euros). Growth was hindered by
restricted production capacity due to lack of components, highlighting the
importance of building a vertically integrated business.
• In the accessories category, sales rose just 1.2% in comparable exchange rates
(-5.1% in euros). This division was up against very strong comparatives and is
dependent on Japan, a key market for it. That said, company-owned stores
produced double digit growth during the Christmas period.
• Europe, the second most important market after Asia, saw growth of 10.3%,
while the Americas saw sales rise an extremely fast 21.0%. The most rapid
growth came from Asia excluding Japan, up 41.2%.
Current Trading
• The first quarter of 2008 saw a notable slowing in the sales performance of
Bulgari, with a rise of 7.1% at comparable exchange rates, to €237.1m. This
compares with a growth rate of 13.1% in the fourth quarter of 2007.
• The growth rate in the second largest market, Europe, collapsed to just 2.7%
(from 10.5% in the previous quarter), with Italy performing particularly badly
(down 14.8%) and UK sales falling. France and Germany performed better.
American growth slowed to only 1.8% (from 13.5%). Asia and the Middle East

BULGARI
continued to grow healthily, at 11.4%. Even Japan produced a positive growth

rate – though only 1.6% in such a difficult market this is relatively strong..
• Jewellery sales were the worst hit, falling to 4.6% growth from 20.4% growth in
the fourth quarter of 2007. The company attritributed this slowdown mainly to a
particularly strong comparable quarter in 2007, when sales had risen 24.2% for
this product area against 2006. However, accessories sales recovered.
• Costs of investment in flagship stores and new markets, as well as watch

production, resulted in a fall in operating profits of 15.5% to €21.9m. Despite this
the company forecasts growth for the full year in sales and operating profit with
net profit of between 8.0% and 12.0%. However, we are more cautious.
Figure 16: Bulgari product sales split 2003 & 2008e
% 45
40.5 40.7 2003 2008
40
35 32.2
30
26.0
25
20.3
20 18.0
15
9.2
10 7.3
3.8
5 2.0
0
Jewellery Watches Accessories Perfumes Other
Source: Verdict Research reorder Americas after Rest of Asia VERDICT

BULGARI
• Jewellery remains Bulgari's core product area, at 42.1% of sales in 2007, though
we estimate that relative underperformance will reduce this to 40.7% in 2008. In
2007 it continued to benefit from the strong performance of recently launched,
more fashionable lines. New launches during the year included an extension of
the B.zero1 line and new collections: Parentesi Openwork and Elisia.
• Though watch sales suffered from a shortage of components, they were

nethertheless buoyed by the new Bulgari Bulgari and women's Assioma D
watches.
• Accessories suffered from strong comparables in 2006 and the continued poor
performance in Japan. Despite this, wholly-owned stores offering a more
upmarket selection showed double-digit growth, particularly around Christmas.
Figure 17: Bulgari regional sales split 2003 & 2008e
% 45
38.9
40 37.4
35
30
25 21.9 21.2 21.8

18.8
20
14.3
15 13.1
10
6.1 6.5
5
0
Europe Americas Japan Rest of Asia Middle
East/other
2003 2008
Source: Verdict Research reorder Americas after Rest of Asia VERDICT
• The greatest contribution to growth over the past five years has come from the
Rest of Asia region, including China, which we expect to have risen 3.0
percentage points by the end of 2008, to 21.8% of sales. The widening of
Bulgari's wholly-owned store network in China has been a major factor.

BULGARI
Store Portfolio
Table 19: Bulgari retail stores 2002-2007
Year to December Store Numbers Year-on-year Change %
2002 175 12.9

2003 185 5.7
2004 194 4.9
2005 207 6.7
2006 228 9.7
2007 245 7.5
• Bulgari has recently invested heavily in creating its own network of stores. The
13,000 sq ft flagship on Fifth Avenue, New York, was reopened in April 2007. In
Tokyo, a new flagship was opened in Omotesando in October, followed by a
second in November in Ginza. Asia has been a major focus of development,
with 16 stores opening in the period from 2005 to 2007.
• At the end of December 2007 Bulgari had 245 stores, of which 54 were travel
retail branches, 42 were franchisees and 149 were wholly-owned. During the
year, 16 more wholly-owned stores were opened and one more franchise.
• By the end of the first quarter to the end of March in 2008, the total had
increased by four, with three more travel retail branches, three more wholly-
owned stores and two fewer franchise stores.

BULGARI
Outlook
• Core business exposed to cost risk, though positioning makes it more

resilient.. Though it is only one of the cost areas of Bulgari's jewellery business,
raw materials are an important determinant of its profitability. Though gold and
silver prices declined in late Spring 2008, they are both a long way above where
they were only three years ago. Platinum, on the other hand, it appears has yet
to reach its peak. With jewellery making up two-fifths of turnover, sustained high
cost levels in this sector are likely to dent future profits despite price rises the
company has instigated. Its positioning as a luxury brand makes it more
desirable for consumers – and the intrinsic value of the product makes jewellery
a longterm investment that should never lose its value.
• Long term expansion plan includes acquistions. Bulgari has a long term
strategy for expansion of its brand. Luxury hotels, accessories, fragrances, even
wine are all part of its ambitious strategy to build the Bulgari brand worldwide.
Apart from wider growth opportunities this provides, it reduces some of the risk of
focusing on jewellery, where costs are rising so steeply, but also provides
effective and relatively cheap marketing of the brand, raising its profile
internationally with new customers. CEO Francesco Trapani has not ruled out a
major acquisition – though there is no major brand it is currently targeting.
Another watch or jewellery business could fit well with existing businesses and
expertise and gain from forecast market trends by providing scale and
manufacturing capacity. An established accessories business could give it a
stronger footing and faster progress in that sector.
• Vertical integration is a major competitive strength. Since 2000, Bulgari has

extended and deepened its involvement in the production of both jewellery and
watches. This is the logical extension of the brand control model that Bulgari is
also pursuing in the distribution of its products through the opening of wholly-
owned stores. The advantage is in Bulgari taking control of its supply chain,
ensuring maintenance of both the quantity and quality of the product it sells.
However it has yet to reap the full benefits of this strategy. It still reports
problems matching supply with demand in watches and does not have the critical
mass in wholly-owned stores to fully drive sales and margin benefits.
• Appealing to a younger market widens its audience. Bulgari’s brand image

has been boosted by its stylish and contemporary fine jewellery collections.
Bulgari has stepped up its launch rate for new collections and is successfully

BULGARI
catering to a younger, more fashionable consumer as well as customers looking

for unique high end jewellery. Its strong watch collections have also lifted its
consumer profile, particularly with male consumers. The indications are that
luxury jewellery and watches will take over from designer handbags as the next
aspirational fashion product, playing to Bulgari’s strengths and putting it in a
prime position to take advantage of the trend.
• International expansion reduces risk as well as boosting sales. Bulgari has

a wide geographical spread. To some extent, it has compensated for slow
growth in Europe, the US and Japan in the first part of 2008 with faster
expansion in the rest of Asia, particularly China. Furthermore it has core
products – jewellery, watches and perfume – that are easily transferable across
borders and cultures. Doing this via company-owned stores, which have proved
a success, should guarantee significant sales increases eventually, in spite of
initial capital investment costs.

FINLAY
CHAPTER 5 FINLAY
Company Overview
Table 20: Finlay company overview 2008
Founded: 1887
Headquarters: New York
Chairman & CEO: Arthur E Reiner

President and Chief Operating Officer: Joseph M Melvin
Executive VP and Chief Merchandising Officer: Leslie A Philip
Senior VP and Director of Stores: Edward J Stein
Senior VP, Treasurer and CFO: Bruce E Zurinick
Share of global jewellery retail market 2008e: 0.5%

Bailey Banks & Biddle, Carlyle & Co,
Brand Portfolio:
Congress Jewelers, Park Promenade
Source: Finlay Enterprises, Verdict VERDICT
• Finlay Fine Jewelry, owned by Finlay Enterprises, was founded as a

jewellery mail order house in 1887 and taken over by diamond merchant
Abraham Hirshberg in 1924. It expanded in the New York area with its own
stores and in 1942 moved into department store concessions, selling its
standalones in 1954.
• The company was bought in 1968 by a publicly listed company, Seligman &
Latz, which ran it until it was taken private in 1985. In April 1995, the
company returned to the stockmarket when its parent, Finlay Enterprises,
undertook an initial public offering.
• The company predominantly focuses on running jewellery departments in the

stores of other retailers including Bloomingdale's, Macy's, Bon Ton, Dillard's
and Gottschalks.
• In May 2005, Finlay returned to standalone store operation with the purchase
of Carlyle & Co Jewelers, whose stores are concentrated primarily in the
South-eastern United States. Its fascias include Carlyle, JE Caldwell and
Park Promenade. In November 2006, it added Congress Jewelers in Florida

FINLAY
and a year later it bought the 70-strong upmarket chain Bailey Banks &
Biddle from mass market competitor Zale Corporation for $200.0m.
• The acquisition of Bailey Banks & Biddle added to Finlay's debts, which at
the end of 2007/08 totalled $424.2m. It currently pays a significant amount of
interest, equal to 3.6% of turnover in 2007/08.
• While the jewellery departments sell items costing usually between $100 and
$1,000, with an average price of $272, the standalone stores are much more
upmarket, with an average sale price of $1,300.
Recent Key Developments
• The company is vulnerable to changes in strategy by retailers hosting its

jewellery departments. At the end of 2006, department store chain Belk
ended a licence agreement for 75 of Finlay's locations in its stores, which
had generated $51.9m in sales annually. Belk also bought the Parisian store
chain from Saks Incorporated, closing another 33 Finlay departments in July
2007.
• Macy's, with which Finlay has its most important relationship (accounting for
52.0% of sales in 2007/08), also announced restructuring measures in
February 2008 that will result in the closure of 94 departments by the end of
the year which generated $120m in annual sales.
• Macy's sale of its Lord & Taylor division to NRDC Equity Partners in October
2006 also resulted in department closures for Finlay, with licence
agreements for 47 of them to be terminated at the end of January 2009.

FINLAY
Sales Performance
Table 21: Finlay trading record 2004-2009e
Year to January 2004 2005 2006 2007 2008 2009e
Total Sales $m 614.0 627.0 689.0 739.0 835.9 995.0

Y-o-Y Change % --- 2.1 10.0 7.2 13.1 19.0
Operating Profit $m 16.0 17.0 * 18.0 9.6 * 17.4 ---
* Excludes charges for impairment of goodwill of $77.3m in 2005/06 and $3.0m in 2007/08
Source: Finlay, Verdict Research VERDICT
• The company suffered a difficult year for sales in 2007/08. Though they
increased 13.1% to $835.9m, this was due to the acquisition of further
standalone stores. In comparable terms, sales fell 1.4%.
• The company said it had a particularly difficult Christmas season in 2007 due
to a tough retail environment. Operating profits before a charge for
impairment of goodwill were $17.4m, compared with $9.6m the year before.
Current Trading
• The first quarter of 2008/09 saw only a marginal improvement in performance

compared with the fourth quarter of the previous year, with comparable store
sales declining 4.5% compared with 6.4% in the preceding three months.
• Total sales rose 25.9% to $205.1m due to the acquisition of the Bailey Banks
& Biddle stores. Losses from continuing operations rose to $8.9m from
$5.0m in the first quarter of 2007/08.
• For the rest of the year it is forecasting comparable store sales to be

between flat and up 1.0%.

FINLAY
Figure 18: Finlay sales % by product area, 2003/04 & 2008/09e
% 30
28.0
25.8
25
22.0 21.8 21.1
20 19.0
17.9
15.6
14.8
15 14.0
10
0
Diamonds Other Gems Gold Watches Other
2003/2004 2008/09e
• Finlay has seen an increase in the importance of diamonds in its turnover, in

line with US specialist market leader Signet Group, though the proportion is
still low compared with Signet's chains. The proportion of sales accounted for
by watches has risen, largely due to the acquisition of the standalone stores
where they are a larger part of the sales mix.

FINLAY
Stores
Table 22: Finlay number of retail locations 2003-2008
Year to January 2003 2004 2005 2006 2007 2008
* Locations 1,011 972 962 1,009 758 793

Y-o-Y Change % --- -3.9 -1.0 4.9 -24.9 4.6
* Incudes both in-store departments and standalone stores
Source: Finlay Enterprises, Verdict Research VERDICT
• Finlay has seen a rapid contraction of its network of locations in the past five
years, totalling 21.6% over the period. At the end of 2007/08, its total of 793
locations comprised 687 in-store departments, 350 of them in branches of
Macy's, as well as 69 Bailey Banks & Biddle stores, 32 Carlyle stores and
five Congress stores.
• During 2008/09, Finlay expects to open 10 new locations, including four

Carlyle stores and two Bailey Banks & Biddle stores. It will also close 15, in
addition to the 94 Macy's and 47 Lord & Taylor departments scheduled for
closure.

FINLAY
Outlook
• Already feeling the impact of the economic downturn. Finlay suffered a

poor fourth quarter in 2007/08. Though the first quarter of 2008/09 was very
marginally better, comparable store sales remain under pressure. The
company is forecasting flat or increasing comparable store sales for the year
as a whole, implying a return to positive growth across the remaining three
quarters, particularly in the crucial run-up to Christmas. Given the current
economic climate, this looks rather on the optimistic side. Should conditions
deteriorate, its wafer thin operating margins could disappear.
• Move upmarket is a positive one. The acquisition of Bailey Banks & Biddle
has given the company both a wider nationwide presence and exposure to a
more upmarket customer base. In theory, this should move it away from the
middle and lower income customer base which is suffering most from current
economic problems like high fuel prices. However, the question does have to
be asked, if it is such a good business, why did Zale Corporation dispose of
it?
• Reliance on department stores as hosts has caused Finlay problems. In

theory, selling through other companies' stores relieves Finlay of the costs
and risks of owning or leasing its own retail property. However the downside,
as it has found out in the past couple of years, is that licence agreements can
be rapidly terminated should circumstances or department store strategies
change.
• Move into standalone stores will need careful management. Jewellery in

the United States is a very competitive market and making a nationwide
business work on a very sparse network of just 106 stores will be a very
tough job. Finlay is a newcomer to the business of running standalones and it
will have to work very hard to make them into a coherent and consistently
profitable enterprise given its lack of scale.
• Debt burden is a worry. Finlay's debt interest in 2007/08 was $30.6m,

compared with operating profits (excluding impairment of goodwill) of
$17.4m. It will need to manage its cashflow carefully to reduce its debt
burden and this will not be an easy task in a tough retail environment.

GITANJALI GROUP
CHAPTER 6 GITANJALI GROUP
Company Overview
Table 23: Gitanjali company overview 2008
Founded: 1986
Headquarters: Mumbai, India
Chairman & Managing Director: Mehul Choksi

Executive Director (Finance): G. K. Nair
Head, Jewellery Division: Priti M. Choksi
CEO International Jewellery Business: Neher Modi

Asnil, Canadia Diamonds, Collection g, D'damas,
Watch & Jewellery Brand
Desiré, Giantti, Gili, Maya, Nakshatra, Rogers
Portfolio:
Jewelers, Samuels Jewelers, Sangini, Vivaaha
• Founded in 1986 by jewellery entrepreneur Mehul Choksi, the Gitanjali

Group has its background in diamond and jewellery manufacturing. It now
has interests ranging from retail to infrastructure and property development.
• In 2006, the company undertook an initial public offering, which raised $76m
for the owners, followed by bond issues and other fund raising which added
another $290m.

GITANJALI GROUP
• One of Gitanjali's competitive advantages is that (in a group of three

companies) it is on the list of Diamond Trading Company sightholders, that is
authorised bulk buyers of diamonds, allowing it to access reliable and well
priced supplies. In February it also acquired a 70.0% stake in diamond
distributor and processor Tri-Star Worldwide, which buys Canadian-mined
diamonds directly from mining company BHP Billiton.
• It has two diamond processing facilities in Borivili in Mumbai and Surat in

Gujarat and three of its own jewellery factories, with more planned in special
economic zones in Hyderabad and elsewhere in India.
• Its strategy is to move from diamond processing, manufacturing and

wholesaling into areas of activity with higher value added, specifically
jewellery and lifestyle retail. In particular it is targeting the US market, which it
estimates accounts for 45.0% of worldwide diamond jewellery sales, and
China.
• In the Indian market it sees an opportunity in the estimated 97.0% of sales

that are made through unbranded traditional family jewellers, which it
believes will shift to branded multiple retailing. The company also expects a
shift from gold jewellery to diamonds and from traditional, heavy designs to
lighter weight, more fashionable items.
• Gitanjali signed a joint venture deal in November 2007 with Italian jewellery
and watch manufacturing company, Morellato and Sector group, setting up a
new company, Morellato India. It will distribute the group's brands, which
include John Galliano, Just Cavalli Jewels, Just Cavalli Time, Sixty Jewels
and Roberto Cavalli Timewear, both on a wholesale basis and through 50
new stores.
• In December 2007, the Gitanjali group signed a memorandum of

understanding to set up a joint venture with Italian fashion group Mariella
Burani. The company, to be called Mariella Burani India, will develop and
distribute collections of clothing, leather goods and jewellery.
• The company has recently moved to raise its profile outside India. For
instance, in 2007 it sponsored the Indian Film Academy Awards, held in the
UK, featuring Bollywood movie star Shilpa Shetty.

GITANJALI GROUP
• Its recent fundraising has enabled Gitanjali to make a series of acquisitions.

In December 2006 it made its first US purchase, buying 97.0% of US
jewellery retailer Samuels, with 17 stores, 80 department store shop-in-shops
and a turnover of $100.0m. In November 2007, Gitanjali also acquired
Rogers jewelers with 46 stores and annual revenues of around $80.0m.
• In January 2008 it also bought the Nakshatra jewellery brand from diamond
giant De Beers.
• It aims to develop its watch business and believes luxury watches can be
made in India in modern manufacturing facilities.
• In 2007, Gitanjali set up its Lifestyle division, to act as its luxury and retail
arm, with the intention of opening up to 200 stores in major towns and cities
across India, ranging from 5,000 sq ft to 15,000 sq ft, as well as mini-malls of
over 80,000 sq ft. The stores are expected to sell both Gitanjali's brands and
those of Morellato India.
Sales Performance
Table 24: Gitanjali group trading record 2004e-2009e
Year to March 2004e 2005e 2006 2007 2008 2009e
Total Sales Rs.m 8,764 13,996 24,000 34,674 48,280 62,281

Y-o-Y Change % --- 60.0 71.4 44.5 39.2 29.0
Operating Profit Rs.m --- --- 849 1,557 2,364 ---
Operating Margin % --- --- 3.5 4.5 4.9 ---
e = Verdict estimates
Source: Gitanjali, Verdict Research VERDICT
• In the year to March 2008 the group reported another year of strong growth,
though there was a decelleration. No doubt the slowdown in consumer
spending in Europe and the US would have hit its sales.

GITANJALI GROUP
Table 25: Gitanjali Jewellery division trading record 2004e-2009e
Year to March 2004e 2005e 2006 2007 2008e 2009e
Total Sales Rs.m 2,815 4,504 7,722 11,156 21,621 36,756

Y-o-Y Change % --- 60.0 71.4 44.5 93.8 70.0
Operating Profit Rs.m --- --- --- 844 1,484 ---
Operating Margin % --- --- --- 7.6 6.9 ---
e = Verdict estimates
• The jewellery division outperformed and we expect it to continue on this path

– though at a slower rate because of the influence of its regional markets in
Europe and the US. The Rest of the World now accounts for 60.9% of the
group’s revenue with India taking the remainder.

GITANJALI GROUP
Table 26: Gitanjali group trading record in US$ 2004e-2009e
Total Sales $m 201.0 321.0 551.0 796.0 1,108.0 1,429.0

Y-o-Y Change % --- 60.0 71.4 44.5 39.2 29.0
Operating Profit $m --- --- 19.0 36.0 54.0 ---
Operating Margin % --- --- 3.5 4.5 4.9 ---
e = Verdict estimates Note: Exchange rate six year average - see Glossary
Table 27: Gitanjali jewellery division trading record in US$ 2004e-2009e
Total Sales $m 65.0 103.0 177.0 256.0 496.0 843.00

Y-o-Y Change % --- 60.0 71.4 44.5 93.8 7.0
Operating Profit $m --- --- --- 19.0 34.0.0 ---
Operating Margin % --- --- --- 7.6 6.9 ---
e = Verdict estimates Note: Exchange rate six year average – see Glossary
Stores
• According to press reports, Gitanjali has around 20 stores in China in cities

including Beijing and Shanghai, with plans for another 100 in the next year.
• The company plans to increase its store total in the United States by
between five or 10 by the end of 2008/09, and to add another fifty stores the
following year, either through acquisitions or through new store growth.
• In India, it has plans to increase its store space from 120,000 sq ft to 650,000
sq ft by the end of 2009, with 32 single brand stores and 132 multi-brand
locations. At the beginning of 2008 it had 10 of its own stores and 28
franchisee branches.

GITANJALI GROUP
Outlook
• Rapid expansion through acquisition set to continue. Gitanjali group is

an emerging force in international jewellery retailing and is targeting the US
market for further acquisitions in the near future. If it has deep enough
pockets then there are likely to be plenty of opportunities for it in a US market
where retailers are suffering in a downturn and it could emerge very rapidly
as a significant player.
• Vertical integration is a competitive advantage. Gitanjali's philosophy is

to 'cut out the middleman', controlling the whole value chain right up to the
retail customer. At the moment, most of its business is still in supplying
others with its branded products, but this is rapidly shifting to being a retailer
in its own right. As a result, profitability should rise, but it will have to work
hard to develop its brands and their images to maximise operating margin.
• Joint ventures offer additional sources for growth. The joint venture
agreements that Gitanjali has signed will give it instant access to Italian
brands and the prestige that goes with them in the jewellery sector. In the
short term, this is is a very attractive proposition as the luxury segment is one
of the strongest in retail and also more insulated from economic downturn
than the mass market. The negative aspect is that it will not receive all of the
benefit from selling these brands.
• Watches may be a future path for development. Gitanjali is keen to move

outside its original field of jewellery to related market sectors, including
watches. This is a long term development goal, because the watch market is
already very effectively carved up between China at the cheap end and
Switzerland in the premium segment. Indian producers will find it hard to
establish themselves, but the watch segment is set to continue to perform
well and therefore offers good growth potential.
• Other markets are also likely to provide growth, but not easily. Gitanjali
has its eyes on the Chinese market, where it hopes to develop its own store
network. This is not likely to be easy, given the fragmented nature of the
Chinese market and difficulties like variations in local taxation. Few locally-
based retailers have managed to create store chains there and for an
outsider it will be even more difficult without the benefit of strong high end
branding.

LVMH
CHAPTER 7 LVMH
Company Overview
Table 28: LVMH Group company overview 2008
Founded: 1987
Headquarters: Paris
Chairman & CEO: Bernard Arnault

CFO: Jean-Jacques Guiony
LVMH Group MD: Antonio Belloni
President, Watches & Jewellery Business Group: Philippe Pascal

Watch & Jewellery Brand Chaumet, De Beers, Dior Watches, Fred, Hublot,
Portfolio: Louis Vuitton Watches, Omas, TAG Heuer, Zenith
• The formation of Louis Vuitton Moët Hennessy, or LVMH, in 1987 through

the merger of Louis Vuitton and Moet Hennessy, created the world's largest
luxury goods group, headed by entrepreneur Bernard Arnault, currently
believed to be France's richest man.

LVMH
• Some 47.4% of shares in LVMH are owned by the Groupe Arnault, Bernard
Arnault's holding company, though it controls over 63.0% of the voting rights.
His successful integration of various famous aspirational brands into the
group inspired other luxury companies into doing the same. Thus the Gucci
Group (as part of PPR) and Richemont have also created extended portfolios
of luxury brands.
• LVMH's watches & jewellery division was formed in 1999, originally

comprising Swiss watch houses Ebel, Tag Heuer and Zenith, as well as
Christian Dior Watches, jewellery houses Chaumet and Fred, and Italian
writing instruments company Omas. In July 2001 it set up a jewellery retailing
joint venture with diamond company De Beers.
• LVMH’s strategy is to concentrate investments on its established brands

such as Louis Vuitton. It disposes of those that are struggling, for instance
watch brand Ebel, which it sold to the Movado group in 2004. For others,
such as Fendi, store renovation has to come before any other substantial
investments. It has also bought out minority interests in acquired brands
such as Fendi and Donna Karan, simplifying ownership structures for faster
decision making.
Recent Key Developments (Watches & Jewellery)

• Tag Heuer, known for its prestige and sports chronographs, recorded strong
double digit growth in 2007 in all markets. It expanded its best known lines –
Aquaracer, Carrera, and Link – by adding new models for men and women,
including the new Grand Carrera line of automatic watches and its store
network via franchises in The Far East, Bahrain and South Africa.
• It continued to advertise using a line-up of high profile ‘ambassadors’ that

complement its upmarket and sports positioning including Tiger Woods,
Maria Sharapova, Brad Pitt, Uma Thurman, Formula 1 stars Kimi Raikkonen
and Lewis Hamilton and Indian actor Shah Rukh Khan.
• Zenith launched its sports-inspired Defy line, which was awarded the
Geneva Watchmaking Grand Prize in 2007. It also expanded its range of
high end watches and in early 2008 launched its new Chronomaster Grande
Date watch. It did particularly well in Europe, China, the US, Russia and the
Middle East and made significant improvements to its profitability.

LVMH
• Montres Dior links high end luxury watches with fashion and benefited from
advertising campaigns featuring actress Sharon Stone, the 'face' of the
successful Christal jewellery watch line – though she caused some
consternation over remarks she made concerning China and its relationship
with Tibet at the Cannes Film Festival in May 2008.
• Chaumet produced good sales growth and improved profits boosted by the
development of its business in China, Taiwan and South Korea and greater
productivity from its existing stores. It also opened boutiques in London,
Singapore, Russia and the Middle East in 2007 with further openings in Q1
2008 in Tainan (Taiwan), Riyadh and Jeddah.
• De Beers added its first watch collection in 2007 and launched its first
transactional Internet site for the United States, www.debeers.com. It was
also highly active in extending its retail portfolio, with new locations in Japan,
Seoul, Moscow, Taipei, Houston, Washington, Dubai and Jeddah.
• In April 2008, LVMH acquired the Swiss watchmaker Hublot from its founder
Carlo Crocco, and a company controlled by Jean-Claude Biver, Hublot's
manager since 2004. Based in Geneva, the company had turnover of more
than SFr150m ($123m) in 2007 through 300 points of sale worldwide.
• Its watches mix precious metals like gold and platinum with technical metals
like titanium, ceramics and diamonds. Its Big Bang collection ranges in price
from €8,000 to €300,000.
Sales Performance
Table 29: LVMH trading record 2003-2008e
Year to December 2003 2004 2005 2006 2007 2008e
Total Sales €m 11,962 12,481 13,910 15,306 16,481 17,635

Y-o-Y Change % -5.8 4.3 11.4 10.0 7.7 7.0
Operating Profit €m 2,182 2,173 2,522 3,052 3,429 ---
Source: LVMH, Verdict Research VERDICT

LVMH
• The group continued its recovery in 2007 from the slump of 2003 and 2004
when the luxury market struggled from declines in tourist travel and the
recession in Japan, and several of LVMH’s brands underperformed. Sales
rose 7.7% to €16,481m, while operating profits hit €3,429m, up 12.4%, with
operating margin increasing to 20.8% – the highest level this century.
• Profit was principally driven by the largest luxury division, fashion and leather
goods, with sales rising 7.8% to €5,628m and operating profits increasing
12.0% to €1,829m.
Table 30: LMVH watches & jewellery division trading record 2003-2008e
Total Sales €m 502.0 500.0 585.0 737.0 833.0 908.0

Y-o-Y Change % -9.1 -0.4 17.0 26.0 13.0 9.0
Operating Profit €m -48.0 -10.0 21.0 80.0 141.0 ---
Operating Margin % neg neg 3.6 10.9 16.9 ---
• That said the watches & jewellery division, although the smallest, saw the
fastest sales growth, at 13.0%, reaching €833m and the fastest profits
growth, up 76.3%, to €141m. Tag Heuer made a major contribution to the
increase, due to new openings of both wholly-owned and franchise stores
and an expanded department store distribution. Zenith also saw strong sales
in Europe, China, Russia, the US and the Middle East.
Table 31: LVMH trading record in US$ 2003-2008e
Total Sales $m 15,451 16,121 17,967 19,770 21,288 22,778

Y-o-Y Change % -5.8 4.3 11.4 10.0 7.7 7.0
Operating Profit $m 2,818 2,807 3,258 3,942 4,429 ---
Note: Exchange rate five year average – see Glossary

LVMH
Table 32: LMVH watches & jewellery division trading record in US$
2003-2008e
Total Sales $m 648.0 646.0 756.0 952.0 1,076.0 1,173.0

Y-o-Y Change % -9.1 -0.4 17.0 26.0 13.0 9.0
Operating Profit $m -62.0 -13.0 27.0 103.0 182.0 ---
Operating Margin % neg neg 3.6 10.9 16.9 ---
Current Trading
• The first quarter of 2008 (January to March) saw 5.2% growth in LVMH group
revenues to €4,002m, held back by the rising euro, which cut 7.0 percentage
points off growth. Growth was strong in all the core markets, with the US up
10.0% in US Dollar terms, Asia (excluding Japan) up 12.0% and Europe up
8.0%. Only Japan saw a decline in local currency sales, down 4.0%.
• Performance in the watches & jewellery business was much better than for
the group as a whole, with sales rising 11.6% to €211m. Europe saw an
exceptional 19.0% rise, while the US and Japan saw only mid-to-low single
digit percentage growth, hit further by the rise in the value of the euro.
• Tag Heuer did very well due to the success of the Grand Carrera collection,
De Beers grew strongly, particularly in the US, and all the main brands saw
double-digit percentage growth.
• LVMH’s organic sales, that is those with comparable structure and at

constant exchange rates, were up 12.0% over Q1 following a 13.0% rise in
2007, with watches & jewellery outperforming other divisions in both periods
at +19.0%.

LVMH
Figure 19: LVMH regional sales, watches & jewellery 2003 & 2008e
% 40
36.0
35
30.0
30
26.0
25.0
25
20 17.0
16.0 16.0
15
12.0 12.0
10.0
10
0
Europe United States Japan Rest of Asia Rest of World
2003 2008e
• LVMH has seen a significant shift in the past five years in where it sells its
watches & jewellery, with Europe down six percentage points to 30.0% while
the Rest of the World, which includes the Middle East and Africa, has
experienced the strongest growth, through store expansion, stressing the
importance of these regions in future growth.

LVMH
Figure 20: LVMH sales by product area, 2003 & 2008e
% 50
44.3
45 42.9
40
34.7 33.8
35
30
25
20 18.2
16.6
15
10
4.2 5.3
5
0
Other Fashion & Leather Perfumes & Watches &
Goods Cosmetics Jewellery
2003 2008e
• Watches & jewellery are only a small part of the LVMH empire, even though
growing share. We estimate the division will reach just 5.3% of overall sales
in 2008, despite the rapid rate of growth. They are dwarfed by the Other
category (which includes retail chains such as DFS and Sephora, as well as
wines and spirits) and by fashion and leather goods.
Outlook
• Little sign of impact from economic slowdown. Though it has been hit
heavily by the rising euro, LVMH's sales in local currency terms remain
buoyant. The US, Europe and Asia all remained healthy, for the first quarter
of 2008 at least, even if Japan suffered from falling consumer spending. The
strength of its luxury brands and its global spread are a key advantage. The
rapid growth of emerging economies is generating a luxury consumer in new
markets that compensates for slowdowns in mature markets.

LVMH
• Tag Heuer is set to lead sales increases in the watches & jewellery
business. The brand has enjoyed strong trading as a result of new product
launches and advertising campaigns and is increasingly tackling new
markets in Asia and even South Africa. Its strategy of allying itself with stars
from sports with truly global reach like Formula 1 seems to be paying off and
there is no reason why this success should not continue – this positioning
appeals to a very wide market.
• E-commerce is a clear opportunity for growth in all of LVMH’s luxury

goods. The company is ahead of many of its competitors with its
transactional website for De Beers. This gives it experience in online sales
that it can use for other brands especially in products such as watches,
jewellery and leather accessories, all of which lend themselves to Internet
shopping and are set to become much higher growth sectors.
• Acquisitions provide additional growth potential. The purchase of Swiss

watch brand Hublot, in April 2008, shows that LVMH retains an appetite for
further acquisitions should it find brands with the right positioning coming on
to the market. Though brands retain their individuality there is scope for
scale economies – particularly in administration and marketing – but in such
a specialised market these acquisitions give LVMH’s watch and jewellery
division access to a wider array of specialist skills.
• Improving productivity. The watches & jewellery division was loss-making

over 2002-2004 and has struggled to achieve a margin above 5.0% in the
21st Century. The division recovered in 2005 and has made a huge jump in
profit over the past year, +76.3% on sales up 13.0%. Though its operating
margin at 16.9% is the highest it has achieved this century, it is still half that
of the fashion & leather goods division – and we believe there are
opportunities to improve further on this. Organic growth is the strongest in
the group, marketing is making space more productive and new product
development is making LVMH’s watch & jewellery brands more attractive to
retail partners.
• Watches & jewellery are an area for cross-fertilisation between brands.

LVMH has potential to expand the watch and jewellery ranges of its brands
outside the specialist division. It has been active in this kind of cross-
fertilisation in other fields, for instance launching new perfumes for Fendi and
Pucci in 2007. In view of the watch and jewellery category's superior growth
over the past year, this is likely to be a focus of future development.

RICHEMONT
CHAPTER 8 RICHEMONT
Company Overview
Table 33: Richemont company overview 2008
Founded: 1988
Headquarters: Geneva
Executive Chairman: Johann Rupert

Group CEO: Norbert Platt
Group Finance Director: Richard Lepeu
Share of global jewellery market 2008e: 7.1%

Brand Portfolio: Jewellery Maisons: Cartier, Van Cleef & Arpels
Specialist Watchmakers: A Lange & Söhne, Baume &
Mercier, IWC, Jaeger-LeCoultre, Officine Panerai, Piaget,
Vacheron Constantin
Writing Instruments Maisons: Montblanc, Montegrappa
Leather & Accessories Maisons: Alfred Dunhill, Lancel
Others: include Chloe, Polo Ralph Lauren Watch &
jewellery Company, Purdey, Shanghai Tang
• Richemont was created in 1988 by the spin-off of international assets owned

by the Rembrandt Group of South Africa (now Remgro) with interests from
tobacco and financial services to wine, spirits and luxury goods.

RICHEMONT
• The Richemont group operates in five key luxury areas: jewellery, watches,
writing instruments, leather & accessories, and clothing. Each of the
Richemont brands, or maisons as it calls them, has its own distinct identity.
The independence of the maisons in the group is fundamental to the group's
strategy for future growth.
• In addition to its luxury goods interests, Richemont holds a significant

investment in British American Tobacco. In May 2008, following a review in
November 2007, the company announced it was considering plans to
restructure the company which would separate its luxury goods business
from its other interests, including the investment in BAT. The two entities
would comprise a luxury business with its headquarters in Switzerland and
an investment vehicle based in Luxembourg. A date has yet to be set for this
change to be completed.
Recent Key Developments (Watches & Jewellery)

• The group’s most successful brand is Cartier. Cartier's product range
spreads across 10 product categories including lighters, small leather goods,
and handbags, but it is dominated by fine jewellery and watches. Since 2003
it has modernised its traditional image through its advertising, designs and
retail presence. It has employed both freelance and in-house designers to
rejuvenate its classic designs: two-thirds of whom are women and two-thirds
aged below 35, key factors in introducing greater fashionability to its ranges
and proposition.
• Following several new watch launches over the past two years, in April 2007
it launched the Ballon Bleu in April 2007. Other product launches in 2007/08
included the Inde Mystérieuse high end jewellery collection, the Love Bijoux
collection, the Pasha Seatimer and Cartier Libre jewellery watches.
• The brand has global appeal and is one of the strongest performing brands in
the group. This has made it ideal to exploit the growing luxury sector in the
Far East. Cartier has 18 stores in mainland China in 2008 and nine in Hong
Kong and Macao.
• Van Cleef & Arpels continued its policy of launching high end jewellery
collections in 2007/08, with the Ballet Précieux and Atlantide ranges. It also
plans to develop its watch ranges, which have recently grown in sales
volumes and average price. This policy’s success is reflected in strong sales
to its wholesale partners (which includes franchises).

RICHEMONT
• Piaget, which is both a jeweller and a watchmaker, launched its new Magic
Hour watch in October 2007. The Limelight Party II collection combined both
watches and high end jewellery, while the more accessible end of the price
range was extended with the addition of the Miss Protocole ring, based on a
successful watch design.
• A Lange & Söhne is positioned at the top end of the watch market. Its
launches included the new Saxonia line and the Lange 31 watch.
• The other five specialist watch maisons all saw significant new product
introductions, including the relaunch of the Patrimony line by Vacheron
Constantin, the Radiomir 10 Days GMT watch at Officine Panerai and the
relaunch of the Da Vinci and Pilot watches at IWC.
• Richemont is extending its watch manufacturing capabilities for Jaeger-

LeCoultre (a new manufacturing plant will open in 2010), for Montblanc and
for IWC (to be completed in summer 2008, with further expansion in 2009).
• Writing instrument maison Montblanc is increasingly targeting the jewellery

and watch markets. For example, in Autumn 2007 it launched its first ever
haute horlogerie (high end watchmaking) range, Montblanc Collection Villeret
1858 and a new diamond jewellery collection. Women's jewellery accounts
for 6.0% of retail sales.
• In 2006, Richemont formed a partnership with the Polo Ralph Lauren

Watch & Jewellery Company to design and create luxury watches and fine
jewellery. Distribution will be through Ralph Lauren boutiques as well as
wholesale to independent jewellery and luxury watch retailers. This
represents Richemont’s first venture with a luxury fashion designer and is
also Polo Ralph Lauren’s first entry into the precious jewellery and luxury
watch business. First product lines are due to be launched in Autumn 2008.
Sales Performance
• Richemont's operating margin has taken off in the past five years, almost
tripling since 2003. In the year to 31 March 2008, total sales rose 9.8%,
which was not as healthy as the previous two years, but still strong.
Operating profit rose 21.0%, helped by improved manufacturing efficiencies
and comparatively contained increases in operating and central costs.

RICHEMONT
Table 34: Richemont trading record 2003-2008
Year to March 2003 2004 2005 2006 2007 2008
Total Sales €m 3,651 3,375 3,671 4,308 4,827 5,302

Y-o-Y Change % -5.4 -7.6 8.8 17.4 12.0 9.8
Operating Profit €m 259 296 485 741 916 1,108
Operating Margin % 7.1 8.8 13.2 17.2 19.0 20.9
Source: Richemont, Verdict Research VERDICT
Table 35: Richemont trading record in US$ 2003-2008
Year to March 2003 2004 2005 2006 2007 2008
Total Sales $m 4,716 4,359 4,742 5,564 6,235 6,848

Y-o-Y Change % -5.4 -7.6 8.8 17.4 12.0 9.8
Operating Profit $m 335 382 626 957 1,183 1,431
Table 36: Richemont jewellery and watch maisons trading record

2003-2008
Year to March 2003 2004 2005 2006 2007 2008
Jewellery Maisons
* Total Sales €m 1,994.0 1,808.0 1,938.0 2,227.0 2,435.0 2,657.0
Y-o-Y Change % --- -9.3 7.2 14.9 9.3 9.1
Operating Profit €m 421.0 367.0 456.0 616.0 667.0 767.0
Watch Maisons
* Total Sales €m 808.0 780.0 870.0 1,063.0 1,203.0 1,378.0
Y-o-Y Change % --- -3.5 11.5 22.2 13.2 14.5
Operating Profit €m 80.0 95.0 145.0 227.0 274.0 376.0
* All product sales

RICHEMONT
• The jewellery and watch maisons enjoy operating margins above those of the
rest of the group, with jewellery particularly consistent in its performance.
These categories have both seen significant increases in profitability since
the downturn caused by SARS and the Gulf War in 2003/04.
• The jewellery maisons enjoyed a 9.1% sales growth to year end March 2008,
to €2,657.0m, with 15.0% increase in operating profits to €767.0m. Cartier's
sales growth was stable in all regions except Japan, where it lagged. The
watchmaking maisons outperformed the rest of the group, with a 14.5%
increase in turnover to €1,378m. IWC and Jaeger-LeCoultre performed
especially strongly.
• The group also singled out Van Cleef & Arpels, IWC and Baume & Mercier
as improving their operating profitability. All of this led to both divisions
producing their highest operating margins of the past six years and well
ahead of comparable luxury group LVMH’s watches & jewellery division
which produced an operating margin of 16.9% in the year to December 2007.
• However Richemont includes sales of all products through its Jewellery and
Watch maisons, including clothing and accessories which generally have
very high margins in luxury brands.

RICHEMONT
Product Split
• The company has increasingly seen a blurring of the lines between the
maisons in terms of which product areas they specialise in, for instance with
Montblanc's non-pen turnover making up 48.0% of its sales.
Figure 21: Richemont product sales split 2002/03 & 2007/08
% 60
54.6
50 48.1
40
30 28.2
23.7 23.3
22.1
20
10
0
Jewellery Watches Other
2002/03 2007/08
Note: 2002/03 figures based on maison sales
• Therefore Richemont now reports sales by product category as well. In

2007/08, jewellery product sales made up 48.2% of turnover and watches
23.7%, up 12.9% and 9.4% respectively.
• By distribution channel, retail sales made up 41.8% in 2007/08 and

wholesale 58.2%, the two channels having largely kept pace with each other
in terms of expansion in the past five years. Retail sales were boosted both
by strong performance from existing stores as well as by new openings.

RICHEMONT
Figure 22: Richemont brands regional sales split 2002/03 & 2007/08
% 50
45 42.7 43.2
40
35
30
24.4
25
19.0 19.1 19.3 19.0
20
15 13.2
10
5
0
Europe Americas Japan Asia-Pacific Exc.
Japan
2002/03 2007/08
• The Asia-Pacific region (excluding Japan) saw the strongest growth in

2007/08, up 21.1% (31.0% at constant exchange rates). This was driven by
China with spectacular 54.0% growth, and Hong Kong, up 39.0%.
• The largest single market, Europe (including the Middle East), grew by
13.0%. The smallest markets were the fastest growing. Russia, making up
2.0% of sales, rose 38.0% and the Middle East, accounting for 4.0%,
increased 42.0%.
• Sales in the Americas were up 13.0% at constant exchange rates, but due to
the depreciation of the US Dollar, this translated into only 3.0% growth.
Japan continues to be a difficult market, with a 3.0% rise at constant
exchange rates translating into a fall of 3.0%.
• Cartier saw growth both in developed markets and in emerging ones like
China, Russia and the Middle East, while Piaget sold well in Europe and
Asia-Pacific. This region also saw strong performances from Jaeger-
LeCoultre and IWC, where it now makes up 20.0% of sales.

RICHEMONT
Stores
Table 37: Richemont brands number of retail stores 2003-2008
Year to March 2003 2004 2005 2006 2007 2008
Company-owned 538 552 577 664 673 738

Y-o-Y Change % -0.4 2.6 4.5 15.1 1.4 9.7
Franchised 307 313 364 431 481 574

Y-o-Y Change % -10.8 2.0 16.3 18.4 11.6 19.3
Total 845 865 941 1,095 1,154 1,312

Y-o-Y Change % -4.4 2.4 8.8 16.4 5.4 13.7
• There was heavy investment in Richemont's store network, with 65 net new
openings of wholly-owned stores and 93 of franchises, taking them to totals
of 738 and 574 respectively. Cartier refurbished eight stores (including New
Bond Street in London, and Ginza in Tokyo) and opened 11 including six
more major ones, concentrating on China, including Hong Kong, Moscow
and Istanbul. At end-year it had 18 stores in China and 255 worldwide.
• The company is taking a cautious line on store development and

refurbishment to minimise the risk of carrying expensive store estates in a
downturn. It also recognises that for brands that are generally centred
around watches & jewellery a large store on several floors is inappropriate.
For its Cartier store in Ginza Tokyo it made a bold statement by extending
the façade up to the roof, covering the whole frontage of the building – but
did not open more floors – just kept the same sales area in-store.
• Other jewellery & watch maisons expanded. Van Cleef & Arpels' store total
rose by 11 to 65 and Piaget added seven stores to make a total of 52.

RICHEMONT
Outlook
• Jewellery and watch maisons remain the powerhouse of Richemont's
profitability. Despite improved performance from the rest of its portfolio of
maisons, Richemont's watch & jewellery businesses still make up 90.3% of
its divisional profits and 76.1% of its sales. In particular the watch maisons
have improved their operating profit very strongly in the past five years,
including 37.2% in the latest year.
• Richemont continues to stretch its price architecture into the high end
of the market, especially in watches. In the belief that margins and brand
sustainability are better at the high end, Richemont has encouraged brands
to trade up by targeting the high end of their specific segments and markets.
This continued in 2007/08 with Officine Panerai, for instance, launching its
new Manifattura collection with prices over €10,000.
• Expansion of watch manufacturing will ensure reliable supply chain

and reinforce this move upmarket. In 2008 and 2009, Richemont is set to
invest in new and expanded manufacturing capability, allowing it to cope with
the rapid rise in sales of the watch maisons. Cartier has also introduced
watches bearing the Poinçon de Geneve quality hallmark, meaning it is now
accepted as one of the limited number of high end watch manufacturers. This
will reinforce its reputation for exclusivity.
• Richemont still has potential for growth in mature markets. Despite the
high profile of its brands, such as Cartier, Richemont has not exploited either
the European or North American markets to their full potential. While its
venture with Ralph Lauren is targeting worldwide sales it also gives it the
opportunity to learn more about the US market and for it to expand its own
brand and product reach in this large market.
• Emerging markets provide yet greater opportunities and have the

potential to counterbalance any slowing in core markets. At the
moment, Richemont is pursuing China as the biggest expansion opportunity.
Though it makes up just 5.0% of total sales at present, it has grown by 54.0%
in the past year. The demand for watches and jewellery in emerging luxury
markets such as Russia, China and India plays to Richemont’s product
strengths. The cultural taste differences that exist in clothing and
accessories are less pronounced in watches and jewellery, which tend to
have global appeal. India still imposes high duties on imported watches and
jewellery, but once it becomes a much freer market the potential for

RICHEMONT
Richemont brands will be enormous. Exposure to these markets could

counter any slowing of performance in Western Europe and the US.
• Trading appears to be accelerating rather than slowing, with no ill

effects from the credit crunch. Richemont's sales in April 2008 increased
by 24.0% at constant exchange rates, implying a quickening in growth.
Richemont's executive chairman Johann Rupert believes that oil price rises
are recycling money into oil producing regions like the Middle East and
Russia. Richemont is well placed to take advantage of both these markets.

SIGNET GROUP
CHAPTER 9 SIGNET GROUP
Company Overview
Table 38: Signet Group company overview 2008
Founded: 1950
v
Headquarters: London
Chairman: Sir Malcolm Williamson

Group Chief Executive: Terry Burman
Group Finance Director: Walker Boyd
US Chief Executive: Mark Light
UK Chief Executive: Rob Anderson

2008e: 1.8%
Brand Portfolio: Kay Jewelers, Jared The Galleria Of
Jewelry, H Samuel, Ernest Jones,
Leslie Davis, JB Robinson, Marks &
Morgan and others

SIGNET GROUP
• In 1950, Leslie Ratner opened a jewellery store in Richmond, Surrey and

expanded the business both through acquisitions and store openings.
Leslie's son, Gerald Ratner took over running the business in 1985, and the
following year Ratners, as it was then known, bought H Samuel. This fascia
was founded in 1862 in Liverpool, with the first store opening in Preston in
1890, and is the oldest part of the Signet Group.
• The company entered the US market in 1987, buying Ohio-based retailers

Sterling and Westhall. Further US and UK acquisitions followed up to 1990,
when it bought Kay Jewelers in the US.
• In 1991, Gerald Ratner made a famous gaffe about the quality of Ratners'
products and was forced to step down and ultimately resigned from the
Board in November 1992. In 1992 the company was renamed as Signet
Group and UK stores that remained after a 300-store closure programme
during 1992-94 were rebadged under the H Samuel and Ernest Jones
names. It also launched its Jared store format in the US.
• It now operates four main fascias – H Samuel and Ernest Jones in the UK
and Kay Jewelers and Jareds in the US. The US now accounts for 73.8% of
the Group’s sales.
• H Samuel targets the mass market and focuses on value and promotional
offers. It has a transactional website.
• Ernest Jones targets the top end of the middle market and those on medium
to higher average incomes and also has a transactional website.
• Kay targets a wide audience with an authoritative range offering good value
and high quality customer service. Most of its stores are sited in major
shopping malls and it has a transactional website.
• Jared – The Galleria of Jewelry is the company’s off-mall (out-of-town)

format. It target households with a higher income than Kay’s typical shopper
and, as a destination store, offers a larger range and wider amenities such as
a crêche and a coffee lounge. The website is not yet transactional but will be
later in 2008.
• In the US the company operates in-house credit facilities which are used in
the case of just over 50.0% of US sales.

SIGNET GROUP
• In June 2006, Signet Group confirmed that it had held preliminary

discussions with rival US jewellery retailer Zale Corporation regarding a
merger, but that talks had been terminated.
• The company announced in January 2008 that it would review its primary
listing and domicile in the UK in the light of the growth of US shareholders on
its register. After consulting with its shareholders, the board subsequently
announced that it believed shareholders, on balance, would support a move
of the primary listing to New York and a change of domicile to Bermuda. A
proposal is expected to be put to shareholders during the summer of 2008.
Sales Performance
Table 39: Signet Group trading record in $ 2003-2008
Year to end January 2003 2004 2005 2006 * 2007 2008
Group Sales $m 2,446 2,697 3,005 3,154 3,559 3,665

Y-o-Y Change % --- 10.3 11.4 5.0 12.8 3.0
Group Operating Profit $m 297 341 395 375 416 351
Group Operating Margin % 12.1 12.7 13.2 11.9 11.7 9.6
* 53 weeks Note: Signet is registered as a plc in the UK. The above results are translated into $ reporting
Source: Signet Group, Verdict Research VERDICT
• The year to 2 February 2008 was a more difficult one than 2006/07, with
sales rising 3.2% on a comparable basis (there were 53 weeks in 2006/07) to
$3,665.3m. Group like-for-like sales fell 0.7%, the first annual decline since
1992/93, while operating profits fell 15.6% to $351.3m.

SIGNET GROUP
Table 40: Signet divisional trading record in $ 2003-2008
Year to end January 2003 2004 2005 2006 * 2007 2008
US Sales $m 1,730 1,867 2,061 2,309 2,652 2,706

UK Sales $m 715 830 944 845 907 960
US Sales growth % --- 7.9 10.4 12.0 14.9 2.0

UK Sales growth % --- 16.1 13.7 -10.5 7.3 5.8
US Operating Profit $m 209 225 265 301 327 262

** UK Operating Profit $m 97 126 143 88 103 105
US Operating Margin % 12.1 12.1 12.9 13.0 12.3 9.7

UK Operating Margin % 13.6 15.2 15.1 10.4 11.4 10.9
* 53 weeks ** Excludes head office and central costs

Note: Signet is registered as a plc in the UK. The above results are translated into $ reporting
• The US business was hit by a particularly weak fourth quarter – the most
important as it provides the highest share of sales in the year, around 40.0%.
In Q4 2007/08 like-for-like sales were down 8.6% against a rise of 2.7% over
the previous nine months.
• Total US sales were up 4.0% against the same 52-week period the year
before, but fell by 1.7% like-for-like on the same basis. Operating profits fell
19.6% on a 52-week basis, to $262.2m, with operating margins falling from
12.3% to 9.7%. A lower level of sales, promotional activity and higher raw
material costs all contributed to lower operating margins.
• The UK business fared better, despite slower growth in sales at constant

exchange rates and on a 52-week basis of 2.0% to $959.6m. Operating
profits were down just 1.3% on a comparable basis, to $105.1m, while
operating margin fell from 11.4% to 10.9%. Ernest Jones performed best,
with like-for-like sales on a comparable basis up 2.9%. As with the US, the
fourth quarter was difficult, with UK like-for-like sales down 1.7%.

SIGNET GROUP
Current Trading
• Results for the first quarter of 2008/09 to 3 May showed another contrast in
perfomance between the US and the UK. Group sales rose 1.0% to
$822.5m, while operating profit fell 18.9% to $43.8m, hit by deteriorating
operating margin in the US. In the US, like-for-like sales declined by 4.7%
and fell 0.2% in total to $630.9m, despite new space and a reasonable
Valentine's Day period (due to better weather than in 2007). Operating
margin fell to 7.2% from 9.5%.
• The UK was much more buoyant, with like-for-like sales growth of 5.3% and
total turnover growth of 4.0% at constant exchange rates, producing an
operating profit of $2.7m compared with a loss of $1.9m in the comparable
period in 2007. Management noted at the time of the Q1 results that given
the uncertain consumer environment and high Q2 comparatives, this level of
performance was not expected to continue.
• In response to increases in commodity costs, in particular gold, the US

division increased prices and realigned pricing architecture in three tranches
after Valentines Day, in mid- and late-March. The objective of the price
increases was to at least maintain the full year gross margin at last year’s
level and offset not just higher commodity costs but also greater promotional
activity and changes in the sales mix to cheaper product.
• In the light of the slowdown in sales and the economic outlook the company
has realigned its strategy for more cautious growth, cutting back on inventory
levels and costs, including staff hours and marketing budgets.
• It intends to continue investing in the business but less aggressively in the

short term. Therefore instead of the 10.0% space growth of the past three
years it is cutting back to 4-5% growth each year in 2008/09 and 2009/10.
Investment in customer service to enhance the customer experience will
continue in the US.
• In the UK there will be refurbishments and relocations of 35 Ernest Jones

stores, instead of the 46 originally planned, while the resiting of H Samuel to
larger stores in better locations will continue. With retail demand slowing
down sharply in the UK and new space in abundance there should be plenty
of opportunities for the company to achieve favourable deals on sites in the

SIGNET GROUP
UK – particularly where it is looking for larger stores for its H. Samuel fascia..
Though it will ultimately have fewer H Samuel stores, those remaining should
be more productive.
• The level of bad debts has increased, but so has the credit portfolio,
reflecting no doubt the squeeze on consumers’ disposable income. The
company is instigating more rigorous checking and collection systems to
mitigate risk.
Figure 23: Signet Group product sales split 2002/03 & 2007/08
% 70
62.7
60 56.4
50
40
30
20
12.5 12.5 12.3 12.8
9.2 10.2 9.7
10
1.8
0
Diamond Gold Jewellery Other Jewellery Watches Other
Jewellery
2002/03 2007/08
Note: Others includes royalties and licensing
• Diamond jewellery is the predominant category in Signet Group's product

mix, mainly due to its importance in the US business, where it makes up
75.0% of sales. Gold and other jewellery as well as watches play a much
less important role in the business overall. The UK chains are different, with
an even mix of watches, gold and diamond jewellery. They have become
much more focused on the core jewellery and watch sectors over the past
five years, with declining sales of other items like gifts.

SIGNET GROUP
• The company has exclusive agreements with some suppliers. For instance,
its Leo Diamond range is unique to Signet in both the US and UK. These
diamonds are supplied by Leo Schachter and are measured and certified for
their superiority over standard cut diamonds. A second certificate from the
International Gemological Institute (IGI) verifies carat weight and grading and
gives a unique number (invisible to the human eye and lasered on the girdle
of the diamond).
• In addition, Signet has developed the Peerless Diamond and Hearts Desire
ranges in the US, both based on ideal cut diamonds.
• In the US it has, since 2005/06, begun to source its own rough diamonds for
cutting and polishing through contract manufacturers as a means of
improving security of supply and reducing costs. This is expected to be
expanded significantly in 2008/09. Most of the US division's diamond cutting
and jewellery manufacture is carried out in Asia under contract.
• In the UK business, manufacturing is done under contract for 27.0% of the

diamond merchandise and 20.0% of the gold merchandise, through a buying
office in Vicenza in Italy. In 2007/08, the four largest watch suppliers and one
jewellery supplier made up 26.0% of product purchased.

SIGNET GROUP
Figure 24: Signet Group geographic sales split 2002/03 & 2007/08
% 80
73.8
70.5
70
60
50
40
29.5
30 26.2
20
10
0
2002/03 2007/08
US UK
• The US has increased as a proportion of the business in the past five years
following rapid store expansion in that market and a gradual contraction in
the number of stores in the UK.

SIGNET GROUP
Store Portfolio
Table 41: Signet Group retail stores 2002/03-2007/08
Year to end January US Store Numbers UK Store Numbers
2003 1,050 610

2004 1,103 604
2005 1,156 602
2006 1,221 593
2007 1,308 581
2008 1,399 563
• In total over the US and UK Signet operates nearly 2,000 stores and has
been focusing more recently on expanding its off-mall space in the US. It
has a criterion of looking for a 20.0% internal rate of return on investment
over five years and until now has exceeded this. However the tough trading
environment is going to make this more difficult to achieve.

SIGNET GROUP
Table 42: Signet US stores 2006-2008
Year end January 2006 2007 2008
Kay
Sales $m 1,290 1,487 1,490
Stores numbers 781 832 894
* Average sales per
store $000 1,665 1,815 1,710
Average store size sq ft 1,170 1,270 1,270
Jared
Sales $m 534 664 756
* Average sales per
store $000 5,453 5,676 5,341
* Only stores that have operated for full financial period
• In 2007/08, Signet Group's main expansion came from 40 off-mall openings

of Kay stores as well as 19 openings of its Jared The Galleria Of Jewelry
format. In total some 91 stores were added, taking Kay to 894 from 832
branches, Jared to 154 from 135 and smaller regional chains to 351 from
341.
• Kay is the largest speciality jewellery retail chain in the US by turnover,

targeting households with incomes between $35,000 and $100,000, with an
average sale price of $327. The Jared chain operates at the upper end of the
middle market, with household incomes ranging from $50,000 to $100,000
and an average sale price of $747.
• In 2008/09, a slowing is expected in store development, with 36 net new

openings, most of them off-mall branches of Kay or of Jared. However, this
will still increase space by 4-5%. In the long term, the group believes there
could be potential for over 1,430 Kay branches, 300 Jared stores and around
700 regional stores.

SIGNET GROUP
Table 43: Signet UK stores 2006-2008
Year end January 2006 2007 2008
H Samuel
Sales £m 256 268 257
Average sales per store £000 681 695 722
Ernest Jones
Sales £m 208.5 218 219
Average sales per store £000 1,065 1,079 1,105
Average store size sq ft 862 870 870
• The UK stores total fell by 18 to 563, with 17 closures of H Samuel branches

and two of Ernest Jones stores, with just one H Samuel branch opened. At
the year end 282 H Samuel stores had been refitted to a new, customer-
friendly format as part of a programme started in 2001, including 16 refits or
resites in 2007/08. Another 23 are expected in 2008/09. H Samuel is
increasingly focusing on larger stores and closing smaller ones.
• Signet uses sales per store as a measure of productivity and on this basis
the UK produced an uplift in 2007/08. Though H Samuel’s sales were down
because of a reduction in store numbers its like-for-like store productivity
increased by 3.9%.
• For Ernest Jones the increase was less, 2.4%, but it produces the highest
store productivity of Signet’s fascias. On a straight sales per sq ft basis it
produces £1,270 per sq ft – over $2,400. Though Jared has the largest
sales per store $5,3m its typical store sales per sq ft is only $1,090. The
advantage however should be that Jared stores, being off-mall, should have
lower rents and operating costs than Ernest Jones stores which are typically
in prime, high-footfall locations in premium shopping centres.
• That said, though both Kay and Jared average sales per store have been
increasing, they both declined over the past year – by 5.8% and 5.9%

SIGNET GROUP
respectively – which puts further pressure on margins as current trading

conditions are unlikely to boost sales.
Outlook
• Size brings some economies of scale. As the largest speciality jewellery

retailer in the both the US and UK, Signet leverages its size to deal directly
with suppliers to obtain advantageous terms. That said there is no Group
buying and very little buying synergies given the differences in merchandise
between the two divisions. Its scale does allow it to buy directly from
manufacturers as against wholesalers – 50% of its diamond jewellery in the
US is bought as loose polished stones and the jewellery is manufactured
under contract.. It also negotiates exclusive rights to some branded ranges.
In addition, its operational economies in running stores and particularly in
marketing nationwide retail brands in the large US market are a major
advantage. These will continue to give Signet Group a significant edge on its
mass market competitors particularly the large number of independents.
• Still potential for US expansion. Both the Jared and Kay formats have
potential for further growth in market penetration in the US, the latter
particularly in off-mall locations, where it is best placed to win customers from
independent specialists. This will intensify the benefits derived from Signet's
scale, but only as long as space productivity can be maintained. A short term
slowing of its expansion plans is a wise move to avoid the risk of rising costs
without the corresponding increases in sales.
• Exposure to the US and UK markets is a short term disadvantage.

Though there is potential for long term share gain in the US, the largest
national jewellery market in the world, Signet is likely to be disadvantaged in
the short to medium term due to its concentration on two countries where
household debt problems are most intense, particularly for its core customers
in the mass market. Conversely it lacks exposure to regions like Asia,
Eastern Europe and the Middle East where growth is likely to be more
buoyant in the next two years.
• Positioning also creates problems. Though Signet has done much to

differentiate its store environments and customer service from competitors,
its position as a mass market specialist with a focus on diamonds creates
further challenges. Most importantly, its customers’ discretionary spending is
squeezed harder by economic downturns than those at the top end.
Secondly, its core business, the sale of diamonds, is driven very much by

SIGNET GROUP
events such as weddings, anniversaries, Christmas and Valentine’s Day. By

using other means to drive sales – such as fashion which is driving sales of
pearls currrently – it may be able to reduce its dependence on such
occasions for instance.
• Higher participation in exclusive and branded product would be an

advantage. Traditionally, most middle market jewellery has been
unbranded, yet the power of branding is proved by the continuing success of
the luxury end of the market. Signet has been working to differentiate itself by
creating exclusive ranges, for instance Julien Macdonald in H Samuel and
the Jane Seymour collection in Kay. It also offers exclusive lines from
jewellery brand LeVian and its own Peerless and Hearts Desire ranges in the
US. However, there is room for further growth in this direction if Signet
wishes to create a truly differentiated appeal and avoid direct price-based
competition on similar product to its rivals’. Though its proposition is based
on the quality of service and merchandise, in an economic downturn price
becomes top-of-mind with consumers. High profile own brands build all year
round appeal and higher margins than suppliers’ brands deliver and
exclusivity.
• Expansion into new markets would be a risk, but may be necessary in

the long term. Signet Group has decided that its medium term future as a
mass market retailer lies in its existing markets, particularly in the US, where
it believes it can double its existing store space. However, with better
development of its own exclusive product ranges, Signet Group might be
better placed to expand into dynamic markets like the Middle East and Asia
and the growing 'new' European countries. We predict the US will be slower
growing than these regions in the next five years and it is certainly a highly
competitive market. Therefore Signet should not exclude regions outside the
US and UK for future development. An acquisition of an existing operator in
one of these markets, having a natural fit with its existing propositions, with
high quality real estate and shop fit, and a strong supply chain,, would
provide a quick, and less risky, entry. This is a model Digico Holdings and
its affiliates are using. Though there is sense in battening down the hatches
in the current economic climate Signet does risk being left behind.

SWATCH GROUP
CHAPTER 10 SWATCH GROUP
Company Overview
Table 44: Swatch Group company overview 2008
Founded: 1983
Headquarters: Biel, Switzerland
Chairman: Nicholas G Hayek

Vice-chairman: Peter Gross
President: Nick Hayek Jr
CFO: Edgar Geiser
Share of global jewellery retail market 2008e 7.1%

Balmain, Breguet, Blancpain, Certina, ck watch &
jewelry, Endura, Flik Flak, Glashütte Original,
Watch & Jewellery Brand
Hamilton, Jacquet Droz, Léon Hatot, Longines,
Portfolio:
Mido, Omega, Rado, Swatch, Swatch Bijoux,
Tiffany & Co, Tissot, Union Glashütte
• The Swatch Group was founded in 1983 by the merger of two Swiss
Watchmakers, ASUAG and SSIH, each of which owned several of well
established Swiss watch brands. SSIH was originally founded in 1930
through the merger of Omega and Tissot and ASUAG was formed in 1931.
They were combined to make a new group, SMH, headed by engineer
Nicholas G Hayek.

SWATCH GROUP
• The formation of SMH was in response to a major crisis in the Swiss watch
industry in the 1970s as a result of cheap new electronic products from
Japan. Nicholas Hayek's aim was to respond to competition with a new, low
cost, artistically inspired watch – the Swatch. In 1998, SMH was renamed as
the Swatch Group.
• The company is now the world's leading manufacturer of finished watches,

as well as making jewellery, watch movements and components. It supplies
almost all the components necessary both for its own watches and those
made by other Swiss watchmaking groups and its nano-mechanical and
nano-electronic subsidiaries supply other industries outside the sector.

• The Swatch Group carries out a vast range of marketing and sponsorship
activity aimed at putting the Swatch and other group brands permanently in
the public eye. Sports timing is particularly important to the image of the
group, in particular the Olympic Games. In 2007, examples of Swatch
marketing included support or sponsorship of events including the World
Beach Volleyball Championships (held in the unlikely setting of Swiss ski
resort Gstaad), the Swatch O'Neill Big Mountain Pro snowboarding
competition, and the freestyle motocross Red Bull X-Fighters Tour 2007.
• The group sponsors 30 sportsmen and women involved in beach volleyball

and a variety of extreme or action sports. They include nationalities ranging
from Chinese to Brazilian, Norwegian and American.
• The luxury and prestige brands all nurture their own associations with
particular types of sports. For instance during 2007 Blancpain was involved
in the World Arabian Horse Championships in Paris and the International
Arabian Horse Championships in Dubai. It is also involved in classic and
vintage car racing and the Monaco Yacht Show.
• In April 2007 an agreement was signed between Swatch Group and Chinese
hotel and travel company Jing Jiang Group for the redevelopment of a
Shanghai landmark, the Peace Hotel South Building, in a strategic location at
the corner of Nanjing Road and the Bund – Shanghai's waterfront. It will
open later in 2008 and combine both a store and an 'artists' hotel', where
selected artists will be able to live and work.

SWATCH GROUP
• The following month Swatch Group opened the Nicholas G Hayek Center in
the Ginza shopping district of Tokyo, incorporating seven monobrand
boutiques (Blancpain, Breguet, Glashütte Original, Jaquet-Droz, Leon Hatot,
Omega and Swatch), offices, exhibition halls and hanging gardens.
• In December 2007, Swatch Group increased its shareholding in the largest

watch retail chain in China (166 stores at the end of 2007) Xinyu Hengdeli
from 7.25% to 8.09%.
• In the same month it announced a strategic alliance with US jeweller Tiffany

& Co for the development, marketing and distribution of watches under the
US company's name.
Sales Performance
Table 45: Swatch group trading record 2003-2008e
Total Sales SFr.m 3,828 3,981 4,292 4,820 5,646 6,493

Y-o-Y Change % --- 4.0 7.8 12.3 17.1 13.5
Operating Profit SFr.m 594 645 735 973 1,236 ---
Source: Swatch Group, Verdict Research VERDICT
Table 46: Swatch Group watches & jewellery division trading record
2003-2008e
Total Sales SFr.m 2,921 3,141 3,437 3,723 4,456 5,080

Y-o-Y Change % --- 7.5 9.4 8.3 19.7 14.0
Operating Profit SFr.m 516 552 626 738 920 ---

SWATCH GROUP
• The first half of 2007 showed very rapid growth of 19.6% in local currency
terms (20.0% in Swiss Francs) in sales in the watches & jewellery division,
with net sales of SFr 1,997m and operating profits of SFr 353m, up 20.9%.
The luxury segment, led by Blancpain, Breguet and Omega, was particularly
strong, while in the other price categories, Longines and Tissot saw sales
grow quickly. Sales grew by double digits in Asia, America and Europe but
were flat in Japan due to the low Yen and poor economic situation.
Table 47: Swatch Group trading record in US$ 2003-2008e
Total Sales $m 3,145 3,271 3,526 3,960 4,639 5,334

Y-o-Y Change % --- 4.0 7.8 12.3 17.1 13.5
Operating Profit $m 488 530 604 799 1,015 ---
Note: Exchange rate six year average – see Glossary
Table 48: Swatch Group watches & jewellery division trading record in US$
2003-2008e
.
Total Sales $m 2,400 2,581 2,824 3,059 3,661 4,174

Y-o-Y Change % --- 7.5 9.4 8.3 19.7 13.5
Operating Profit $m 424 454 514 606 756 ---
• In the second half of the year, growth was just as fast, with total net sales in
the jewellery & watch division rising 19.7% for the full 12 months, to SFr
4,456m. Operating profits increased 24.7% to SFr 920m. Asia and the
Middle East saw high double digit growth, while increases in America,
Europe and Oceania were also in double figure percentages. Operating

SWATCH GROUP
margins were protected against rising prices in precious metals, diamonds

and other raw materials by some price increases.
Current Trading
• The company said sales grew strongly in January and February 2008,
despite a negative currency effect due to the strength of the Swiss Franc. We
have estimated slower growth of 14.0% for the watches and jewellery
division for the year as a whole, to take account of this currency effect in
expectation of slowing growth in major markets like the United States.
Stores
• Distribution of Swatch products is mainly handled via a network of retailers
selected by local group subsidiaries or agents. However, the group has also
increasingly set up its own stores. They are either monobrand shops, selling
individual Swatch Group brands, or multibrand boutiques.
• Monobrand stores are in prestige locations in high profile shopping areas of

cities including New York, London, Tokyo, Paris, Shanghai and Beijing.
Blancpain, Breguet, Jaquet Droz, Léon Hatot, Omega and Swatch all have
monobrand stores. Its 13-strong multi-brand fascia, Tourbillon, also sells
collections from Blancpain, Breguet, Glashütte Original, Jaquet Droz, Léon
Hatot and Omega. It is in a mixture of resort towns and major cities.
• The group also runs the Tech-Airport fascia, with 27 points of sale as at the
first quarter of 2008, offering watches, gems and jewellery in four major
French airports. During 2007, Omega opened 14 monobrand flagship stores,
three of them in Beijing, where it will be the official timekeeper for the
Olympic Games. Around 30 franchise boutiques were opened, bringing the
total to 120. Breguet opened stores in Moscow, Paris, Singapore and Tokyo
while Blancpain added boutiques in Beijing, Hong Kong, Macao, Mumbai and
Singapore. Swatch operates online in the US, the UK, Sweden, Germany,
Switzerland and Japan.

SWATCH GROUP
Outlook
• The Swatch Group is in an immensely powerful competitive position.

Not only does it own a large portfolio of extremely high profile watch brands,
but also it has a central position in the supply chain of the Swiss watch
industry. This control over production and branding is the central reason for
its very high profitability, as well as the economies of scale that the sheer
size of the business offers.
• Exposure to the top end of the watch market will help profit margins
and growth. While it has developed a small presence in the jewellery
market, Swatch's concentration on the top end of the watch sector means it
is less exposed to current economic circumstances than groups where
midmarket brands or jewellery are a significant proportion of sales. It has
seen some increase in costs from rising commodity prices, but its market
positioning has allowed it to increase prices so far with little ill-effect.
• Retail development is being pursued rapidly. Swatch already has a huge

global distribution network, but it is reinforcing the presence of its brands with
a rapid store opening programme. Again the sheer size of the group gives it
the advantage over competitors in securing the resources necessary to roll
out a retail presence rapidly in expensive key locations.
• Well positioned for the Beijing Olympics. The group's leading prestige
brand, Omega, will receive a huge amount of coverage in its role as
timekeeper at the Olympic Games. That, combined with its growing
standalone store presence, will act as an ideal launchpad for future growth in
the Chinese market.
• Partnerships could be beneficial. Swatch is building crucial partnerships

with companies in related sectors, namely with Tiffany & Co in the jewellery
sector and Chinese watch retailer Xinyu Hengdeli. It has yet to be seen how
these will grow and whether the co-operation with Tiffany & Co will remain
limited to creating and selling watch ranges. Likewise, Swatch's stake in the
Chinese retailer is only small, but full-scale partnership would give Swatch a
retail presence at a crucial time in the Asia market's development.

TIFFANY & CO
CHAPTER 11 TIFFANY
Company Overview
Table 49: Tiffany & Co. company overview 2008
Founded: 1837
Headquarters: New York
Chairman & CEO: Michael J. Kowalski

President: James E. Quinn
CFO: James Fernandez

2008e 1.7%
Tiffany & Co, Iridesse, Elsa Peretti,
Watch & Jewellery Brand Portfolio: Paloma Picasso, Tiffany-Schlumberger,
Frank Gehry
• Tiffany was founded by Charles Lewis Tiffany in 1837, when he opened a

store in downtown Manhattan, incorporating the company in 1868. The
company's reputation grew on the back of inspirational design and
innovations like the Tiffany diamond ring setting.

TIFFANY & CO
• Its global reputation was cemented by the film of Truman Capote's novel,
Breakfast at Tiffany's, featuring Audrey Hepburn, released in 1961. Although
it operated stores in Paris and London before World War II, it only returned to
overseas markets from 1972 onwards, starting with Japan and moving into
Europe with a London store opening in 1986. It floated on the New York
Stock Exchange in 1987.
• Its main business is in the US, which accounts for 59% of sales. There it
operates 70 stores (at the end of January 2008) under the Tiffany & Co.
name, as well as a much smaller Iridesse chain of 16 pearl jewellery stores.
Some 86% of the group's sales are made up of Tiffany branded jewellery,
although it does sell watches, silverware, china, stationery, perfumes and
accessories. While it has a large presence in the Japanese market (17.0% of
sales), mainly comprising operations within Mitsukoshi and other department
stores, the principal focus of recent development has been in other markets,
particularly the Asia-Pacific region and Europe.
• The company is the sole licensee for designs sold under the names of
designers Elsa Peretti (making up 11.0% of sales) Paloma Picasso and the
late Jean Schlumberger, as well as the architect Frank Gehry.
• The company also runs a well-established catalogue and online retail

business in the US, mailing out 19.5m catalogues a year (2006/07) and
771,000 orders. It also has transactional websites in the UK and other
countries including Japan and Canada and an informational website in
China.
• Diamonds are central to the Tiffany business, with 48% of sales including
them in one form or another, and since 2003 it has set up its own rough
diamond processing operations, accounting for 40% of its needs. It also
manufactures 59% of the jewellery it sells, in facilities in Rhode Island and
New York state.
• In 2007, Tiffany & Co signed a 20-year agreement with The Swatch Group
setting up a strategic alliance for the design, manufacture, distribution and
marketing of watches under the Tiffany trademark. Although Tiffany already
sells some watches (2% of sales), the range will be replaced under the new
arrangement.

TIFFANY & CO
Sales Performance
Table 50: Tiffany & Co. trading record 2004-2009e
Year to End
January 2004 2005 2006 2007 2008 2009e
Total Sales $m 2,000 2,205 2,395 2,561* 2,939* 3,233

Y-o-Y Change % 17.2 10.2 8.6 10.7** 14.8 10.0-
Operating Profit $m 355.519 294.529 383 431 530 ---
Note: Figures from 2007 onwards exclude Little Switzerland retail business, with turnover of $52.8m in
2007/08 and $87.6m in 2006/07. ** On a comparable basis
• Overall, 2007/08 was a very successful year for Tiffany, with net sales rising
14.8% to $2,939m and operating profits up 23.1% to $530m. In the US,
performance was boosted by a 7.0% rise in comparable store sales, with
both more transactions and a higher average transaction value, with more
high value purchases by customers. Diamond jewelllery sold well and the
New York store's sales were also helped by higher tourist spending.
• International retail sales grew even more strongly, rising 15.0% on a constant
exchange rate basis. The Asia-Pacific region (excluding Japan), enjoyed a
26.0% rise in comparable store turnover at constant exchange rates, while in
Europe, where the UK makes up over half the sales, it rose 13.0% on the
same basis. Japan saw a decline of 5.0%, due to poor economic conditions
and lack of consumer confidence.
• Overall, operating margin grew from 16.8% to 18.0%, because sales

increased relative to both fixed and operating costs in the US, although new
stores and store operating costs rose in line with sales in international
retailing.
Current Trading
• The first quarter of 2008/09 to the end of April saw more difficult conditions in
the US. While the New York flagship store was buoyed by tourist spending,

TIFFANY & CO
with sales up 16.0%, the remainder of its US business saw comparable store
sales fall 4.0%. Overall in the US, comparble store sales were flat. The Asia-
Pacific region was boosted by new store openings, with turnover rising
10.0% in constant currency terms, and Europe rose 30.0% on the same
basis. Operating profits rose 17.5%, to $103.3m.
• Overall, international sales are expected to outweigh the US slowdown, and

the company forecasts full-year sales up 10.0%.
Figure 25: Tiffany & Co regional sales, watches & jewellery 2003 & 2008e
% 70
61.0
60 57.0
50
40
30 26.0
20 16.0
13.0
9.0
10 5.0 5.0 5.0
3.0
0
US Japan Other Asia- Europe Other
Pacific International
2003/04 2008/09e
• Tiffany’s Japanese business has been severely hit by the downturn in the
department store sector there and as a result has contracted dramatically.
However, the overall proportion of overseas sales has expanded due to the
outperformance of the Asia-Pacific region and Europe, with a combination of
positive comparable store sales, new branch openings and favourable
currency movements.

TIFFANY & CO
Figure 26: Tiffany & Co. sales by product area, 2003 & 2008e
% 100
90 87.0
82.0
80
70
60
50
40
30
20 15.0
11.0
10 3.0 2.0
0
Jewellery Watches Other
2003/04 2008/09e
• While Tiffany does sell product in other categories, jewellery is becoming

even more important to the business as a whole, particularly pieces
incorporating diamonds. The new venture with Swatch can be expected to
provide a significant lift to Tiffany's watch turnover, which until now has
remained very limited.

TIFFANY & CO
Store Portfolio
Table 51: Tiffany & Co number of retail stores 2003-2008
Year to End
January 2003 2004 2005 2006 2007 2008
United States
47 51 55 59 64 70
Y-o-Y Change % 6.8 8.5 7.8 7.3 8.5 9.4
Japan 48 50 53 50 52 53
Y-o-Y Change % 2.1 4.2 6.0 -5.7 4.0 1.9
Asia Pacific 20 22 24 25 28 34
Y-o-Y Change % - 10.0 9.1 4.2 12.0 21.4
Other* 16 18 19 20 23 27
Y-o-Y Change % 6.7 12.5 5.6 5.3 15.0 17.4
Total 131 141 151 154 167 184
Y-o-Y Change % 4.0 7.6 7.1 2.0 8.4 10.2
*Other includes stores in Europe, Canada and Central/South Americas.

• Tiffany has been growing its store portfolio rapidly in the past five years, with
a particularly strong pace of development in 2007/08, opening 21 stores (10
of them outside the US and Japan) and closing four branches, three of them
in Japan.
• The company plans to accelerate its store opening programme in 2008/09,

with six new branches in the US and 18 in overseas markets. They will
include locations in Los Angeles (two), West Hartford (Connecticut),
Uncasville Mohegan Sun (Connecticut), Columbus (Ohio) and Pittsburgh.
International openings already planned include Australia, Belgium, Germany,
the UK (Heathrow Airport), Spain, Ireland, China (two stores) and Japan
(four).
• In May 2008 Tiffany announced it would be opening a new 2,800 sq ft store

in the Westfield shopping centre in White City in west London, scheduled for
autumn 2008.

TIFFANY & CO
Outlook
• Home market in the US appears to be slowing. The 2007/08 financial year

as a whole was a good one for Tiffany, but the fourth quarter of the year and
the first of 2008/09 have seen US sales grind to a halt, only being saved by
the effects of tourist spending in New York. The home market still accounts
for 57% of sales, so if the economy suffers a recession in 2008 and into
2009, this is likely to hit Tiffany's performance.
• International business remains buoyant. Aside from the depressed

Japanese market, Tiffany is performing well internationally, both in Europe
and in the Asia-Pacific region. It has considerable scope for growth in both,
since its presence in both is small compared to some luxury groups. It also
has potential for growth in other regions like Latin America. This should
counteract any underperformance in the US.
• Watches provide a growth opportunity. The venture set up with Swatch to

produce and sell Tiffany watches provides a whole new area for potential
growth for the business, which until now has had only a tiny business in this
buoyant market segment. If it does manage to increase its sales in this area,
it will also provide a counterbalance to the very high dependency on diamond
jewellery, which could be vulnerable to future fashion trends.
• Store growth will increase market share. Like other jewellery businesses,
Tiffany still has a comparatively small market share. Its growing store
network, both in the US and in its newer markets will enable it to capture
market share from competitor jewellers lacking Tiffany's high-profile brand
name and unique product offer. Its emphasis on own-brand and exclusive
product development will give it a further advantage in expanding in overseas
markets.

TSUTSUMI
CHAPTER 12 TSUTSUMI
Company Overview
Table 52: Tsutsumi company overview 2008
Founded: 1962
Headquarters: Warabi, Saitama Prefecture, Japan
President & Representative Director: Sieji Tsutsumi

Director of Administrative Division: Satoshi Tagai
Share of Global Jewellery Market 2008e: 0.3%

Brand Portfolio: Satsuma Jewelry, Tsutsumi Jewelry
• Tsutsumi was set up in 1962 by its president, Seiji Tsutsumi, incorporating as

the Tsutsumi Precious Metals and Crafts Company in 1973 and then
changing its name to Tsutsumi Jewelry in April 1988.
• Three years later, in September 1991, it undertook an initial public offering

and is now listed on the Tokyo stock exchange.
• The company has around 160 stores, centred on the Tokyo region, where
the company is based, but ranging from Osaka in the south of Japan to
Tohoku region in the north. It also sells its products on a wholesale basis,
often through department stores and through a transactional website. Retail
accounts for around 90.0% of its revenue, the rest is via wholesale.
• Tsutsumi's business model is based on in-house production, and this

supplies about 90.0% of all the jewellery it sells. The company’s activities
include gem purchasing, manufacturing and processing.

TSUTSUMI
• Its three factories produce in the region of 1m rings and accessories every
year, using 340,000 carats of gems a year and six tons of gold and platinum.
• Extensive vertical integration of the business has enabled the company to

maximise its margins and compete in a very tough Japanese retail
environment.
• Its market positioning is based on reasonably priced, casual jewellery styles,

mostly for every day wear, with an emphasis on pretty, feminine styles.
Typical prices range from $40 for silver and crystal jewellery to $120 for a
ring incorporating 14 carat white gold and diamonds. Prices are often
discounted heavily, by up to a third.
Sales Performance
Table 53: Tsutsumi trading record 2004-2009e
Year to March 2004 2005 2006 2007 2008 2009e
Total Sales ¥m 26,891 27,194 29,518 30,441 31,706 33,291

Y-o-Y Change % 2.1 1.1 8.5 3.1 4.2 5.0
Operating Profit ¥m 5,674 5,267 6,064 5,893 5,251 ---
Source: Tsutsumi, Verdict Research VERDICT
• Tsutsumi has seen growth in each of the past five years in a national
jewellery market that has been exceptionally difficult. Its operating profit
margin, though reduced in 2007/08, is above the average of 15.6% for the
group of 10 companies profiled in this report.

TSUTSUMI
Table 54: Tsutsumi trading record in US$ 2004-2009e
Year to March 2004 2005 2006 2007 2008 2009e
Total Sales $m 241.0 243.0 264.0 272.0 284.0 298.0

Y-o-Y Change % 2.1 1.1 8.5 3.1 4.2 5.0
Source: Tsutsumi, Verdict Research VERDICT
• The financial year 2007/08 was another year of growth, with sales rising
4.2% to ¥31.7bn, though operating profits slipped back slightly to ¥5.3bn.
The first half was particularly difficult, with sales falling 1.7% to ¥14,043m,
but trading recovered and the second half was considerably better.
• Results presented by the company suggest that second half sales were up
9.3%, comparing 2007/08 with the previous year. We forecast continued
growth of 5.0% for 2008/09.
Stores
• Tsutsumi's stores are in a mixture of locations, ranging from shopping malls,

and city centre shopping areas to railway stations. In March 2008 it had 162
stores, which it aims to increase by about 10 every year.
• Store interiors are modern, sleek and minimalist, with midfloor cabinet-tables
and cream, white and chocolate coloured materials.

TSUTSUMI
Outlook
• Tsutsumi will continue its steady growth. Despite the exceptionally

difficult retail climate in Japan in the last decade, the company has managed
to expand and maintain high profit margins, which is a rare achievement in
the middle-to-lower price segment of the jewellery market and is testament to
the value of having a vertically integrated business in jewellery retailing. Also
its positioning of its well priced product aimed at casual every day wear has
managed to tempt female consumers to spend on jewellery for themselves
as part of their general wardrobe budget, rather than seeing products as
special one-off purchases.
• Store expansion could be accelerated. It appears Tsutsumi is being run

on an exceptionally conservative basis, with only 10 stores opening a year.
Given the profitability the company enjoys, it might be possible to accelerate
this to build up the chain's nationwide presence. Given the problems being
experience by department stores, which account for much of Tsutsumi's
wholesale turnover, it will need to add to its portfolio of standalones to
compensate for this.
• Tsutsumi's business model could be exported overseas. Though it

would require the company to take on considerably more risk than it has
done until now, and distribution costs will be higher, it could find it has a more
widespread appeal outside the Japanese market, especially in the rest of the
Asia-Pacific region.
• Other market segments could be pursued. At the moment, Tsutsumi is

mainly focused on the middle-to-lower end of the market. It might be possible
to develop ranges or formats aimed at the level of the market just below the
international designer jewellery brands, where price still remains an important
part of the buying decision. Tsutsumi's competitive business model could
give value for money but at a higher price point, which might attract
customers looking for special occasion items like bridal jewellery.

ZALES
CHAPTER 13 ZALE CORPORATION
Company Overview
Table 55: Zale Corporation company overview 2008
Founded: 1924
Headquarters: Irving, Texas
President & CEO: Neal Goldberg

Executive VP and CFO: Rodney Carter
Executive VP and Chief Sourcing & Supply Chain
Officer: Gilbert P Hollander
Group Senior VP and Chief Merchandising Officer: Stephen R Lang

Gordon's Jewelers, Mappins Jewellers of Canada,
Watch & Jewellery Brand Peoples Jewellers, Piercing Pagoda, Plumb Gold,
Portfolio: Silver and Gold Connection, Zales Jewelers,
Zales Outlet
• Zale Corporation was founded in 1924 by Morris and William Zale with a
single jewellery store in Wichita Falls in Texas. The business expanded in
the pre-war period, helped by offering its customers credit-based purchase
plans. In 1958 it floated on the stock exchange and grew rapidly by
diversifying into other retail sectors, reaching 1,700 stores in the 1970s.
• In 1986 Zale Corporation was the subject of a leveraged buyout by Peoples

Jewellers of Canada, and Austrian crystalware company Swarovski. It
continued to expand, buying Gordon's Jewelers in 1989.

ZALES
• Its fortunes hit a nadir in 1992 when it filed for Chapter 11 bankruptcy, but by
the late 1990s trading had recovered, allowing it to make further acquisitions,
including Piercing Pagoda in 2000.
• All its sales are now in the US, Canada and Puerto Rico. Its main retail
chains are: Zales Jewelers, a mass market retailer offering moderately priced
jewellery; Zales Outlet, catering for women with slightly higher incomes
buying for themselves; Gordon's Jewelers, another moderately-priced retailer
focusing on a reputation for good customer service; Peoples and Mappins,
occupying a similar position to Zales in the Canadian market; and Piercing
Pagoda, aimed at opening price point customers for precious jewellery. It
also operates transactional websites for Zales and for Gordon's.
• In November 2007, Zale Corporation sold the upmarket Bailey Banks &
Biddle jewellery retail business with 70 stores for $200.0m to Finlay Fine
Jewelry Corporation.
• The company announced a cost-cutting programme in February 2008 aimed

at reducing costs by $65.0m. It included reducing the head office job count
by 225, equivalent to 20.0% of the total, an increase in the number of
planned store closures by 23 to 105 and a reduction in capital spending from
$85.0m in 2007/08 to $45.0m in 2008/09.
• The company has recently expanded the amount of product it sources

directly from manufacturers and suppliers, rising from 27.0% in 2005/06 to
35.0% in 2006/07. It also has a diamond procurement and assembly
operation, which accounted for an increasing proportion of Zale Corporation's
total sales in 2006/07, rising to 8.5% from 4.4% in the previous year.

ZALES
Sales Performance
Table 56: Zale Corporation trading record 2003-2008e
Year to July 2003 2004 2005 2006 2007 2008e
Total Sales $m 2,212.0 2,304.0 2,383.0 2,439.0 2,437.0 2,212.0

Y-o-Y Change % 0.9 4.2 3.4 2.3 -0.1 -9.2
Source: Zale Corporation, Verdict Research VERDICT
• Zale Corporation saw a slight decline of 0.2% in comparable store sales in

the year to 31 July 2007, with total sales virtually level at $2,437.1m.
Operating profits were $103.1m, a 27.1% improvement on the previous
year's figure. Profits were helped by improved cost control and gross
margins, as the company moved away from an aggressive pricing strategy
pursued in the previous financial year.
Current Trading
• Sales and profits were disappointing according to the company in the first six
months of 2007/08 to the end of January. Revenues for the period were
down 5.4% to $1,205.1m. Comparable store sales fell 5.1% as the number of
transactions fell 8.0%. The kiosk jewellery segment of its business, which
principally covers entry price-point chain Piercing Pagoda, saw the biggest
decline, down 10.9%, mainly due to store closures. Operating profits fell by
47.2% to $50.0m.
• The third quarter, to the end of April, saw an improvement in sales

performance, with comparable store sales up 5.8% as the group undertook
an aggressive stock clearance.

ZALES
Stores
Table 57: Zale Corporation number of retail stores 2003-2008e
Year to July 2003 2004 2005 2006 2007 2008e
Zales 755 757 767 784 789 780

Y-o-Y Change % -0.3 0.3 1.3 2.2 0.6 -1.1
Gordon's 287 287 287 293 282 270

Y-o-Y Change % -3.7 0.0 0.0 2.1 -3.8 -4.3
Peoples 167 163 168 175 193 190

Y-o-Y Change % -2.3 -2.4 3.1 4.2 10.3 -1.6
Piercing Pagoda 813 798 812 817 793 723

Y-o-Y Change % -5.1 -1.8 1.8 0.6 -2.9 -8.8
Other 212 229 311 280 207 182

Y-o-Y Change % 0.0 8.0 35.8 -10.0 -26.1 -12.1
Total 2,234 2,234 2,345 2,349 2,264 2,145

Y-o-Y Change % -2.7 0.0 5.0 0.2 -3.6 -5.3
Source: Zale Corporation, Verdict Research VERDICT
• After seeing some expansion in its store portfolio in 2004/05, 2006/07 saw
cutbacks in Zale Corporation's retail network. All 76 locations of the Peoples
II chain were closed as well as 38 Piercing Pagoda branches.
• The disposal of the Bailey Banks & Biddle chain, as well as other closures
are expected to bring the final year-end total down to 2,145 stores in July
2008, a fall of 5.3%.
• In the first half of 2007/08, the company spent $24.0m to open 22 new stores
for its fine jewellery chains and four new kiosks, as well as on refurbishments
and relocations. By the end of 2007/08 it expects to have spent another
$34.0m on 30 new stores and kiosks as well as work on existing stores.

ZALES
Outlook
• Zale Corporation faces a very tough US market. Unlike fellow US

jewellery retailers Signet Group and Tiffany & Co, Zale does not have the
advantage of being able to balance off its exposure to the middle and lower
end of the market with either premium or overseas businesses. In the third
quarter of 2007/08 its clearance activity flattered its sales but has severely
hurt its profitability, which was already under pressure at just 4.2% operating
margin in 2006/07.
• Consumers to come under further pressure from credit crunch and oil
prices. Zale Corporation's customers are likely to find their budgets
squeezed by the impact of fuel price increases and, being a discretionary
spending item, jewellery is likely to be one of the first items to be cut. This
has shown up in the falling number of transactions in the group's stores as
consumers simply cancel shopping trips for non-necessities.
• Scale of operations offers some compensation. As well as enjoying

considerable operational economies of scale, Zale will be able to exploit its
buying power and possibly claw back some margin, though this will be
difficult in a situation where raw materials prices have been rising, particularly
for gold, silver and platinum.
• Zale Corporation is now the second placed specialist in the US market.

It has been overtaken by Signet Group, which now has a turnover of $2.7bn
a year and a much stronger operating margin and so is better placed to
weather any downturn. Zale is likely to come under severe competitive
pressure from its larger rival and is likely to resort to more cost cutting to
preserve its remaining profitability.

GLOSSARY
CHAPTER 14 GLOSSARY
Abbreviations
GDP: Gross Domestic Product
PPP: Purchasing power parity
OOT: Out-of-town
VAT: Value Added Tax
Y-o-Y: Year-on-year
Financial Statistics – VAT
In company profiles, where we are quoting or working with sales figures provided by a
company, the sales are ex-VAT. Therefore, operating margins are quoted and
calculated on ex-VAT sales.
In The Market section all sector sales figures and consumer spending data include
VAT.
Currencies: The symbol $ refers to the United States Dollar unless

otherwise specified (e.g. A$ for Australian Dollar). Rs
refers to Indian Rupees and SFr for Swiss Francs.
Exchange Rates: Year by year conversion of local currencies to the US

Dollar has been avoided due to the distorted view this
would give of comparisons between years. Currencies
have been converted at six-year (2003-2008e) average
values against the United States Dollar.
Computer rounding: Some percentages do not add to exactly 100 due to

computer rounding.
Source – Verdict Research: Where sources such as government data and

company accounts fail to provide a comprehensive market picture, Verdict produces
estimates by corelating and extrapolating from the most reliable sources available,
including expert in-house views.

GLOSSARY
Jewellery Market Definition
• This report focuses on the retailing of precious jewellery and watches i.e.
excluding costume jewellery. Our market is made up of consumer
expenditure on these goods.
• We have divided the market regionally into:-
– Japan;
– the rest of Asia-Pacific (which includes China, India, and Australasia);
– the Americas, which is primarily the USA and Canada;
– Europe, including Russia and all countries on the European Continent;
– and the Middle East and Others, which is primarily the Middle East.
• The profiles included were selected as key industry players that cover the
spectrum of operators – from major luxury groups like Richemont and LVMH,
to mass market operators like Signet Group and Zale Corporation and
newcomers like India's Gitanjali Gems.
Part of Verdict’s European Retail report series


Global Jwellery

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Global Jwellery

Hochgeladen von

Copyright:

Verfügbare Formate

Global Jewellery Retailing

Reference Code: DMVT0450

Publication Date: 7/08

Verdict Research Ltd is a wholly owned subsidiary of Datamonitor Plc. Datamonitor

All Rights Reserved.

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

CHAPTER 1 EXECUTIVE SUMMARY 13

CHAPTER 2 MARKET ANALYSIS 18

Jewellery Market Definition 18

Middle East & Others 32

Company Market Shares 37

Key Operating Statistics 40

CHAPTER 3 OUTLOOK & FORECAST 42

Where Will Global Economic Slowdown Bite? 42

Rise and Rise of Controlled Retail 43

Value Chain Integration 45

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

Rapid Rise in Commodity Prices 47

Forecast Expenditure 2008-2013 49

Regional Expenditure 2008-2013 50

Expenditure by Product Group and Market Segment 2008-2013 53

Recent Key Developments (Jewellery & Watches) 61

Recent Key Developments 70

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

CHAPTER 6 GITANJALI GROUP 75

Recent Key Developments 76

Recent Key Developments (Watches & Jewellery) 82

Recent Key Developments (Watches & Jewellery) 90

CHAPTER 9 SIGNET GROUP 99

Recent Key Developments 101

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

Sales Performance 101

Current Trading 103

Store Portfolio 107

CHAPTER 10 SWATCH GROUP 112

Company Overview 112

Recent Key Developments 113

Sales Performance 114

Current Trading 116

CHAPTER 11 TIFFANY 118

Company Overview 118

Recent Key Developments 119

Sales Performance 120

Current Trading 120

Store Portfolio 123

CHAPTER 12 TSUTSUMI 125

Company Overview 125

Sales Performance 126

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

CHAPTER 13 ZALE CORPORATION 129

Company Overview 129

Recent Key Developments 130

Sales Performance 131

Current Trading 131

CHAPTER 14 GLOSSARY 134

Financial Statistics – VAT 134

Jewellery Market Definition 135

GLOBAL JEWELLERY RETAILING 2008 DMVT0450

Table 1: Jewellery market – global consumer expenditure on jewellery and

Table 2: Jewellery expenditure by region 2003-2008e 19

Table 3: Y-o-y change % in global jewellery spend by region 2003-2008e 20

Table 4: Jewellery expenditure by market segment 2003-2008e 21

Table 5: Jewellery and watch expenditure by product group 2003-2008e 34