With a relentlessly tough job market and continuing downward spiral in house prices putting the brakes on the American middle classes' propensity to spend, sales of items not classed as necessities have taken noticeable downward dip.
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Fewer Now Saying It with Diamonds
Judging by the recent sales data emerging from the jewelry industry, it now appears that the persistence of tough times for a sizable swath of middle America is continuing to force many to forgo those small relatively inexpensive items of "bling" that would normally be a natural purchase for anyone in a relationship. And that trend appears to be taking its toll on a once thriving industry.

Sales Slump Still Hurting Zales
Among the major casualties of this spending slowdown on jewelry is Zales (NYSE:ZLC), a jewelry retailer who's business targeting the "middle" jewelry market continues to suffer due to a combination of shrinking overall demand and intensifying competition over what remains. While the company managed to pare back its losses from horrendous to slightly better than expected in its latest quarter, the company's same store sales, a key measure of retail health, continue to head lower.

New CEO Pulls Company Back from Brink
Coming up with a new strategy to turn sales around will no doubt be uppermost on the mind of newly installed Zales' CEO, Theo Killion. His move into the top executive's seat comes after a several months of holding the reins on an interim basis during which time he navigated the company through a funding crisis and kept alive a critical relationship with Citigroup (NYSE:C), who arranges the issuance of the retailer's branded credit card. Roughly 40% of Zale's U.S. sales are made using those cards.

Sales Slowdown Industry Wide
But while Killion's recent efforts may have pulled the company back from the brink, turning it into a profitable operation won't be easy. The slump in "mid-market" jewelry sales looks to be broad and deep. Rivals such as Signet Jewelers (NYSE:SIG) and Tiffany & Co. (NYSE:TIF), whose overall sales numbers have been buoyed by recovery in sales to high-end customers, have nevertheless reported soft sales of lower priced items.

On-line Jewelry seller Blue Nile (Nasdaq:NILE) has also reported a slowdown in sales in which prompted the company to revise downward its estimate of earnings per share for 2010 to the 94 cents to $1 range. While that did trigger a moderate sell-off in the stock, at over $44, Blue Nile shares still trade at over 44 times this years earnings; a surprisingly lofty valuation given the weak fundamentals of the jewelry market.

The Bottom Line
Judging by all the TV ads one sees these days feature adrenaline-charged pitchmen offering to buy people's "scrap" gold jewelry, it's fairly clear that less affluent consumers are more inclined to be divesting their jewelry at this point than to buy more of it. That's just a consequence of a tough job market that doesn't seen to be getting any better. It's hard to see any immediate turnaround in jewelry sales at this juncture. Moreover, with the price of gold bullion moving steadily higher, the jewelry retailers are going to have to swallow the resulting increase in their costs as weak demand suggests there's little chance that they'll be able to pass along the increase to their customers. (This precious metal's rich history stems from its ability to maintain value over the long term. To learn more, see 8 Reasons To Own Gold.)

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Tickers in this Article: ZLC, SIG, TIF, NILE, C

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