New York--The sour U.S. economy has had a disastrous impact on many business sectors, but jewelry chains that rely heavily on tourists have been particularly hard-hit over the past year.

With cost-conscious Americans flying less and opting to instead spend vacation time close to home, jewelers based in tourist destinations from Washington, D.C. to Hawaii have watched their sales and profits sail away. Still, jewelry chains that rely on leisure travelers have focused on a number of key strategies, including a greater reliance on overseas stores and e-commerce, to stay competitive in the downturn.

When it comes to tourist-centric stores relying more heavily on foreign business through overseas stores or foreign visitors taking advantage of the weak U.S. dollar, Tiffany and Co. is a good case study.
 
The luxury retailer, which operates stores in many worldwide tourist locations, reported that sales in the Americas, where its U.S. stores represent roughly 54 percent of total worldwide sales, reached just $385.9 million in the November through December holiday period, 30 percent lower than the previous year.

Tiffany's U.S. comparable-store sales dropped 35 percent for the holiday period, with the Manhattan flagship store (usually popular with tourists) faring about as poorly as the branch stores.

"Deteriorating global economic conditions were clearly reflected in cautious spending by Tiffany customers across the entire range of jewelry categories and price points," Tiffany Chairman and Chief Executive Officer Michael Kowalski said in a release announcing the holiday results.

Sales drops in the retailer's international locations were less severe. Asia-Pacific sales declined 2 percent to $216 million in the holiday period, with same-store sales falling 13 percent. Meanwhile, in Europe, sales decreased 4 percent to $79.2 million in the holiday period. Tiffany's chief executive suggested that the retailer's future plans would reflect the stronger sales abroad.

"While we are taking a cautious approach to planning our business for 2009, we will also continue to prudently pursue growth opportunities to further strengthen Tiffany's global presence and increase sales over the longer-term," Kowalski said just after the holiday results came out.

Directing virtual traffic

Other tourist-reliant jewelers are ramping up e-commerce sales and capabilities to try to weather the storm.

Maui Divers is a classic example. As much as 95 percent of the Honolulu-based chain's business comes from tourists visiting its locations in Hawaii, Guam, San Francisco and Orange, Calif. In 2008, Maui Divers' tourist-based sales fell 12 percent, says Robert Taylor, president and chief executive officer of the retailer, but the chain has picked up some of the slack through its e-commerce business.

The company revamped its Web site in September 2008, and Taylor says that online sales--which have been rising by 20 percent annually since a site relaunch in 1999--have responded strongly. The site has allowed Maui Divers to reach out to existing U.S. customers who cancelled planned jaunts to Hawaii, California and Guam this past year.

"Maui Divers Jewelry has long recognized the importance of nurturing our ongoing relationships with our customers throughout the year," Taylor says. "This becomes even more important for us as most of our customers' first introduction to Maui Divers Jewelry is while they are on vacation, and they do not live near a Maui Divers Jewelry store."

The company's Web site is now one of its "primary channels" to stay connected with those customers, he says.

The company has maintained its advertising budget with prime positions in most in-flight and various post-arrival tourist magazines, and it has expanded its promotion of tourist favorites such as the "Chocolate Tahitian" pearl collection, which has seen a substantial sales increase. Maui Divers has also received warm receptions for new 14-karat gold collections from marine artist Wyland, Maui designer Mikel and noted photographer Kim Taylor Reese.

To entice cost-conscious customers, Maui Divers is marketing a new sterling silver jewelry line and increasing its 10-karat gold jewelry offerings. It is also heavily promoting its Maui Divers Jewelry VIP credit card, offering new applicants a 5 percent discount plus no interest or principal payments for one year.

Finally, the company has increased its promotional merchandise. In September 2008, for instance, the company offered a $179 plumeria pendant and a $199 South Sea pearl necklace. In October, the retailer offered a $99 opal pendant and a $149 set of matching opal earrings.
 
"These promotions were offered at prices well below our normal retail prices," Taylor says.

Business efficiency is key

Operating more efficiently is critical for tourist-based jewelers struggling through a drop in tourist traffic, some experts say.

At The Jewelers Inc., a 17-store chain based in Las Vegas, tourist traffic makes up about 40 percent of the company's overall sales, and since the stores are primarily located inside casinos, they benefit from built-in traffic.

"Bringing in gambling tourists is up to the casinos; we really can't control it," says Benny Yerushalmi, chief financial officer of the company. "However, once they're in the casino, we've still got to get them to walk through our door and come inside the store."

For The Jewelers Inc., the key to surviving the downturn in tourism has been to watch expenses, streamline costs and increase operating efficiency. Yerushalmi says the retailer has grown more conservative with inventory purchases and is constantly monitoring cash flow. It has also cut back on superfluous marketing and other expenses and is now carefully managing employee overtime and paying closer attention to staff productivity.

"We recognized what was coming and started making changes in early 2008," Yerushalmi says. "We've become a lot smarter about expenses and pulled back on inventory. We're not taking any chances, and as a result, we feel we'll come through this difficult economic period in a very strong position."