helzberg diamonds 

Dramatic Reinvention Saves Helzberg diamonds Jewelers During Tough Market 

Helzberg diamonds, a unit of Berkshire Hathaway Inc., carries the exclusive Diamond Masterpiece and Radiant Star brands. Jared has the Leo Diamond. Gordon's Jewelers has the Gordon's Diamond, but most customers cannot tell the difference...

By THOMSON DIALOG: NewsEdge Posted: 7/17/2006 

(found at Rapaport...Virginian-Pilot, NORFOLK) As David Nygaard watched his fellow independent jewelers struggle or close their businesses, he realized he had to take a dramatic step.

At the end of 2002, he had one store in Virginia Beach with faltering sales and a staff of four. Within three years, David Nygaard Fine Jewelers grew to six locations throughout the region and about 36 employees.

"I saw the trends a few years back, and I knew I didn't want to be stuck in the middle. We were doing well, but for us to really thrive, we needed to expand," Nygaard recalled. "Really, the threat was to individual, single-store operators."

The threat has come from chain stores -- but not only from specialty jewelry giants such as Zale Corporation and Signet Group (owner of Kay Jewelers and Jared the Galleria of Jewelry.) They, too, are losing market share to the biggest retail behemoth of them all, Wal-Mart Stores, which sells more jewelry than any other United States retailer. 

Wal-Mart, the wholesale clubs, television shopping networks and, increasingly, the Internet have forced jewelers large and small, local and national, to rethink their strategies. From the fanciest diamond dealers to the outlets that sell most of their trinkets on credit, all are looking for ways to attract that price-conscious consumer.

Competition is fierce. Some Hampton Roads shopping malls have no fewer than a dozen fine-jewelry stores -- not including freestanding chains such as Jared, with a store in the Lynnhaven area of Virginia Beach, and locally owned shops in many communities.

Mary Jo LeFevre, owner of Facets Jewelers in Virginia Beach, closed her downtown Norfolk location in 1999 when MacArthur Center opened with a half-dozen jewelry stores. Now, she said, she sees the Internet as the greatest potential influence on the industry.

Some of her diamond suppliers are selling their goods directly to consumers online, she said. They can offer a wider selection and charge less.

"Things are changing radically and quickly," LeFevre said. "I don't know exactly where it's going."

The gem battle intensified in 2006, after sales growth in 2005 slowed to 3.8 percent from the prior year, reaching $59.4 billion. By comparison, sales jumped 6 percent in 2004 from 2003 and 5.2 percent the year before, according to United States Department of Commerce statistics.

Regional jewelry sales show a similar deceleration. In the four South Hampton Roads cities with enough jewelry retailers to track by category -- Chesapeake, Norfolk, Portsmouth, and Virginia Beach -- jewelry sales in the first half of 2004 jumped more than 7 percent from the first six months of 2003. In the first half of 2005, sales growth slowed to 3.4 percent from the previous year, the Virginia Department of Taxation's sales tax data showed.

After the second quarter of 2005, the state stopped classifying retailers as selling "jewelry, luggage and leather goods" -- the category most specific to specialty jewelers -- and began lumping jewelers in a broader category with clothing, shoes and accessories. In neither case does the data include jewelry sales at local Wal-Mart or Costco stores or other retailers that fall outside that classification.

In a sluggish sales environment, Nygaard said, a jeweler needs a strong identity to separate from the pack. He saw his niche in the high end with an array of more expensive goods, in addition to items as low as $99 to provide "luxury for the masses." He has tried to distinguish himself from Zales, Whitehall Jewellers, and Reeds jewelers and other mall stores, even as he added locations to boost the benefits of convenience and brand awareness that the chains have always promoted.

With economies of scale and little extra overhead, Nygaard found he could stretch his costs over multiple stores, making each more profitable. He now has locations at Hilltop, Red Mill Commons, and Town Center in Virginia Beach, the Greenbrier area in Chesapeake, Newport News and Williamsburg.

In 2005, sales climbed between 8 and 12 percent in stores open at least 12 months, he said. The chain will tally sales close to $12 million this year, he predicted.

"It seems to me that you're going to have to make a stand somewhere," Nygaard said. "You're going to have to make a stand on price, and you're going to have to make a stand on quality."

Finding it difficult to compete on price, some have given up sales to discount stores and the Internet. Blue Nile -- which is to diamonds wha amazon.com jewelry  is to books -- has developed a sparkling reputation with jewelry consumers. Its average sale for a diamond engagement ring is $5,500, compared with $2,700 for a ring sold in stores, said Ken Gassman, president of the Jewelry Industry Research Institute in Richmond.

It's not so much the competition but the demands on the individual merchant, working six or seven days a week, that finally convinced LeFevre to make a change. In the jewelry business since 1979, she hopes to sell Facets and perhaps work for new owners part time, she said.

About 500 specialty jewelers, mostly independents, shut their doors each year. For each small merchant who hangs up his polishing cloth, the major chains open a new store.

The trend hit home late last year, when Barr Bros. Jewelers announced it would close three local stores -- in the downtowns of Norfolk, Suffolk and Portsmouth, where it owned Chapman Jewelers. The 73-year-old business, which once had 21 stores across Virginia and North Carolina, finally gave up the fight against chain stores and discounters, Margaret Holland, manager of the Suffolk store, said at the time.

Specialty jewelers, including the mass-market chains, account for 47.3 percent of all jewelry sales today, said Gassman. Ten years ago, those dealers represented about 50 percent of the market.

Unlike other mom-and-pop shops that have long since lost ground to big boxes and discounters, these jewelers have managed to hold their positions by selling a product that most consumers need help buying. Almost every transaction is unique to that customer in size, setting, style, gem quality and price.

Independent jewelers, then, can set themselves apart with their service. "How can you get your pearls restrung on the Internet?" LeFevre asked. "You can't."

A David Nygaard customer receives a small box of gourmet chocolates inscribed with the jeweler's name. The stores also have a concierge. For a customer who buys an engagement ring and plans to propose over dinner, the concierge will make restaurant reservations at places such as Ruth's Chris Steak House and Aldo's Ristorante -- and will pick up the tab.

"If they're spending $10,000, the least we could do is give them a nice dinner," Nygaard said.

Jewelry retailing also has avoided the consolidation of other industries because it remains a highly fragmented business, with so many players that even the largest claim is only a small slice of the pie. Wal-Mart's jewelry sales amount to about 5 percent of the market, while the top four retailers enjoy about 17 percent of sales. By comparison, in the home improvement sector, the dominant chains Lowe's and Home Depot make up about 40 percent of the market.

With more than 40,000 individual places to buy jewelry in the United States, including department stores, it's difficult to distinguish one brightly lit counter filled with sparkling gems from the next. Mass-market mall stores, in particular, target similar customers with similar prices and products.

When Zales opened earlier this year in MacArthur Center, the manager of the Kay Jewelers store applauded the opportunity for the new store to help draw shoppers, said Karen Winters, the mall's marketing director. "They were very excited at having Zales open."

Helzberg Diamonds 

Helzberg Diamonds doesn't compete for the same shopper as its mall counterparts, said Stacey McBride, a spokeswoman for the company, which has stores in MacArthur Center and Lynnhaven Mall. The store prides itself on "straightforward pricing," with no haggling. "What our price is, is what we sell it for," she said.

Helzberg diamonds, a unit of Berkshire Hathaway Inc., carries the exclusive Diamond Masterpiece and Radiant Star brands. Jared has the Leo Diamond. Gordon's Jewelers has the Gordon's Diamond, but most customers cannot tell the difference.

Nygaard, 42, took over his mother's jewelry business, Sandy's Touch of Gold, in 1995. Envisioning diamonds as the future, he shifted the store's emphasis to better-quality gems and changed the name.

Nygaard said he sees enough potential business to justify further expansion, perhaps two or three more stores. He acknowledged that he gambled on the strategy to grow bigger.

"But the reality is," he said, "if you don't risk, if you don't expand, you're probably going to fail anyway."

Copyright 2006, The Virginian-Pilot

© 2006 Dialog, a Thomson business. All rights reserved. 

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