I'm surprised no one addressed it, but the package could have been stolen off your customer's doorstep. I ship hundreds a packages a year...a few go missing. Sometimes they are lost in the postal service (and turn up weeks later), some get delivered to the wrong address (mostly the fault of an address inaccuracy), one recently ended up in a customer's neighbor's bushes, and on very rare occasion, yes, something is just stolen.
You should treat your customer as you would wish to be treated. I recommend asking your customer if they would prefer a refund or for you to replace the ornaments. I hate it when things like this happen to me (and grumble about it for days, lol!). But it is the cost of doing business. As my husband always tells me, at least I do not have a brick and mortar store with overhead, breakage, and stolen merchandise to contend with.
Use this occasion to review your business practices. Since you insured the items, you are certainly on the right track. But you indicate that, with all the time involoved, you did not make as much as you would have liked off the transaction. That's a sign for you to revise your prices.