Wednesday, June 21, 2017

Where is retail headed?

Nobody knows for sure.  Present trends show that retailers of all sorts are working hard to adapt to a marketplace that is shifting dramatically.  Jewelry retailers are not exempt from this paradigm shift, but their issues are not quite the same as for other retailers, and that holds true for most of their suppliers.

Stated quickly, what are the specific issues confronting traditional jewelry retailers?
  • The low end of the market continues to move steadily towards Internet retailers.
  • The low end of any store's business is the traffic builder, and important opportunities to build long term relationships.
  • The low end of the market, now significantly composed of non-precious materials, is appearing in many non-jewelry environments, further diluting the business.
  • The mid-market has been suffering for decades now, but will still serve a substantial part of the public.  It is increasingly owned by larger chains, but faces daunting prospects due to buyer burnout, a very mature market, high priced materials, and effective promotion of alternative luxury products who have the scale to spend heavily on marketing.
  • People are now far less inclined to "own" and collect; regardless of age, they are far more into sharing, borrowing, experiencing; that leads the mid-market consumers to either step up (if they can!) into the upper market, or step down into the fashion area.  Again, that is a trend we have all observed for years.
  • The top end of the market is alive and kicking.  The rapid growth in the number or rich and super-rich households has produced extravagant luxuries and flamboyant products.  Even so, the luxury market seems to be stalling.  The rich will only buy so much.
  • Location means everything.  It used to be that neighborhoods evolved and changed slowly and maintained their character.  Now we read about a luxury boom on one street coming and going in barely five years. Jewelry retailers have a hard time reacting to demographic changes.  Their brand and merchandising have distinct targets, and such changes can bankrupt the business quickly and easily.  So move, change or die.
  • For all channels, not having an effective web site is now becoming a sure path to failure.  Shoppers are checking the web before shopping, and checking it after shopping.  
OK, one can say that there is actually nothing new in all that, except that the pace and pressure keeps building, and that many of the traditional modes of selling jewelry are fading further and further.  And we know that in many cases, retailers selling discretionary products have a hard time recasting their brand image.

Most impressive lately has been how major luxury brands (mostly in apparel) have closed hundreds of stores, maybe thousands by now.  Some have shifted to Internet only sales.  These are not easy moves, as each location involved high setup costs, so these closing essentially acknowledge that these chains do not view current conditions as temporary.  We have entered a period of profound adjustment to new retail rules.  Clearly, the country was, and still is, over-stored, a leftover in many cases from the period of exuberant mall construction and urban renewal.

Add to that the double-digit growth rate of Internet-based retailers.  The Internet has, it seems, countless ways of seeking and reaching potential customers, and that means invading everybody's back yard.  Think you have geographic exclusivity from a brand?  Forget it.  "Local" retailers are now nationwide, if not worldwide.  That means that even in a time when there is a steady decline in the number of jewelry retailers, which we would assume benefits those still in business, we find that everyone is competing with everyone - more competition, not less.

It might not seem so, but I am not trying to be negative!  I only point out what we all should be seeing, and dealing with.  The jewelry business will not disappear.  Nor will brick and mortar stores, which will continue to be the primary means for moving merchandise.  There are a good number of retailers who have reacted to all these issues (and there are many more I did not list) and are doing well.  Some are doing very well.  

What is unfortunate is the loss we see in diversity and experience.  When we see so many high quality independent jewelers closing, usually for perfectly good reasons, we lose some of the industry's reach into local communities, and we lose their years of knowing just how to merchandise and sell better jewelry.  The reality is that starting and building that kind of store these days is really tough.  

Can the industry find its way through all this without us ending up with a few mass market super chains, a few global brands, on-line and multi-channel retailers, and a handful of fortunate independents sitting in great locations?  I sure hope there are ways to re-energize the creativity and personality of the business.  A very good independent retailer recently complained that there is nowhere near enough creativity and fresh styling ideas.  Too many companies rushing to copy whatever seems to be trending, hunkering down in this difficult time.  We don't want boring, do we?

Central to a re-thinking of what we do should be an oft-repeated but poorly promoted aspect of jewelry.  Buying jewelry, regardless of price or content, is always an emotional act.  It inevitably involves a judgment on the part of the buyer about personal statement, psychic satisfaction, reward, a gift of love to another person, and pure pleasure.  All of these aspects are far more important than the claim that a consumer "needs t try it on."  That is a mechanical or technical aspect, the piece's fit and feel, that can contribute to all the aspects just noted, but isn't itself the driver of a sale.  On-line retailers, for all their efficiency and reach, will be striving to take on that emotional element. We saw such an effort recently with one site that has a very attractive and knowledgable person walk through a decision making process with a potential buyer, all done face-to-face on Face Time.  A good start, I think, towards bringing real diversity back into jewelry.



Wednesday, April 26, 2017

Protecting the Image of Diamonds

Late last year there were two events in New York about the diamond business.  I'd call them bookends to the business, in that they address two real concerns - the image of diamonds, and the growing presence of man-made diamonds (MMDs).

The first was the presentation by DPA (Diamond Producers Association) on the new advertising and promotional program for natural diamonds, "Rare is Real."  This was, finally, an attempt by the leading mining companies to rebuild the natural diamond image in the minds of consumers.  Two ads were shown (you have probably seen them by now) and I liked them both, if that means anything, while other people were very dubious.  Both were appeals to the millennials, with different approaches, though both skated around the classic themes of commitment and happiness.  As I think further about it, both reflect lifestyles that most Trump supporters, and even many Clinton supporters, probably disapprove of.  In introducing "real life" stories, filled with doubt and adventure, the DPA seems to be trying to equate real life with real diamonds.

One question here is whether the DPA at this point is deliberately not reaching for Boomers and Trumpers, and plain old-fashioned thinkers.  It seems so, though I was told a whole range of ads have been prepared targeting other demographics.  Another question is money.  The DPA reportedly has put in some $15 million, to get this rolling, but getting money from the trade over an extended period is a real question.  It will take a lot more than that to reinvigorate the image of diamonds, I'd say at least ten times as much.  In the New America, I suspect, people will be keeping their wallets closed.  Money goes further in these days of social networking, but will this new message carry?

Here we are, months later, and I sense no impact from the DPA initiative.  And when the subject is raised at various industry get-togethers, I see eyes glaze over.  People involved in the program made a point of saying this is not a short term blast, and that it will take time, maybe a couple of years, before the effort is full-blown and showing results.  OK, we are patient, and we will wait and see.  But frankly, I can't seem get very energized by this program.

For one thing, the message is so subtle as to beg explanation.  Rarity in diamonds starts at stones of a few carats.  But jewelry is composed overwhelmingly of small stones, of which there is tonnage.  Of course that factoid will not be publicized.  So is the message that rarity is the important aspect, or that "real" is the important aspect?  (I needn't add that an MMD of eight or ten carats is also rare, at least for now, and some say it is real.)  I guess DPA is pitching both, not an easy chore.

I do not watch much TV, or dabble much in social media, but I have not seen anything from DPA so far.  Nor have I heard of any retailers, wholesalers, manufacturers, diamond dealers, cutters or traders getting on the bandwagon and putting money into the program, though I imagine there are some.  Could it be that everyone is already working on very thin margins, and image programs have no budget lines for them?  Or is everyone taking a wait and see attitude?

Diamond producers fully understand the importance of protecting the diamond image, as does everyone else involved in the business, even those now expanding production of MMDs.  Mines will still be producing for a decade or two, and anything resembling a decline in public interest will be damaging, if not destructive.  We do need to remember that diamonds are still a huge draw, with spectacular prices still being paid for unusual stones and beautifully made jewelry.  But, again, is "real" and "rare" the message, or is beauty, excitement, love and life events the message?  Real and rare no doubt applies in the auctioning of multi-million dollar stones, but can the same motivation be applied in the local store?

The other "bookend" was a special session held in New York to discuss MMDs.  The speakers concentrated on the dangers MMDs present, and the need for all parties to expend every effort possible to assure themselves that they are dealing only in natural stones.  This was followed by presentations on a range of equipment that will make it possible to check all diamonds, loose or mounted for MMDs.  An important sponsor of the event, Sterling Jewelers, has more recently offered to pre-check all diamonds to be used by their vendors.  A good move, as it makes vendors responsible if any MMDs slip through.

I noted to an attendee here that the whole session is a tribute to the creativity, dedication and genius of the criminal mind!  For all our efforts and pleas that everyone up and down the value chain should abide by best practices, the fact remains that the opportunities for fraud are everywhere.  It's a game of whack-a-mole!  Right at the session, some importers noted privately that the problem is out of control in Asia, and becoming almost laughingly so.  One technology company told me that a simple test run at a few stores of an important retailer promptly turned up MMDs mixed in with naturals in low-priced jewelry.

So, yes, we have major retailers like Sterling and others that have the scale and dedication to strictly enforce proper protocols.  But that does not account for the significant portion of the worldwide market.

We can all agree that the efforts being made by the major laboratories and marketers of diamond jewelry are important contributions to the maintenance of an ethical business.  But what I had expected at the conference was an open discussion about the impact of MMDs on diamond retailing, and how to handle it, quite aside of detection.  I wrote at length, in three blogs in May and June of 2015, about the potential impact of large scale introduction of MMDs in the market.  The consequences, even if all of it is done above board, can be severe.  So thorough presentations and discussions on the subject are the least that should be done.  We see none of that, only attempts to suppress the use of MMDs, to keep them out of the bourses, and to claim that they are worthless.  This is ostrichism of the worst sort.  MMDs are a reality that will be a solid part of the jewelry business.

On balance, both these sessions were appropriate and worthwhile.  But both fell far short of leading the industry into the future that is coming at us full speed.




Tuesday, April 11, 2017

Kimberley Process, aka Swiss Cheese

A little dust up lately about the Kimberley Process.  A noted market observer called it BS, and others responded by saying it has value.  We have been hearing this give and take since the KP was instituted a couple of decades ago, so it comes as no surprise.

Does it have a future, and does it serve a purpose?  Yes and no on both points.  Perhaps it is time to look at it again.

The KP was developed with significant De Beers encouragement and participation when the "conflict/blood diamond" scare first came up.  There was good reason to be concerned, as the association of diamonds with the financing of brutal human abuses and chaotic warfare in Africa.  Conceptually, there was no argument about its objectives - stop or intercept conflict diamonds from reaching the markets.  The carefully built image of diamonds could be destroyed if the public took on this association.

No intent here to be cynical, but the industry was looking to protect itself.  Gem quality diamonds (or, at least, those diamonds that end up being used in jewelry) are a discretionary purchase, enough so to be called a whimsical purchase.  Industrial applications, which have real life uses, can be satisfied with lab grown diamonds that have been around for 60-70 years.  This is quite different from essential natural assets, such as oil, that have produced far worse abuses than diamonds, but the world shades its eyes in order to avoid that problem.  But diamonds are an easy target, with some of its associations - cartel, luxury, ostentation, wealth, capitalism - working against it.

Right from the outset, it was clear that it is way too easy to get around the KP standards.  Anyone having even passing knowledge in the acquisition and distribution of diamonds could see that the KP was more like Swiss cheese - full of holes.  Some countries refused to sign on to KP, a condition that still exists today.  Even among signors, there are cases of human abuse.  Diamonds are passed across borders, and mixed into legitimate extractions.  Illegal goods are transported to countries that issue KP certificates, and then export to other countries. Counterfeit certificates can be purchased in some places.  A couple of years ago, I received a call from someone who would fly me into Sierra Leone on a private plane, arrange a purchase, then fly me back home.  Some NGOs, badly frustrated, have bailed out of any involvement in the process.

Should we be surprised by all this?  Of course not.  Any time there is an opportunity to make big money by circumventing controls, there are people happy to do it.  Just think of arms sales and African ivory as two of many examples. And in the diamond business, in addition to the KP issues, we have been dealing with lab grown diamonds being mixed into natural productions, something that has been going on since long before the conflict diamond issue came up.

Enough said.  But how about the future?  Due diligence is the newest thing, asking for proof of custody all the way from the mine to the store counter.  OK, that can work, but my contention is that all that serves to make honest people even more "pure."  We should not delude ourselves, however, into thinking this will solve the problem.

It is, after all, an issue that, in the end of the chain, primarily confronts retailers and consumers.  How diligent are they going to be, or able to be, in unequivocally verifying that a KP certificate or chain of custody is correct.  Add that to getting total assurance that the grading certificate is accurate, or that no man-made diamonds are not mixed in.  Frankly, I'm glad I do not have to face that issue.

Still, KP should not be abandoned.  The industry must continue to do whatever it can to offer and provide a clean path, in spite of the fact that there are crooks out there.  The least we can do is to make it as difficult as possible for them.  Yes, in time, maybe not more than a decade or so, the issue will fade anyway as diamonds mining fades away.  In the meantime, trudge on.




Thursday, November 10, 2016

The New America!

I'll say the obvious to start.  This has been a disorienting, and at times ugly, presidential campaign.  The outcome for almost everyone is a totally unexpected result.  We now face months of uncertainty as we watch to see what Mr. Trump actually formulates as policy.  He has a Congress that is fully Republican, so unknowable change is a certainty (is any change a certainty anymore?).  And uncertainty of that kind is destructive to business.  Or even to a sense of balance and normalcy in our daily lives.

The election has taken some acknowledged problems in our country - notably the decline of the middle class, the deep-rooted disaffection with Washington, the widening income gap, and an angry working class that feels ignored and exploited - and made them the main direction of the country.  In the process, business interests here and abroad are now at a loss of how to measure anything, as both political parties have been left in a shambles.  Enough said.

So, if anyone has been wondering why business has been so rocky over the last year or so, we could, erroneously in my opinion, simply attribute it to the bizarre primaries and election.  I have presumed for a while that the changes in the nature of business are not temporary, but based on fundamental changes in the population and in our common priorities going forward.  Despite the pledges we have heard from President-elect Trump, we are not bringing back high paying, high employment manufacturing jobs, and we are not going back to those halcyon days, if there ever were any.  Nor is there any way of reversing the deepening chasm between the highly skilled and educated tech-oriented classes and the rest of the country.  Jobs will continue to be extinguished by automation, not just here but all over the world, China included. 

What can we (possibly) say at this point about the jewelry business, which is like going from macro problems to micro problems.  I'll take a shot at it, but please remember that we are only one day into the New America!

 - The commitments of marital engagement will continue, and might even increase.  In a time of stress, two people being mutually supportive is a plus.

 - The diamond business as a whole, and especially in non-bridal, will become tougher.

 - The public has been taught that costume is OK, that alternative materials are OK, that spending a lot less money to accessorize is OK.  Unit sales may still not go up, but dollars and bottom line will go down.  Retailer profits will be under increasing pressure.  Suppliers will feel even more pressure.

 - As a result, consolidation and business discontinuation will continue, especially among independents.  Chains will reduce store count, and push the use of their web sites to drive customers to stores.  That will be true at all levels of business, including the high-end luxury chains.

 - Merchandising will narrow.  SKU's will be cut.  Retailers will further limit the number of vendors they use.

 - Diamond prices may decline, and the legitimate use of MMDs (man-made diamonds) will accelerate.  Gold may become more expensive if currency exchange rates become more volatile.

 - Christmas 2016 may just have been dealt a serious blow.  Any economic prognostications for 2017 are out the window for now.

This may all sound like relatively mild changes, and it does presume that Donald Trump will temper his proposed actions.  We hear reconciliation in the first speeches after the election, but the rancor runs deep, and we may see a level of governmental malfunction unseen in our history.  The undoing of open world trade will be a disaster matching the Great Depression.  Imagine for a moment the effect we will see from high tariffs on all the jewelry we import from Asia and elsewhere.  Should such things actually happen, all bets are off.  All our retail, not just jewelry, is mostly built on imports.  The prospect is truly frightening.






Wednesday, August 31, 2016

Diamond Dreams and Diamond Daydreams

Diamonds have been around for a long time, but it has only been in recent decades that the public's feelings about diamonds have become greatly enhanced.  We have had, for example, Marilyn Monroe and Elizabeth Taylor to thank for raising our aspirations and encouraging women to become diamond lovers.  We have had De Beers and Tiffany and Winston and Graff and Hollywood to help us along to diamond heaven.

But now, it seems, our angels have mostly disappeared.  Hollywood stars rarely buy diamonds - they mostly borrow them for the Oscars.  I could not name a modern Taylor.  De Beers gave up diamond promotions years ago, and now only spends money when tied to Forevermark.  (Would anyone even suggest that Forevermark is a respectable replacement for Taylor?)  Winston, now owned by Swatch, is not even a ghost of old Harry.  Graff focuses on the 1/2%, not even on the 1%, so that's not much help for us there.  Tiffany stands out among the global brands as a strong diamond merchant, but does not see itself as carrying the diamond torch.

For the last forty years, the middle class has slowly seen its buying power fade away as wages have stagnated while inflation slowly had its effect.  In jewelry, the problem has been exacerbated by rising prices for diamonds, colored stones and precious metals.  Unlike t-shirts, we can't just import a cheaper product from Bangladesh.  Clearly, retailers of all stripes recognize all this as a long term problem, not one that we can see reverse anytime soon, and they are starting to close stores - or go out of business.  We were, in any case, way over-stored, and the adjustment was past due. 

In spite of all this, the diamond dream stays alive.  The engagement ring still symbolizes love and commitment, something men willingly pay a high price for.  It publicly acknowledges all that for everyone to see.  It is unlikely, barring totally bizarre events, for that to change in the coming years.  Yes, the technology to produce man-made diamonds could suddenly burgeon to the point where diamonds would become dirt cheap, but that possibility is, for now, as remote as the earth being hit by a massive meteorite. 

That is not to say that we should go blithely on as if nothing has really changed.  The Dream is not impervious to all downturns in the economy or the mindset of the public.  I think it was Georgio Armani who once said, in a perfect pun, that his "brand hangs by a thread." One bad mistake and it is gone.  De Beers did an historic job of creating the Diamond Dream, but that is not to say it can't be undone.

We are in the midst of a distinct decline in jewelry sales, including diamonds.  And how has the trade reacted?  With diamond daydreams.  One blogger says that the industry needs to step up and spend the money to build (or rebuild) the diamond image.  This is a pure fantasy.  De Beers was able to do that when it was a true monopoly, but even they had to step back because the cost is prohibitive unless all sources are on board.  That is not possible, not just because some major sources (Alrosa, Rio Tinto) will be reticent; not just because diamond prices are now too volatile; and not just because the major sources can already begin to count the years before their mines will become uneconomic.  It is also because there are huge stocks held by the public that will be an ever growing, uncontrolled source of diamonds.  It is also because profit margins for diamond cutters and dealers are razor thin, essentially making contributions to an image campaign a non-starter.  It is also because no one wants to pitch in unless every one of the other thousands of diamond companies also pitch in. 

Another daydream is that the development and marketing of man-made diamonds (MMD's) needs to be stopped or discredited.  That's like opening Pandora's box, as it invites a counteraction that will point out all the well-known depredations and frauds that exist in the natural diamond business.  Need I list them?  Martin Rapaport wants MMD's stopped because it endangers the livelihood of diamond miners.  That's a bit like saying that we should reverse all the technologies and robotics that have cost tens of millions of workers all over the world their jobs.  Somehow, Rapaport thinks that the diamond business should be exempt from the forces of commerce, bad as many of them are.  Child labor, as an important example, exists in too many places in Asia and Africa.  We need to fight to stop the abuses, to level the playing field, but also to give all legitimate businesses a chance to flourish. 

In the diamond and jewelry business, protecting the future will take an open and inclusive effort to coordinate the very diverse interests of large and small companies.  Major financial institutions (like Morgan Stanley) are issuing reports warning of the dangers ahead in the diamond business.  Important publications, like The New York Times, The Guardian, the Wall Street Journal and the New Yorker have covered the subject.  They all sense a parameter shift, and think a major story is brewing.  It is already the case that major banks will no longer finance the business.  And if fair-weather friends are no longer with us, then maybe the weather is not so good.

It is incumbent on the broad-based industry organizations all over the world to set aside defending their fiefdoms and reorient the industry towards a workable future.

Monday, March 28, 2016

Diamonds and Robots

I have not written in a while, so please forgive that.  I have been occupied with some real work, thankfully, and fitfully absorbed by a political process that is telling us there are some profound changes occurring in America.  We are seeing the tip of the iceberg, but it is that mass below the waterline that is causing the real damage.

Rather than mention everyone's shoot-from-the-hip reactions to the race for the presidency, is there a way we can suss out what it means for the jewelry industry.  How is this insanity we are watching related to our business, or even more generally, to the economy as a whole.

On the surface, the likely economic scenario is not that troubling.  Regardless of who wins the election, Washington will no doubt continue to be a battleground that will preclude Congress causing real harm.  Some people view a divided Washington as a benefit, even as the public is giving Congress historic low marks.

But that is not the underlying case.  It is not considering the the danger out of view underwater.  For all our voiced concerns about the income gap, terrorism, faltering economies all over the world, the state of our educational standards and infrastructure, we see the US economy continue to recover, albeit slowly, from the battering it took during the Great Recession.  The President considers climate change our greatest challenge, one that might cause us, and the whole world, disruptions of immense proportions.

OK, I guess I should not try to be too down about the future.  I am often surprised and impressed by the young.  They show real awareness of the problems, and, at times, unbounded optimism that we will confront and overcome them all.


Well, getting back to our subject, what about jewelry.  We already know that an important base of the business in the US is the middle class.  Historically, that has been the support of the mass market jewelry business that blossomed in the mid-twentieth century.  The substantial decline of the middle class, abetted by the economy's shift from manufacturing to services, has stalled the US jewelry business.  For some 20 years or so, US jewelry business has stayed at about $30 billion a year, in spite of steadily rising material costs.  So we sell fewer units, year by year, even as we struggle to create product at affordable prices.

Meanwhile, technology is advancing, and is now accelerating its impact on how we live.  There are the obvious impacts.  Swiss watch exports last year dropped by 8%, at the same time that Apple sold millions of Smart Watches.  Jewelry design is increasingly computer designed and produced.  Maybe good, maybe not.  But how about robots?  What impact will they have?  

I recently watched Bill Gates being interviewed by Charlie Rose.  Gates is a very thoughtful man, and we all know about his, and his wife Melinda's, remarkable devotion to solving human problems.  The conversation turned to AI, artificial intelligence, and what that might mean to us.  We already know that technology in all its manifestations has already wiped out many jobs.  At every turn, we see where the interaction with people is no longer needed to get something done. Just think secretaries, assembly line workers, and meter maids, and countless other jobs.

Yes, we know those jobs are not coming back, and many more are fading away.  Even China is automating, thereby creating unemployment is some industries.  Rose asked Gates where does it go from here, as machines get smarter.  Gates responded by saying that in the short term, maybe five to ten years at most, machines will be developed that are as smart as us in many ways.  The range of jobs they will be able to assume will grow exponentially. 

But beyond that, he said, in the next 40 to 100 years, machine will become three or four times smarter than us.  He did not mean, I would think, in a creative sense, but rather in their ability to solve problems by cranking masses of data, by figuring out how to improve on processes and even redesign themselves.  Think of IBM's Watson, which beats the world's best chess players and wins at Jeopardy, and extend that into every aspect of our lives.  Self-driving cars, coming soon to your neighborhood, will eliminate cab drivers, will park themselves and come to your front door when you call them.  Call your robot about dinner, and it will be ready when you get home in that car.  You like that suit you just saw on TV?  Robbie knows your exact measurements, suggests colors, fabrics and design tweaks, and you have it delivered in two days, maybe the next day.

But Gates in not sanguine about all this.  He knows that every step forward in automation is a step away from needing people to get something done.  When Rose asked him if it worries him, he said yes, that he is very concerned about automated production and massive unemployment.  He says that the social upheavals are unimaginable.  And he worries about who will control those machines.  (Note: if you want to watch this interview go to https://www.youtube.com/watch?v=L52dgChT3uk.  It a a version that was broadcast on Bloomberg, so ignore the market data.  The part I refer to starts at about 26:50 minutes into to interview, though it is interesting to watch it all.)

I think we are already seeing the first signs, as reflected in a worried youth championing Bernie Sanders' call for universal health and free education, two basic needs that seem to be slipping out of our grasp.  And we see it in Donald Trump's boastful, arrogant, bullying call to rip up political correctness.  His supporters are losing hope, are sinking economically in a world composed more and more of have's and have-nots.  The more they feel they have nothing to lose, the more revolutionary they will become, to everyone's peril.

So, to come back to my point, how will this affect our tiny piece of this huge economy, this huge problem?  These are complex issues, requiring far more study and discussion than I have done, but here are my bullet points:

  • People already sense that they need to become savers (witness the decline in outstanding credit card debt).
  • The return of high paying jobs for the masses, say $25/hour or better, has no chance of occurring.  It's a pipe dream, with politicians offering false hope to struggling people.
  • Robots, or robotics, will be the only way the US economy stays well ahead of most of the world.  We may not like that it kills jobs, and we may even fear it, but it is coming fast.
  • Jewelry will not fade as a desirable product.  How it is manufactured, what it is made of, and where it is sold will rapidly change.  More robotics, more non-precious stones and metals, and far more multi-channel marketing - a mix of stores and Internet.
  • Engagement rings will remain a staple, for both married and unmarried couples.  But jewelry will not live by the solitaire alone.
  • The number of retail stores in the country will continue to decline.  But destination stores will become much bigger and stronger.
  • Customization will become king.  Think fast design, 3-D printing, automated setting and finishing, fast service, and large service providers backing up retailers of all sorts - not just jewelers but many fashion oriented retailers, on-line and not.
  • Serving the rich and super-rich will be dominated by brands and global retailers who will essentially own the category.  
I am sure that I underestimate the changes to come.


Thursday, December 24, 2015

Diamond marketing - fantasy and self-delusion

On this day before Christmas 2015, I am cogitating over the seeming mountains of flyers that have arrived in the mail, the paper kind, in the last few weeks.  I do not recall it ever having been that intense, and I can only attribute it to a soft season that pushed so many retailers to offer big discounts so early in December, even in November.  I recall that years ago, no discounts showed up until January.  Long gone, those days.

In all of it, jewelry was almost entirely missing.  Yes, I received flyers from Macy's that included jewelry, but they do that all year round.  Signet had plenty of ads on TV for Jared and Kay Jewelers.  And there were a few promos via e-mail.  After that, zip, at least as I can recall.  Worse yet, as I have noted before, the big fashion magazine issues were nearly devoid of jewelry.  The apparel ads were great, but almost none showed a model wearing jewelry.

Oh yes, and Forevermark showed up in some magazines and newspapers with full page ads.  But those, as was the pattern in the past, did not promote a particular retailer of even a new product.  It was De Beers' effort to do image advertising, as they said they would, using their classic line, 'A Diamond is Forever.'  More on that shortly.

Within the trade, by contrast, I read in many posts about how important it is for everyone to join an industry-wide diamond image building effort; how essential it is for diamonds to be front of mind among consumers; how we need to compete aggressively for the luxury dollar, etc, etc.  Apparently not this year.  At the same time, there is nearly endless hand-wringing, not unfounded, over a constant run of publicized abuses within the trade.  Fake and doctored grading reports, continued mixing in of man-made diamonds with naturals, evading KP requirements, tax evasion, human abuse, environmental depredation, manipulated transfer prices, and straight out fraudulent business dealings, all seem to be daily occurrences.  People are looking around, talking about how we can stop all of it (not easy at all), and wondering who they can comfortably do business with.  Then add in that profits have become razor thin, or have disappeared.

So we are attacked from three sides.  Poor marketing is being blamed for tough sales, which in turn means that competition has badly eroded profits, which in turn leaves everyone reluctant, or unable, to spend on image marketing.  And hanging overhead is the prospect of the whole business getting a serious black eye.

All of these issues are addressable.  What is lacking is an open and realistic discussion of conditions and what industry associations can and cannot do, and what individual companies can do, or are even capable of doing.  There are complaints everywhere, with great descriptions of the problems. I am not privy to what is said privately, but I almost do not need to be.  Publicly, the proposals I see are flat as pancakes, or latkes in this season.

But let's talk frankly about 'diamond marketing.'  A real plan to promote diamonds in the leading markets would take hundreds of millions of dollars to execute.  And it would have to be pressed all year long, and year in and year out.  A flurry in the last month or so of the year is truly a waste of money.  It will need a dedicated paid staff to run it, and first class brand building consultants to create the program.

The chances of this happening are nearly nil, at least in the way it is being pursued.  Why?  Because those with the money upstream, primarily the producers and the handful of large diamond companies are not unified in their objectives and never will be.  The producers are already acknowledging that their futures are limited because their assets will be played out over the next decade or two.  They are concentrating on maximizing profits and thinking about their next life, if there is one.  The large diamond companies primarily deal with majors, and have to deal with extremely thin margins.  Why would they contribute to marketing that benefits other channels?  One cannot expect a good plan to be developed at that level.

As for the retailers, they already know what they have to do, and the good ones, the successful ones, do it well.  They market to their targets, be it local, national or global; be it Graff or Tiffany or a local guild jeweler.  They would have to be shown how a plan would benefit them, and that would mean actually putting the horse before the cart - somebody expending the time and effort to develop a plan that would be compelling enough for those people to join in.

As for jewelry manufacturers, designers, wholesalers, dealers, contractors, etc, we have handfuls again that are capable of it, and they would need to be convinced by a great program.

I have probably only stated here what everyone knows anyway.  Maybe it's a waste of my time.  But so are the calls to arms by various entities and people who then go home and essentially, I imagine, forget about it, because they do not take the time to think it through creatively.

So is there hope?  I believe that leaning on the producers to lead the way and put up much of the money is the wrong way to go.  A plan must come from those without an ax to grind, and that means the institutions that have (or should have) broad membership, even those that have seen declining membership.  If all the bourses, retailer groups, diamond groups, manufacturing groups, got together - and there are lots of them - and put up the money to develop a plan, we would have a great starting point.  It would, in total, cost each member of all those organizations a tiny amount of money, as this would be to see what kind of a plan could be developed.  And even just to see if a reasonable one could be developed.  It makes sense to spend very little, relatively speaking, to assess feasibility.  Much better that then mindless, pointless, ineffective, shortsighted and short-lived advertising.

To close, a thought about Forevermark ads.  When I saw them, my immediate thought was how out of date they were.  (Never mind the video, which I found to be bizarre.  These frantic people racing across some desolate rain-swept landscape, desperate, it seemed, to escape some tsunami or other disaster.  All of it transformed into a dream diamond in a man's hand. Desperation leading to romance. Really?)  When De Beers ran those successful product programs decades ago, which everyone coat-tailed, the format was effective.  But now, with only a season's greeting from Forevermark included, and no call to action of any kind, it seems very out of tune with today's focus on offering people immediate means for action.  Has ADIF seen its day?  Perhaps, and it makes me a bit nostalgic.