UK Merchandising and Purchasing
Management believes that the UK division’s leading position in the UK jewelry sector is an advantage when sourcing merchandise, enabling delivery of better value to the customer. An example of this is its capacity to contract with jewelry manufacturers to assemble products, utilizing directly sourced gold and diamonds. In addition, the UK division has the scale to utilize sophisticated merchandising systems to test, track, forecast and respond to consumer preferences. The vast majority of inventory is held at stores rather than in the central distribution facility.
The UK division sells an extensive range of merchandise including gold and silver jewelry, watches, diamond and gemstone set jewelry and gifts. As with other UK specialty retail jewelers, most jewelry sold is 9 carat gold.
Average merchandise unit selling price (£)
| Fiscal 2010 | Fiscal 2009 | Fiscal 2008 | Fiscal 2007 | Fiscal 2006 | |
|---|---|---|---|---|---|
| H. Samuel | 52 | 48 | 44 | 42 | 38 |
| Ernest Jones(1) | 228 | 203 | 180 | 163 | 148 |
(1) Excluding the charm bracelet category
Merchandise Mix
The average unit selling price increased by 6% in fiscal 2010, reflecting price increases implemented during
fiscal 2010 and merchandise mix changes. Value items and the charm bracelet category performed well.
UK division merchandise mix (excluding repairs, warranty and other miscellaneous sales)
| Fiscal 2010 % | Fiscal 2009(1) % | Fiscal 2008(1) % | |
| Diamonds and diamond jewelry | 30 | 30 | 31 |
|---|---|---|---|
| Gold and silver jewelry, including charms | 22 | 21 | 21 |
| Other jewelry | 11 | 11 | 11 |
| Watches | 30 | 30 | 29 |
| Gifts and other | 7 | 8 | 8 |
| 100 | 100 | 100 |
Direct sourcing
The UK division employs contract manufacturers for approximately 23% (fiscal 2009: 26%) of the diamond merchandise sold, thereby achieving cost savings. The decline in contract manufacturing reflected the strategy to grow value items, which were directly sourced from manufacturers. Approximately 20% of the UK business’s gold jewelry is manufactured on a contract basis through a buying office in Vicenza, Italy.
Suppliers
Merchandise is purchased from a range of suppliers and manufacturers and economies of scale and buying power continued to be achieved by combining the purchases of H.Samuel and Ernest Jones. In fiscal 2010, the five largest of these suppliers (three watch and two jewelry) together accounted for approximately 30% of total UK division purchases (fiscal 2009: approximately 30%), with the largest accounting for around 6%.
Foreign exchange
Fine gold and loose diamonds account for about 20% and 10% respectively of the merchandise cost of goods sold. The prices of these are determined by international markets and the pound sterling to US dollar exchange rate. The other major category of goods purchased are watches and the pound sterling to Swiss franc has an important influence on their cost. In total, between 20% to 25% of cost of goods purchased are made in US dollars. The pound sterling to US dollar exchange rate also has a significant indirect impact on the UK division’s cost of goods sold for other purchases. The price of fine gold in pounds sterling increased substantially during fiscal 2010 due to substantial increases in the dollar gold price and weakness of the pound sterling against the US dollar. The weakness in the pound sterling also adversely impacted the cost of diamonds and many other merchandise items. To largely mitigate these higher costs, the UK division increased prices.
Merchandising
Both H.Samuel and Ernest Jones employ experienced buyers who concentrate on product development, sourcing and supplier management appropriate to their particular needs. Merchandising teams work in conjunction with the buyers and focus on assortment planning, branch grading, repeat orders, inventory levels and margin management. Product category reviews are regularly carried out with a focus on increasing potential gross margin return on investment. Rigorous test marketing procedures are used to trial products, and their subsequent distribution is made strictly against rates of sale.
Each store is assigned a range of merchandise that reflects local buying patterns. Display equipment and layouts are constantly reviewed and updated, and new display formats and units that draw upon the US division’s experience have been implemented.