NEW YORK-Book lovers browse at either Borders or Barnes & Noble. Home improvement honchos park themselves at Home Depot or Lowe’s. Techno types load up at Best Buy or Circuit City. So will there come a time when jewelry buyers browse mostly at Zale or Kay Jewelers?

It could happen sooner man you think, according to a new study by investment banking firm Financo, shared exclusively with NATIONAL JEWELER, which predicts that the jewelry industry will see significant consolidation, especially over the next year.

“The U.S. jewelry industry is on the precipice of a major restructuring at both the retail and tiffany manufacturing level,” the report concludes. “Companies need to move quickly to ensure their long-term viability.”

The end result: a lot more big players and fewer smaller ones ultimately left standing.

Regional and smaller chains are finding it harder to compete, and several-most notably Friedman’s-have filed for bankruptcy recently, making them ripe for acquisition by investors, the study says, noting that Ben Bridge Jeweler, Helzberg Diamonds and Fortunoff are among those that have already been snapped up by investors.

Meanwhile, the companies that are strong are poised to grow stronger. With $4.1 billion in sales between them, ZaIe Corp. and Sterling’s U.S. chain, Kay Jewelers, represented about 7.6 percent of the estimated S54 billion spent on jewelry and watches in 2003. (And the two will claim even more this year, according to NATIONAL JEWELER’S $100 Million SuperSellers report, included with this issue).

Still, 7.6 percent isn’t much compared to Baines & Noble and Borders, the “duopoly” that dominates 42 percent of the nation’s book market. But it’s not so far afield from the sporting goods industry, in which another two companiesDick’s Sporting Goods and The Sports Authority-have, in recent years, managed to command 9.8 percent of a market that used to be void of major players.

Dominated by regional players-for now

Historically, the jewelry industry has been more fragmented than other retail industries. In 1999, independent bangles made up 44 percent of the market, chain stores 12 percent, department stores 22 percent and mass merchants 6 percent, according to the Financo report. But by 2003, the independents held just 36 percent of the market share, while chains commanded 14 percent, department stores held 12 percent and mass merchants nearly doubled their grip on the market with 10 percent.

“Jewelry is still dominated by regional players and that is the result of two things: the historical control that De Beers has had over supply, and the emotional and high-ticket nature of jewelry purchases that drives consumers to make their decisions on a local level,” says Michael O’Hara, managing director of Financo.

But the former has certainly changed in local years, as De Beers’ rough stockpiles have diminished and competition has heated up with rivals like Israel’s Lev Leviev, who has control of diamond mines and manufacturing facilities in areas coveted by De Beers, along with a 50-50 partnership with luxury retailer Bulgari.

As for the emotional nature of jewelry, that seems to be changing too, O’Hara says. Wal-Mart, for instance, sells more jewelry than any retailer in the country, though it only amounts to about 1 percent of its overall sales.

“What happens if Wal-Mart becomes really good at it?” O’Hara asks. “[Diamond] cert programs are allowing the mass channel to legitimately sell product that has traditionally been sold elsewhere.”

The rise of Zale and Kay at the malls

Among jewelry-only chains, Zale and Kay remain the clear leaders, particularly in malls, where competition has driven many independents out.

“Zale and Kay are in almost any mall they want to be, so there would first be consolidation in that channel,” O’Hara says.

One factor driving the continued consolidation is the rise of computerized inventory systems that help retailers keep track of what is selling and what isn’t.

“You need to be able to afford to have high-quality systems, computers,” O’Hara says. “What’s happening in other rings is, they’re not able to keep track of their inventory and they’re losing out to these mass marketers. We don’t have that yet in the jewelry industry.”

But increasingly, those who cannot afford the technology could lose out to those who can. One company that has demonstrated the power of technology is Blue Nile, the online diamond site that materialized five years ago, seemingly out of nowhere, and now sees $170 million a year in business. “They’re posting $1 billion dollars in inventory and only selling $200 million a year,” says David Inauen, a Financo associate. The only thing that might limit Blue Nile’s rapid rise: There is only so much inventory that suppliers will be willing to provide, given that their sales are such a small percentage of their online inventory.

But Zale or Sterling would be smart to follow Blue Nile’s lead by offering in-store customers a computerized inventory beyond what is physically on the shelves.

Meanwhile, the nation’s third largest jewelry-only chain Friedman’s, now in Chapter 11 bankruptcy, is a likely candidate to be bought by an investor as part of a “363 sale,” which would allow someone to buy the chain’s assets so that it can operate outside of bankruptcy to improve its financial picture, O’Hara says.

Financo’s jewelry industry consolidation study forecasts a tumultuous season for the retail jewelry industry. The changes and possible shake-ups include:

* Increasing strength of certified jewelry in the mass channel, including Wal-Mart, Target, Costco, Sam’s Wholesale Club and BJ’s Wholesale.

* Marginalization of mall-based jewelers, forced to compete on promotional pricing and promotional consumer credit offerings.

* Changing supply dynamics as luxury players (such as Tiffany and Bulgari) and large jewelry retailers (such as Zale and Signet Group) seek to vertically integrate rough procurement, cutting and polishing design and/or manufacturing.

* Attempted differentiation by the development of jewelry brands-both national brands (like Hearts on Fire) or bracelets brands (like the ZaIe Diamond).