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Investors In Mid-Market Jewelry Stocks Face Uncertain Returns
With the exception of a few brands, i.e., Rolex, jewelry prices have always been elastic, such that high prices meant lower unit sales, but not linearly. Just how elastic has been a function of disposable income. Accordingly, assuming Tiffany's core customer's disposable income is disproportionately higher than say Zale's younger customer, higher gold prices will have less of an effect on Tiffany sales than say Zales, Kays, etc.
Also, gold and precious metals make up a much smaller percentage of product value in diamond products for Tiffany than in the case of Zale. Indeed, Zale says that they have materially lowered price points which likely means gold as a percentage of total product cost has increased, since you can lower diamond quality, content, and value easier than reduce gold weight below a minimum value.
Still, some luxury brand research has suggested affluent consumers are resistant to paying the premium for brand names, resorting to local and regional guild jewelers that sell product of equivalent quality and craftsmanship as Tiffany et al., but without the premium.
Another point, since stock returns are in large part inflation driven with QE1...3, as are jewelry commodity and diamond/gem prices, it remains to be seen if affluent consumers will continue to pay an "inflation premium" for those products, opting instead for other luxury items that have been much less affected by material inflation, relatively speaking.
Anyway, hope this aids your decision-making process.
Oct 3 05:57 PM
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