What will happen to luxury spending this winter?

Revenues in the jewellery industry have amounted to $4.03bn (£3.53bn) in 2022, with the market expected to grow annually by 5.6%, according to Statista. The global jewellery market size is expected to reach $518.9bn (£454.87bn) by 2030 and expand at a CAGR of 8.5% from 2022 to 2030, a report by Grand View Research, Inc reveals. The luxury goods industry continues to drive the market for jewellery, despite current macroeconomic challenges and concerns around inflation, and the industry is weathering the storm better than others. “Looking at recessions, jewellery has longevity when retailers are able to find the right product. Those feelings and stories created, especially into the festive season, is not something that other category sectors can say,” says Ben Massey, principal officer at the National Association of Jewellers (NAJ). However, many believe the highs of summer are expected to be short-lived in anticipation of austerity amid the impending energy crunch set to hit UK households by October. The British Retail Consortium (BRC) found that total UK footfall decreased by 12.4% in August compared to pre-Covid levels, with England seeing the shallowest footfall decline at -11.2%, followed by Northern Ireland at -11.5%, and Wales at -13.1%. Scotland again saw the steepest decline at -14.8%. This therefore raises the question of what luxury spending will look like for the rest of the year. Winter outlook “We expect there to be some squeeze, particularly as people's household incomes are being hit by the energy crisis,” says Jeremy Hinds, sales director at F.Hinds. “Rising energy costs will impact us as a business. We're going through a period now where we're going to have to change our energy suppliers, and that's going to increase our cost base.” As such, the company has seen a drop in transactions. However, as opposed to retail industries which are seeing customers tighten their purse strings, the jewellery sector has a more optimistic outlook for the winter, as Hinds reveals the company has seen an increase in average transaction values (ATV). “People seem to be taking longer to make purchases, but at the same time they're definitely spending more,” he says, particularly as customers have “a little bit more income” from saving on spend throughout various Covid-related lockdowns over the last few years. Overall, F.Hinds has seen a strong year of trading and predicts that this will continue on. “Instead of making lots of smaller purchases, customers are likely to make one or two large purchases.” Hinds adds: “We generally do well during economic times of uncertainty. People still seem to shop with us and sometimes trade over towards us more, so we're continuing to look to expand.” Similarly, on the higher end of the luxury market, Stephen Webster believes that although some challenges are expected, it doesn’t currently see any signs of a market downturn. “As it stands, I'm not doing any reforecasting for any of the current news because I've had no longer-term orders cancelled,” says Stephen Webster MBE, founder of the eponymous jewellery brand. As the company’s reach is widespread and not reliant on any single market, Webster is instead waiting to see what impact rising energy costs and the cost-of-living crisis will have before making any changes to the business. Generally, Stephen Webster caters to a mixed client base, and wealthy clients are said to be “impacted less” by these challenges. Overall, some 30% of Stephen Webster’s business runs on bespoke commissions, and this business hasn’t seen any downturn at all. “I feel pretty good about the rest of the year, despite all the news being doom and gloom, because people have still got money, there's still all the signs of that,” he says. Its newly-launched bridal business is currently remaining “consistent” and its mens/unisex category has also “seen a lot of enthusiasm this year”. However, these tend not to be the company’s higher price points, according to Webster, so whether this will get impacted by current economic headwinds is “quite possible because you're not necessarily dealing with wealthy people”, but this is yet to be seen. “We’re in a place the younger generation has never been before. It might well be the case that people will be tightening their belt in the all important Christmas period,” Webster says. “However, we're making sure we offer as many opportunities as we can for our clients and new clients to be exposed to what we have on offer, for example through talks and focus groups.” How to weather the storm “When something so instant and extreme happens, like the crisis in Ukraine, you have to reforecast; you can't carry on as though nothing has happened,” Webster warns. “You have to lower your expectations and lower your costs and rounds.” Massey adds: “Behaviour is contagious. As much as negative behaviour can affect sales, so can positive behaviour.” He suggests that retailers maintain adaptability, ensure there’s relevance in products, and maintain excellent customer service both in-store and online to continue attracting customers in the months ahead. “We have also been writing to Parliament, alongside other retail association bodies,” he says, “calling for more support for all jewellery businesses with regards to energy price caps and a reduction on business rates.” The NAJ is also reviewing its continued investment into its training courses to help retailers survive times of uncertainty, and ergo the association has seen “one of the strongest years” for its education offering. Meanwhile, Webster emphasises that for smaller and independent jewellers to continue attracting customers in the impending winter months, they must connect with customers beyond their showroom. “If you're just gonna wait for people to walk in, you will be impacted to the maximum, but if you're very proactive then you will ride it out.” “Connecting with your community and engaging with what is going on in that community is a really great way of bringing in people that probably may or may not have walked in,” he says. “So often people know you're there, but they never come in. One connection with them and they're in the door.” Moreover, Hinds says that if something has worked in the past, jewellers should refocus on that. “Don't make massive changes just for the sake of it,” he says. “It's down to each individual business to understand what they do well, and make sure their unique selling point is out there and consumers are picking it up.” So, as to whether luxury spending will be impacted by rising energy costs and the subsequent hit to discretionary spending, this is yet to be seen. As the jewellery sector is not currently seeing any signs of a turndown, there is little to no expectations of a difficult winter ahead.