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Table of Contents

New Technology Development on Canadian Jewelry Industry – Part 5

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3.2.3 Internal Market

In 2008, the total value of the jewelry (NAICS 33991) industry in Canada was estimated to be $1.7 billion. There has been an increase from $504 million in 2007 to $564 million in 2008 in the domestic export of jewelry from the United States to Canada. This figure of approximately $60 million contributes to a rather small portion of the total imports from the United States per year, but the increase of approximately 11% is nonetheless a good sign of growth.

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After losses in sales during the recession, the jewelry industry emerged from the crisis with a new strategy to attract consumers, aimed at high profits. The slowdown in gold prices and the demand for expensive engagement rings will contribute to industrial growth, despite competition from concerned in profits retailers and supercentres weighing on operators.

Market Breakdown by Province

Ontario had the highest performance of the provinces in 2008 with approximately $1.29 billion worth of jewelry exports. This was follow by Quebec, Manitoba and British Columbia.

As well as the volume of imports, Ontario has the largest number of jewelry companies generating 40% of all jewelry companies in Canada, followed by Quebec and British Columbia.

Notes to chart: Statistics Canada defines a status as "Non-Employers" as the status of working company owner. Although owners do not pay salary themselves as an employee of the company. Some companies do not pay a monthly salary to the employees, but they have contracts with employees who may work as a part-time and consists of family members or business owners. The status of "Indeterminate" means that the type of employment cannot be determined.

Labour Issues

As of March 2009, Quebec, Ontario and British Columbia offers more jobs and career opportunities in the jewelry industry (NAICS 33991) across Canada. In 2008 the average annual compensation of employees in jewelry industry was around $ 47.602.

Exhibit 5 shows, that to date, small businesses represent the largest portion of Canadian manufacturers of jewelry and are composed of 286 companies, and that there are only three mid-sized companies across Canada, so American jewelry companies in implementing business in Canada, must align their marketing strategies accordingly.

Major Players and the Strategy on the Market

The industry has been growing at a little over 5% annually, and at the last ten years, growth in diamond jewelry sales has been more than 30 years faster than that of overall jewelry market. The Canadian retail industry is highly fragmented and competitive.

Competition comes from different formats including a large number of independent, regional and local jewelry retailers, as well as other national jewelry chains. Other competitors include department stores, discounters, direct mail suppliers, online retailers and television home shopping programs. Emerging competition comes from those non-specialty retailers, which are larger and have greater financial resources than average jewelry retailer.

Industry is characterized by customers’ discretionary spending dollars, and, therefore, retailers compete with those who offer merchandise other than jewelry or giftware.

Therefore, reputation for high quality products, brand recognition, store location, distinctive and value-oriented merchandise, personalized customer service and ability to offer private label credit card programs to customers wishing to finance are some of the main points of differentiation when it comes to competition.

Largest jewelry retailers in the U.S. and Canadian markets are Wal-Mart Stores, Inc. Other significant segments of the jewelry industry include a vast network of department stores (such as JC Penney Company, Inc.), other similar stores (e.g., Signet Jewelers Limited) and clothing stores and accessories. Retail jewelry stores sells their’ products primarily by catalogue, mail, through direct sales, television advertising and online stores selling jewelry. Other jewelry stores sell the products through national or regional retail chains.

Nowadays jewelry stores need a complete production cycle and recognizable brand, so small jewelry stores are increased by Internet sales of jewelry, because via online stores they can sell products to customers, carrying very low overheads.

In 2008, an online jewelry seller, Blue Nile, has expanded its operations and offered its products to customers in more than 35 countries and territories around the world. The company's products consist of diamonds and jewelry, with an emphasis on engagement rings. In 2008 the company had revenue of $ 295.3 million.

3.2.4 Industry Problems

Packaging

Since Canada recognizes two official national languages, therefore, all warranties, labels, and other useful information for consumers should be in both languages: English and French.

Export of jewelry from the U.S. into Canada must fully comply with accepted standards of packaging and labelling, for some provinces such as Quebec, the use of local dialect language required, which leads to a reduction of interest to the import of jewelry in these provinces. Thus, the problem of language leads to many errors in packaging and labelling by importers.


Safety Issues

The Government of Canada continues to work to reduce risks to Canadians on the effects of lead, including in jewelry. Health Canada is also developing a ‘Lead Risk Reduction Strategy’ to control the lead content in consumer products, which are used by children.

Health Canada has warned that the finding of lead in consumer products can cause brain damage, problems with learning and behavior in young children. Jewelry containing such components as lead is illegal under the law as a dangerous product to be imported and / or sold. For children less than 15 years jewelry advertisement of the items contains more than 600 mg / kg total lead and 90 mg /kg migratable lead is strictly forbidden.

Exported jewelry from the U.S. into Canada must fully comply with Canadian standards of packaging and labelling. All warranties, labels and other consumer information must be in both official languages of Canada: English and French. Individual language requirements for instructions to jewelry can be applied in the province of Quebec.

Warranties

Many jewelry stores have some warranties in case of jewelry breakage. Some shops offer a lifetime warranty for jewelry to be sold better. Many customers prefer to buy jewelry with a lifetime warranty.

With the growth of e-business, people often buy jewelry at one company, and, in case of breakage, bring the jewelry to another place. Usually that jewelry is bought by the Internet, television, mail, or brought from another city. Many people believe that any manufacturing defect is easily remedied, or there are a sufficient number of jewelers that can easily repaired jewelry everywhere, regardless of the store where they bought them.

Often an Internet - company that sells jewelry could not offer customers post-sales service of their products, and the customer gets the impression that it would be faster and more convenient to repair jewelry at the local level. At the end, most of jewelry shops refuse to repair jewelry which was not sold by them, or serve clients very selectively. The reason is that the jeweler is not responsible for the quality of jewelry is taken to repair.

For many years underwriting departments have taken an assessment of jewelers without reservations, since the average claim to jewelry is about $ 2,000 so such problem is often solved by insurers.

However, if the customer is not satisfied with the settlement of the jewelry claims, since such an appraisal misled the customer, and / or was incomplete, then, the customer relationships with insurer is under the threat. From jewelry bonus at average only about $ 30 per unit, underwriters may not pay more attention than thirty seconds to make a decision if an appraisal is suitable or not.

Not being jewelry experts, underwriters have to work with any appraisal of jewelers. A good appraisal for the insurance should describe jewelry in sufficient detail to distinguish one piece from the others. A detailed appraisal may serve as a basis for evaluation and replacement if part of the product was lost. Most estimates are very incomplete, no more than a short description along with the price.

So the question in the jewelry segment remains open. Therefore, it is necessary to create companies that are able to provide a more complete and comprehensive appraisal, to retain customers and keep their interest.

Counterfeits

Fake jewelry is also a great hindrance on the way of progress in the jewelry sector. Today, fake jewelry is taken place and the government is still unable to curb these illegal activities. Since the certificates of jewelry authenticity made by fake sellers, the consumers' interests are not protected.

Customers should be careful while buying jewelry and make a purchase only from reputable suppliers, as this sector is full of abuse. Thus, for any new owner it takes several years to earn a good reputation and profit. Since, the major players in the jewelry market have already been identified, the competition in this sector is very intense.

Saturated Market

Canada is a developed country and, as most developed countries, is experiencing a phase of saturation. Canada's GDP growth rate is relatively low and therefore the prospects of doing business became increasingly simmer every day. The market is already divided between the major players and it is difficult to start a business in this sector. Large and medium-sized companies are planning their’ development on emerging markets but smaller ones face limited opportunity.

Segment of the jewelry is facing problems of saturation of markets: the high prices from sellers and practically no differences in terms of sale and in the goods. There are a small number of jewelers who do things like Swarovski, gold-filled and sterling components, Venetian glass, pearls, etc. etc. Therefore, common jewelers have large losses associated with low demand. The price of products is high but margins low. The biggest problem is that most jewelers can provide a satisfactory, pleasant and useful service to consumers.

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3.2.5 Import Market

In 2008, the largest supplier of jewelry to Canada became the United States of America. In Canada were imported jewelry totaled $ 1.78 billion includes import of $ 601 million came from the U.S., $ 248 million from China, $ 212 million from India.

Analysts expect China to double its demand for diamond jewelry to 2015. In addition, China will become the second largest consumer of jewelry for diamonds after the United States, which has about 40% of the total demand for diamond jewelry in the world.

According to Statistics Canada, the majority of U.S. imports of jewelry in Canada come from New York, California, New Jersey, North Carolina and Washington.

The United States remains the largest exporter of jewelry in Canada, and occupies nearly half of the market. Jewelry exports from U.S. to Canada tend to have steady growth but in 2009 there was a little decrease in consumption due to economic crisis.

In order to benefit from the slowdown in the Canadian economy, U.S. companies should maintain their presence in this sector. In June 2009, the Canadian economy showed the first positive improvement: there was first an increase in GDP. Likewise the Government of Canada is fully eliminated the tax on jewelry, as of March 2009.

Until then, all the jewelry that produce and sell in Canada or imported into Canada, were taxed by 10%. This was good news for U.S. exporters of jewelry, like how it has led to lower prices on jewelry in Canada, and this measure has helped increased sales of jewelry in Canada. In Canada, Internet sales are increasingly attracts active buyers through online jewelry catalog.

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