While no one expected luxury retailers to be whooping it up post-holiday, the year in review was especially ugly for the jewelry industry: Holiday sales fell for 80 percent of the retailers who participated in National Jeweler's exclusive 2008 Year-End Sales Survey.

Still, jewelers reached customers in innovative ways and say they're hanging tough and hoping for relief by summer.

While jewelers--and quite frankly, just about all retailers nationwide--were braced for a bitter end to 2008, the results of National Jeweler's exclusive 2008 Year-End Sales Survey were still enough to make even the Grinch cringe.

Of the 434 retailers who braved looking at their balance sheets to participate in the annual survey, a whopping 74 percent said their total revenues were down or flat for all of 2008, up from 54 percent who were flat or down in 2007. See charts that examine the full results more closely by clicking here.

And while those figures might not surprise, given that the United States is stuck in a recession that's wreaked economic havoc across the globe, the amount by which jewelers reported missing their sales mark is still staggering.

Among the 74 percent of respondents who saw flat or sagging sales, more than half--44 percent--reported sales sank 10 percent or more. That's way up from the 17 percent who took a similar beating in 2007, which was a tough year as well.

There is no underestimating the importance of the holiday season for jewelers: 84 percent of the jewelers surveyed said November and December account for up to 40 percent of their yearly take.

For the 2008 holiday season, 65 percent of retailers surveyed reported holiday sales were down by more than 10 percent in November and December, more than double the number (32 percent) who fell into that category for the 2007 holiday season.

In total, 85 percent reported that holiday sales were down (80 percent) or flat (5 percent), up from 66 percent in 2007. Only 13 percent of retailers surveyed reported any kind of increase in sales for November and December.

This might seem enough to prompt anyone to say "Bah, humbug!" to the jewelry business--but that is, fortunately, not the case. Despite last year's dismal results, retailers are looking at the year ahead with a mix of emotions.

Of those surveyed, 36 percent described themselves as "somewhat pessimistic" or "very pessimistic" about 2009, while 33 percent said they were simply "uncertain" about what the new year would bring.

But a surprising 32 percent are "somewhat optimistic" or "very optimistic," with many saying they hope a new U.S. president will be the start of the country's climb toward economic recovery.

Retailers interviewed by National Jeweler say they expect the first six months of 2009 will continue to be rough, but they anticipate improvement about halfway through the year.

Nabil Abdallah, owner of Maya Caroleena Jewelers in Ashburn, Va., says he feels positive about the coming year, especially with newly elected President Barack Obama taking office in January.

"I truly believe [Obama] is going to be bringing hope and more optimism to the country," Abdallah says. "The feeling is, it's going to be good. You have to go into the new year with that attitude."

Markdown madness

But the attitude in 2008 was non-hopeful. Dismal economic conditions had stores from Saks Fifth Avenue to Target slashing prices as if they were starring in a retail version of The Texas Chainsaw Massacre.

Independent jewelers were no exception, with 50 percent of retailers surveyed reporting that they offered a slightly or significantly higher discount in the 2008 holiday season, up from 26 percent in 2007.

Mark Geller, the owner of Laura M. Fine Jewelry and Diamonds in Los Angeles, says sales at his three high-end stores were flat until the fourth quarter, when they experienced a 25 percent slide.

Because of the ailing economy, he ran discounts right through Christmas, a first for his three stores, which are located in upscale neighborhoods and cater to a very wealthy and star-studded clientele.

"We were clearly discounting more significantly than last year," Geller says. "We never, ever have discounted any jewelry after Dec. 10."

But this year, even his most high-end shoppers, many of whom have been hurt by the turmoil in the financial industry, wanted a deal.

Geller recognized this, and chose to discount early, and advertise it heavily.

"We took a proactive approach to our discounting, and it paid off," Geller says. "We expected to discount, we expected people to want discounting...so we just went with it right away."

In Belfast, Maine, Craig Curtis says holiday sales at his store, Downtown Jewelry and Engraving Shop, fell 30 percent, but he managed to finish the year up by 0.8 percent, thanks mainly to his scrap gold sales.

"That's about the only thing that paid the bills, really," Curtis says. And while the store did not offer special discounts outside of its already-established 50 percent-off case, Curtis says his customers were definitely dialing down the amount they were spending.

As was the case for many jewelers who participated in the survey, sales of karat gold jewelry, in particular, were down at his store.

"The retail price for anything gold is going to be up, so that sort of got rid of a lot of gold sales," Curtis says.

Downtown Jewelry's diamond jewelry business, including the usually strong bridal segment, was non-existent.

"I don't even think I sold one piece (of diamond jewelry) for the Christmas season," he says.

Curtis' wasn't the only store where customers bypassed the diamonds and gold.

The survey showed that karat gold jewelry sales were down for 60 percent of retailers, while another 65 percent reported falling sales in the category of diamond jewelry, including bridal.

Discounting, and consumers' increased penchants for lower-end merchandise were apparent at the register, where struggling  consumers happily snapped up marked-down merchandise or opted for less-expensive pieces.

Of the retailers surveyed, 71 percent reported their average price point per item was down slightly (30 percent) or significantly (41 percent), compared with 42 percent in 2007.

Only 15 percent of retailers said their average price point was up slightly (12 percent) or significantly (3 percent).

Diamond profits down

With discounts soaring this holiday season, it is no wonder margins took a hit in nearly every category, except for sterling silver.

Of those surveyed, 40 percent reported shrinking margins for finished diamond jewelry (including bridal), suggesting that diamond jewelry pieces were among the first items to find their way into the bargain bin when times got tough.

At Maya Caroleena Jewelers, Abdallah says an increased tendency among shoppers to procrastinate and discounts from mall competitors, including Friedman's and Whitehall Jewelers (both of which were conducting going-out-of-business sales) prompted him to push his diamond discounts higher.

He discounted his diamond jewelry by 18 to 25 percent, up from the 10- to 15-percent price cuts offered in years past.

"In the month of December, we panicked," Abdallah says. "It [the Christmas rush] didn't come until later. We kind of had that fear--you're going to lose the sale. That created the need for us, and the fear that we'd better discount a little bit more so we make the sale [rather] than lose it."

Geller says he also opted to discount diamonds at his Los Angeles-area stores, which carry all private-label jewelry designed by his wife, Laura.

Prices for 5-carat diamonds--an engagement-ring size staple for his stores in upscale Brentwood, Pacific Palisades and Malibu, Calif.--were discounted more deeply than ever before due to the wild price fluctuations for larger goods in the market.

"In almost 20 years of business, I've never seen five carats and up in a bigger state of flux," Geller says.

Asked which categories experienced margin decreases this year, more jewelers cited karat gold jewelry (38 percent) than any other category. It was followed by colored-gemstone jewelry (for which 34 percent of respondents saw margins drop), platinum jewelry (27 percent) and pearl and designer jewelry (23 percent each). 

Only low-cost sterling silver shone, garnering the highest percentage of jewelers (38 percent) reporting increasing margins for the more affordably priced metal, up from 28 percent in 2007.

At Goodman's Jewelers in Madison, Wis., John Hayes says he discounted pearl jewelry, along with colored-gemstone jewelry, in an effort to boost sales.

He did not offer any above-normal discounts on diamond jewelry, nor did he provide any discounts on bridal.

"Normally we don't do any discounting, but those two categories we were trying to bolster," he says. "But we still ended up short."

A season of worry

Despite the matrix of challenging issues that have sprung up during the global economic crisis--from the mortgage mess to the stock market downturn--retailers who participated in the survey had no problem pinpointing the specific cause of sales drops in their stores.

Among those surveyed, 68 percent said a drop in consumer confidence was the No. 1 reason for their sagging sales and that shoppers seemed scared to spend, even if they were still employed.

The consumer confidence issue eclipsed all other factors included in the survey, such as credit crunch woes (cited by 6 percent of those surveyed) and rising unemployment (cited by 4 percent).

Competition from other retail outlets hardly registered, with only 2 percent of retailers surveyed citing competition from online jewelry companies as a problem for their store and only 1 percent citing competition from non-jewelry items such as electronics.

Hayes, of Goodman's Jewelers, is among those who thinks an overall lack of consumer confidence was the reason for falling sales. His team was "actually pleased" to be just 5.5 percent down for the year, after seeing their holidays sales plummet 18 percent, he says.

Even in Madison, which is both a college town and the capital of Wisconsin, consumers simply do not want to part with their dollars.

"In general, people didn't feel comfortable with spending a lot of money," Hayes says.

Interestingly enough, when asked what factors impacted their holiday sales the most, the second-most popular response (after consumer confidence) was in-store events and smart sales tactics, cited by 10 percent of respondents, who said their own efforts, above all else, helped bolster sales over the holidays.

According to the survey, jewelers' individual efforts far outweighed the influence of De Beers' budget-busting marketing campaign, which touted the importance of having "fewer, better" things this holiday.

Only 1 percent of those surveyed said the diamond giant's marketing efforts helped stimulate sales.

Houston Jewelry owner Rex Solomon was among those striding into the new year with confidence, citing his store's marketing efforts as one reason for its holiday success.

Sales at his Lone Star State store were down a slight 1.9 percent for the year, a dip Solomon attributes to sales lost in the two weeks after Hurricane Ike, when the store was closed.

Between Nov. 20, when the store reopened following the storm, and Dec. 31, he says he had a 24 percent increase in sales and an 18 percent increase in transactions.

Not-so-secret Santas

Solomon says he didn't make any large sales this holiday season but, rather, just welcomed more customers in his store.

And some of that traffic was a gift directly from Santa Claus himself.

Every year, Solomon says he hires up to 20 men to wear Santa suits and walk up and down the roadways where the store is located carrying signs that say: "Santa Shops at Houston Jewelry," with the store's address.

In the two weeks leading up to Christmas, after it gets dark, the Santas line up in the store's parking lot and dance the can-can, an eye-catching site along the busy Houston road.

"They'd look, they'd wave, they'd clap, they'd honk," Solomon says of people driving by. "Then they'd make a U-turn into the parking lot. It's called old-fashioned grassroots carnival marketing. Make it fun."

Another secret to Solomon's success is his visibility on social networking site Facebook.com, where he has posted a video of the dancing Santas, who also appear on YouTube.com, via a search for "Houston Jewelry Dancing Santas."

He has also used his personal page on Facebook to the advantage of his business, using it to distribute Houston Jewelry coupons to all of his local Facebook "friends."

The mention on his own site drove traffic to his store and to the Houston Jewelry Facebook fan page, where the fan count increased from 10 to 47.

Geller is another strong advocate of advertising and marketing, in good times and bad.

Despite the challenging year that lies ahead, he plans to increase the store's advertising budget to make sure that the store is not forgotten.

Driving around Los Angeles nowadays, Geller says he notices a lot of retail jewelers have gone out of business.

He doesn't plan to join them, and he wants people to know that.

"We think it's going to be a year when you have to stimulate sales, Geller says. "We want to make sure people know we're strong, we're still in business."

Tips for toughing it out

--Keep inventory lean. But don't be out of stock on too many items either. Those who are still shopping want to feel like they have choices.

--Make marketing fun. Think out-of-the-box when planning your marketing strategy to come up with a campaign that really will catch the attention of consumers.

--Keep youf profile high. Toning down your advertising could make people think your business has gone under. Keep you name out there.

--Try something new. Social networking sites such as Facebook are free and they can be a great way to spread the word about special events or distribute coupons.

--Smile. Being negative rubs off on both employees and customers. Consumers are struggling too. They want to see a smiling face when they come into your store, not a frown.