Friday, December 16, 2011

Seven billion, and counting - part 2

We left off, on the last post, posing a question.  Just what will retailers need to consider in the coming decade, especially when it comes to the diamond business?

We can make some reasonably good assumptions, and speculate from there.  (I am thinking mostly of the US market, but most of these points apply in many established markets).

  • The number of brick and mortar retailers will slowly decline.  Persistently high costs of materials (metal and stones) will cause local markets to consolidate further, spurred by low unit sales.  That will mean that efficient, well-capitalized and marketing-oriented operations will accrete volume, become dominant and drive even more operations out of business.  We already see that effect now, with some retailers having very good business in these economically difficult times, while others are doing poorly.
  • Diamonds will remain the bedrock of the business (even though specialized retailers dealing in fashion goods made with alternative materials, inexpensive colored stones, etc., will flourish as well).  The bridal business, in all its manifestations, will remain the key strength of brick and mortar stores.  
  • Internet jewelry retailers will continue to grow as the millennial generation becomes the dominant buying power.  It is the most efficient business model, especially for niche marketing, and the sophistication of that model will eventually make it the largest jewelry retailing channel.  Traditional retailers will have to learn to fully use the Internet's retailing and distribution power.
  • We reviewed in a recent post the sale by the Oppenheimer's of their share in De Beers.  Part of the issue there is the acceptance that diamond production will decline in the coming years.  De Beers market share and market leverage will also decline. The future for diamond mining is not bright, a fact supported by the subsequent announcement by BHP that it may seek to sell its diamond operations - too small for them, and little prospect for it to become any larger.  This will change the diamond landscape rather quickly, as markets will begin to compete aggressively for existing supplies.  Immature markets such as China and India will be the toughest competitors, even if their overall economic boom cools off substantially.  An indicator of buying power was mentioned in a recent report.  Twenty years ago, average per capita US income was 50 times that of average Chinese per capita income.  Today it is 10 times.  The sheer number of middle and upper income Chinese and Indian consumers with unsatisfied ownership of diamonds will become larger than the entire US population.
  • These facts suggest that my now old contention that "the next diamond mine will be the US public" will become ever more important.  As it is, many retailers have aggressively been buying off the street, especially since 2008.  What more dramatic evidence do we need than the just completed auction of Elizabeth Taylor's jewelry collection? Of course, this was an over-the-top auction, producing astounding prices for special pieces (and many not so special) that even shocked the auctioneer, Christie's.  The provenance was clearly special, but it seems that the prices were pushed by foreign bidders.  It is unlikely we will see any comparable auctions (nor will we see so outstanding a Hollywood celebrity).  But this is not to say that the US market is dead or dying.  Hardly so.  The US will still be a dominant market for many years.  But retailers are going to find that overseas competition for diamonds, especially 2-carat plus, will make stones scarcer and more expensive.  Diamonds being recycled here will more often be sold overseas.  US retailers will need to get entrenched in that cycle, plan inventory needs, and buy to meet those needs.  I can see where guaranteed recycled gold and diamonds will be a salient selling point; no conflict diamonds or gold.
  • And finally, the tougher aspects of business in the future.  A booming world population facing depleted world resources is going to make life in general tougher.  This is not a new story - pressure on food and water supplies, never mind employment, has been on the table for decades.  The census bureau just released an analysis showing that nearly 50% of US population, some 146 million people, are living at or near poverty levels, or at very low income levels.  Sure, the wealthy will march onward - and so will retailers that serve them.  But this is not a condition favorable to sustaining a consumer economy.  As Henry Ford pointed out, his preference is to "sell to the masses and eat with the classes." Who better to exemplify American capitalism.  Well, we have to have a reasonably well employed and paid population to feed the spending.  Contrary to a commonly heard opinion, wealth trickles up, not down.  Manufacturing is now about 12% of GDP, and declining.  And we have done a good job of applying ever-better technologies to get rid of employees.  We are even getting rid of parking meters.  This suggests, as I have heard it described, that our economy looks like an hour glass - fat on the bottom and on the top, but with a large, skinny middle.  Most gold, platinum and diamond jewelry may be relegated to the elites, the middle largely will get sucked out, and the bottom will deal with fine jewelry alternates and costume.  
All of this leads me to believe that jewelry retail will have to become far more specialized and targeted.  Whether it is attracting the elites or those in search of low-priced but satisfying alternates, it will take careful merchandising, and steady and responsive marketing.  But deep capital and the right location will be just as important. 

Wednesday, November 9, 2011

Seven billion, and counting

Sometime in the last month or so the seven billionth living person joined us, or so say the demographers.  We also learn that the world population grew by a billion in just 12 years, and probably another billion in the next 12 years or less.  As a reference, about 50 years ago there were three billion people on the planet.  We know the world's resources are strained now to meet the need of 7 billion people, never mind the 10 billion or so expected before the end of the century.

Let us accept for the moment that the world will adapt - somehow.  A little optimism is a good thing.  But according to futurists and prognosticators, that adaptation will come at the expense of many of our treasured standards of living.  While we in the US and elsewhere in the developed world might be struggling to maintain those standards, many hundreds of millions elsewhere in the world aspire to become "Americans", to enjoy the benefits of leisure time and modern conveniences.

We have already seen that movement in so many countries.  The obvious cases - China in the post-Mao period; India and Brazil becoming economic powers; Singapore, Russia, Indonesia, Eastern Europe and even small countries like Vietnam.  Now we have the Arab Spring, engendered and abetted by by the liberating power of the Internet, the rise of Turkey and the success of tyranny-free Kurds.

Great, we say.  The world is finally looking at war and dictatorship as horrors of the past.  The slate is far from clear, but we now apologize for killing innocent citizens.  Seventy years ago we carpet bombed them with impunity. 

At the same time, we are extinguishing the need for people to work.  Technology has radically improved our productivity - but also our need to employ people.  Companies everywhere are finding ways to not hire people, and that is even true in the developing world.  The US has seen stagnant wages for thirty years, partly due to the export of manufacturing but also due to a growing pool of unemployed, which drives down wages.  (Even in our essentially backward industry, Indian factories now have many diamond cutting steps automated; cad-cam has cut the need of jewelry factory help; and many hand-skills are giving way to machine made look-alikes.)  So the outlook is bound to include longer life-spans, falling death rates, and high poverty rates and unemployment.  Occupy Wall Street may only be the first symptom of the problems to come.

To get to the mundane, can we relate this population growth to jewelry?  Is it good news (more customers), or bad news (booming prices, shrinking supply)?  This is a complex issue, without clear answers, but some patterns are beginning to appear.  While this is a subject I would like to explore in later blogs, let's take a look at gold to start with.

An executive from a major Mexican mining company, Penoles, noted to me in a conversation last week that their gold sales in Mexico to fabricators and jewelry manufacturers has dropped to zero.  For many years it had been steady, but now all gold production is exported, mainly to dealers and governments. 

On the surface, we can say this is understandable.  The Mexican jewelry market, which has always been heavily skewed to silver, must have had a relatively small gold component anyway.  But this comment suggests that designers and manufacturers are simply not seeing enough business anymore to make investment in gold pieces viable. 

Is there comparable effect in the US?  Recent reports from the World Gold Council show a 6% increase in global demand, but that is driven by a surge in investment, and by resilient demand from technology companies.  Worldwide jewelry consumption continues to slip (again understandable), from a peak of about 82% of total demand in 2000 to just 50% last year.  Of that, share of total demand in the US and Europe has dropped from about 57% in 1980 to about 13% today.  In the same period, Asian share has gone from 21% to 68%.  US jewelry share last year was about 3%, a faint shadow of its former dominance.

We could be tempted to bring up the spike and collapse of gold prices in the late 1970's as a cycle that might repeat, but that seems unlikely.  Gold production is falling in spite of heavy investment in exploration; governments are buying gold steadily to diversify away from large foreign exchange holdings; and the marketplace for individual investment and recycling has become global, simple and transparent.  The US and European markets are mature and saturated, with very different public motivations for buying or holding gold than existed there 40 years ago.  The developing markets, and especially Asia, are just getting into a full swing of acquisition by a booming newly-rich public.

What does this mean for US retailers?  More next time....

Tuesday, November 8, 2011

More thoughts about Oppenheimer selling to Anglo

We read today that Stephen Lussier's, of De Beers, stated that there will be no changes in De Beers operations.  It would have been destructive to have said otherwise.  Such comments are a necessary part of keeping the boat from rocking.  There is nothing else he could really say.  As the closing on this sale will take time, it is of paramount importance to have "business as usual."  By the time Anglo fully takes over, Lussier's comments will have faded away.

I thinking about this kind of distance between actions, I cannot help thinking there has been some pre-planning in the Oppenheimer sale.  There had been some rumblings about a sale at least a year ago.  But there were a few open issues that had to be dealt with first.

First, Nicholas Oppenheimer had to quit the Anglo board, a necessary move as his presence at this juncture would once again tie him to whatever moves Anglo wants to makes.  Second, there had to be a new contract with Botswana.  That happened recently, with a ten-year deal that also rips up most London operations.  Third, there was the recent refinancing of a few $b in debt.  Now, with the De Beers operation "cleaned up" a bit, the move to Anglo raises few questions and does not further erode Anglo's stock prices.  On the contrary, it makes the deal a plus as viewed by the world markets.  (Reuters opines that it all fits well with possible buyout of Anglo by another mining giant.  See the New York Times note about Anglo at http://www.nytimes.com/2011/11/07/business/de-beers-makes-anglo-american-a-better-merger-catch.html?_r=1&scp=1&sq=de%20beers%20sells%20out&st=cse)

As much as all this makes sense, it is still only speculation that the purchase was planned many months ago, predicated on all these moves, even though a number of insiders have been reported to confirm that Anglo management was anxious to make a change.

Interesting, of course, that the industry's own views of the impact of this change are largely ignored by the press - irrelevant, really.  The only view is that rising markets and shrinking production will make diamonds more profitable, etc., etc., etc. We see it as having far more disruptive potential on the industry as a whole.  Nevertheless, my guess is that Anglo will take actions to strengthen profits, and if Anglo sells out to another mining company, we can be doubly assured of that objective.  Forevermark, for one, will be on short leash.

Friday, November 4, 2011

De Beers - end of a remarkable era

The news today that the Oppenheimer family has sold out its remaining share of De Beers to Anglo-American, subject to regulatory approvals, brings to a close a remarkable era, and the extraordinary tale of the Oppenheimer family.  In many ways, the diamond industry owes its success and perhaps its very existence to this family. 

Observers have been commenting for over a decade on De Beers' struggles to transform itself from a near monopoly into a modern commercial operation.  At every turn, it fought to maintain control of its distribution and historical methods, and step by step it has been forced to retreat.  At the core, the issue was whether it could create an effective marketing plan that would create added profits--and justify the existence of a complex marketing and sales organization, the DTC.  European regulators forced it to sever its long-time control of Russian diamond production, and to create a cumbersome and onerous system for continuing its sightholder processes.  Its critical partner in mining, the country of Botswana, steadily acquired a greater hold on De Beers ownership, and share of mining production.  Canadian exploration proved expensive and of limited production.  And South African mines were sold or closed, with remaining operations seeing declining yields.

The sale to Anglo-American, at a relatively cheap price, raises a host of questions as to the future direction of De Beers.  Foremost might be the motivation for Nicky Oppenheimer to take this step.  Some claim that continued control by the Oppenheimer family was in question (Nicky himself stepped down recently from the Anglo board, possibly indicating friction over policy and continued Oppenheimer control of De Beers).  That might be too simplistic.  Perhaps there was a recognition that the major marketing initiatives and distribution systems will not survive.  The Supplier of Choice process for selection of of sightholders has essentially failed in its core objectives. 

And Forevermark, the latest iteration of the beacon programs run over the years, has apparently not generated the kind of acceptance anticipated from retailers, and will probably not have the level of financial support from the industry needed to make it work.  Even then, the initiative might not possess compelling appeal.  Always part of the marketing problem is De Beers' position several steps removed from the consumer.  In an age where lines of distribution have been shortened by disintermediating wholesalers and agencies, De Beers still tried to increase market share and profits by enhancing the value of, and branding, a component in jewelry - its diamonds.  De Beers does not possess the ability or the latitude to do otherwise, and has paid the price.

Now we ask, does Anglo have any intention to continue De Beers policies and marketing?  Has Nicky Oppenheimer sold out knowing the writing is on the wall, and is leaving Anglo to be the bad guy?  The Anglo board has no particular attachment to legend and precedent.  Will we see De Beers be turned essentially into a mining and sales operation? 

Will we see the end of the long history of De Beers advertising?  What will happen with the De Beers partnership wth LVMH on De Beers stores? 

None of these questions, and many more, can be readily answered.  We can only speculate.  But one thing is certain.  This is the end of a remarkable era.

Friday, October 7, 2011

Retailer tantrums

Just this week we read about Blue Nile selling a $300,000 diamond, and over a smartphone.  We wondered about its size and qualifications - just curiosity - but the sale itself came as no surprise.  Blue Nile has been working the loose diamond business now for years, and has amply proved that these nearly commoditized objects are well suited to Internet selling.  After all, can anyone name a company that sells diamonds that went from zero sales to $300 million plus in a handful of years.

Still, there are retailers who think the whole thing is a sham and a lie.  I read the comments that appeared on JCK's web site, and was shaking my head over those that came from "deniers."  Oh, they said, this was a marketing stunt, there was no such sale, and certainly not on a smartphone.  How could anyone buy a stone that expensive without looking at it.  One retailer suggested that the buyer got a retailer to bring the stone in, learn all about it, and then bought out without sales tax after it was returned to the supplier.  Others suggested that the public will come back to retailers once they realize how important that face to face interaction is.  Really?

On the other hand, there were retailers who exclaimed that this was reality, that the future of the business was with a strong Internet presence.  I am sure they sense, probably rightly, that a well thought out strategy of Internet and brick and mortar sales is a viable future.  One said straight out that retailers ought to get with it or pack it in.

We have been seeing these passionate exchanges for years now.  We frequently read of long-established stores closing up.  Sure, part of that is the desire for the owners to retire.  Retailing is long hours  and dedicated work.  But the other part is that retail stores are not easily sold.  Internet retailers, as we have seen, can quickly attract big money investors.  One business model is approaching obsolescence.  The other is burgeoning.

Take your choice.

Forever, and Forevermark


I finally got a look at Forevermark's web site, and everything took forever.  I viewed it on an I-Mac with plenty of speed and memory.  I mention that up front, because this site uses lots of Flash, and it crawls.  Crawls so badly that my browser timed out waiting to load a page.  When it did load, we see a slick, spare site.  The photos are over-Photoshopped, with metal a shade of gray, and diamonds always blue. 

Navigation is clumsy.  When looking at collections, for example, I had to click back five or six pages just to get to the point where I can look at another collection.  There is an app available too (click here), where one can see oneself wearing a piece.  It is a cute gimmick, but not worth the trouble and waiting.  I looked odd wearing a necklace.

No prices are shown anywhere, so it is left to the visitor to go to the retailer locator to find a store.  For the moment, the retailer outlets listed are very few.  The only New York retailer shown is up in Skaneateles.  Very nice, quiet part of upstate New York, but far from any major market.  And clicking on the retailer goes nowhere.  I presume it is supposed to go the the retailer's web site.  So if you live in New York, you have to call the store to see what they have or take a nice drive.  This is old website thinking.  Nobody wants to frustrate consumers like that any more, and De Beers should know better.

The products, in true De Beers style, are simple and not design intensive.  Certainly not exciting, either.  In order to avoid questions about (potentially) non-Forevermark side stones, there aren't many.  Except, as it turns out, where Everlon of two years ago emerges again as a "new" collection named Concordia!  Now I know where Everlon went.  No new ideas?

The site must talk somewhere about sourcing, and the assurances Forevermark offers.  It was not apparent in my crawling around the site, but it must be there somewhere.  I could go on with other comments on how the site does not help its own objectives, but would I be saying anything that De Beers does not already know?

What a disappointment.  This is it after all these years of effort? 

Monday, September 19, 2011

Where is Everlon?

Where is Everlon?

Here we are in the fall season 2011 and it occurs to me that just two years ago De Beers introduced its Everlon program of knot designs. Now, not a word about it, or at least that I can detect.  It falls right into the pattern of other so-called beacon programs that De Beers has run over the last number of years. 

In this case, as we saw, De Beers went much further, suing various companies for copyright infringement - suits they eventually had to drop, as the concept was old as the hills.  The industry, with Everlon just as with other programs in the past, simply came along for the ride, with De Beers and it's participating sight holders and retailers paying the fare. 

Now, once again, De Beers has developed a program, Forevermark, with some enhancements intended to make the "coming along for the ride" a lot more difficult.  The underlying motivation remains the same, build added value for the channel, thereby maximizing De Beers profits and pricing power.

The enhancements are, in a way, old hat.  Inscribe the table with logo and ID, much as was done with the long-defunct Millennium Diamond campaign; establish strong provenance and non-conflict credentials; and then tell that story.  De Beers tested and ran the concept in very fertile ground, the Asian market, and has now brought it to the US in supposedly refined condition.  While these are attributes that are not easily knocked off, long term success in converting those attributes into premium pricing remains a very tall order.  Perhaps we will write about successes or failures later on, though my guess is that this effort will go the way of other beacons.

But never mind.  It would be nice to see a successful campaign that benefits the industry, but the question is "why so extensive an effort?".  De Beers is, after all, a mining company that continues to expend marketing dollars at a scale way above its competitors, though not quite at the same level as when it was a monopoly.

All of this comes to mind in reading about the signing, after years of negotiations, of an agreement between De Beers and Botswana for the continuation of De Beers' marketing of Botswana diamonds, the single most important asset in De Beers' mining operations.  De Beers will be moving all sorting functions to Gaberone, among other concessions.  But it was a move that De Beers had to make, probably with few other options.  Botswana has steadily put De Beers into a tighter and tighter hold, as it works to take fuller control its own fate.  Botswana will now have a larger share of the mines' output to market on its own, for one thing.  This is a marriage of necessity, not love, as both sides hold essentially competing interests.

Both parties know that the days of glory are passing.  The mines will decline in output; the prospect of new, major mines is slim; and making the most of what is left is important.  De Beers is gambling that there will be a future in Botswana for running a first rate sorting and distribution center.  Botswana hopes to see the establishment of a well-trained cadre that will turn Gabarone into a world center for the industry.  We may have doubts, but they seem to have little choice but to take that path.

In the meantime, De Beers has been squeezed.  Probably 80% of profits now go to Botswana (in addition to being a 50-50 partner with De Beers on the mines, it is part owner of De Beers and taxes exports).  So De Beers now needs to find other ways to grow profits, and Forevermark, run by them and paid for by them and its sightholders and retailer associations, stands as an independent channel for generating additional profits.

In concept, that seems logical.  In practice, as I see it, the results will not justify the effort.

Thursday, September 8, 2011

Good business, and not

A late summer respite does a lot for clearing one's mind. August was that for me and I have returned refreshed ...and confused. Earthquake, hurricane (returned during that) and a public malaise that runs deep and wide. Still, while public confidence has plummeted, many luxury marketers report strong sales increases.

Is there hope? I would cautiously venture a yes.  Of course, it depends on where one sits. 


We think of the jewelry world as having somewhat different rules than the rest of the fashion and gift world, but it isn't so.  I recently attended the monster gift show at the Javits Center and saw the same range of winners and sufferers that we see at jewelry shows.  I was concentrating on visiting jewelry companies, but took some time to see what other vendors were doing.  As in jewelry, the busy booths had products that were immediately of interest, tended towards much better quality, and were well-packaged and presented.  As would be expected of a show this size, there were many booths with cheaply made goods, and those tended to be quiet.  The buyers present (and there were thousands) were searching for innovation and lasting value.  In jewelry, it was the same story.


A conversation this week with a leading independent jeweler, while anecdotal, confirms a feeling we have heard expressed over the last weeks.  Yes, the public is uncertain about the economy.  The stock market is wildly volatile, and large companies are still cutting jobs.  But this retailer had the best June and July in their history, and August looks to be the same.  Why?  The difference, according to him, is that his clientele is affluent, and no longer suffers from the shocks of 2008 and 2009.  They are buying for occasions, not impulsively, but they are spending.

To use an old real estate cliche, the three most important things to consider are location, location and location.  In jewelry, that has become particularly important, though long history, consistent marketing, good merchandising and great service all have to be there too.  This retailer agrees with all of that.  But, in his words, "I here a lot of grumbling in the business, about how bad it is.  Today, if you are not established in an affluent community, you are in trouble."

Very true, though this is not a new trend, but one made far more prominent by the economic strains we feel - never mind the surge in gold, diamond and gem stone prices. It is well documented that middle class wages have been treading water since the mid-70's.  Employers have seen a growing labor pool as consolidation, out-sourcing, automation, and rapidly advancing technologies have steadily reduced the need for employees.  New, high tech companies do not need many employees, nowhere near the hundreds of thousands that used to be employed in large manufacturing businesses.  That means that most wage-earners have little bargaining power.

I am not an economist, but it does not take a graduate degree to understand that the rich are getting richer, and a large portion of the population is getting short shrift.  This is a large problem that will take years to solve, even with the best efforts of politicians (anyone care to count on that?).  In the meantime, high material prices and limited buying power will cause the mid-market difficulties for years.  The business will be evermore with the affluent, and at the bottom of the price range. 

Thursday, August 11, 2011

Roller coasters and Rip Van Winkle

OK!  Tomorrow is Friday and I am ready to have two days off from insanity.  The stock market fully reflects public sentiment, namely confusion, anxiety, fear, amazement, and disgust.  It has been a roller coaster of feelings and money, possibly good for day traders and computer-driven automated transactions, but not for us mere mortals.  Trillions blown and trillions recovered, while most of us stand about with our mouths open in amazement. 

We read reports in the media that the rich (maybe the super-rich) continue to spend lavishly, and some retail sales reports show strong trends.  (Macy's reports that jewelry was one of their strong categories.)  On the flip side, some vendors of high end goods say business is awful.  Mass market retailing in July was weak.  We will see what the reports say. 

We see the stunning rise in diamond prices weakening in some categories.  And gold has become an emotional commodity, as even sovereign states are heavy buyers, hedging against weak currencies.  Down in the trenches, where we live and work, gold prices are killing ranges of product.  Tiffany is using very light 18 karat chains as sort of loss leaders at $175.  How about heavy gold mountings and chains?  Almost prohibitive in price.  Sales, yes.  But a trickle of units.  Will the public accept this season's radically higher prices?  We just don't know.

We approach the fall season apprehensively and carefully.  No matter what, it will be rocky.  With a presidential election next year, and seriously contentious parties, we will see political paralysis just when we need action.

Think we could hibernate through this one, like Rip Van Winkle? 

Monday, August 1, 2011

Tender is the sight

The diamond industry is grappling with an issue that has been looming over everyone's heads for some years.  Moti Ganz, president of the International Diamond Manufacturers Association, just released a statement in which he claims that the rising number of tenders of rough endangers the business.  He says that without some base of established sights, where manufacturers can rely on supply, companies will have increasing difficulty sustaining factory operations, never mind invest in new factories.  He does concede that some companies failed when they lost their sights in the past number of years, but he feels that the problems inherent in tenders are worse.

Perhaps.  But there are some hard facts--and reasonable speculations--that counter his position.  The producers see the realities of the working market.  Boxes are flipped immediately for profits.  Other goods pass through many hands at times before being converted.  And major firms are increasingly dominating supplies of rough, sometimes heavily backed by banks.  Moreover, supply is continuing to fall below demand, even in these strange economic times, with the outlook being the same or worse.  Mines are playing out, and new, large sources are nowhere to be seen, even with Zimbabwe included.  Miners now feel, undoubtedly, that what is in the ground will only accrue in value, so extraction is deliberately constrained.  Add to all that the gradual leveling of the playing field, as De Beers mines decline in output.

What we have is the conditions of a "normal", competitive business environment.  One in which the big players, the miners especially, seek profit, pricing power, and competitive edge.  This is not the environment in which the industry grew and thrived in the days of De Beers dominance, the conditions that Ganz prefers in view of the highly fragmented nature of the diamond industry. 

His position does reflect some real concerns within the business.  For example, companies that deal in small goods (and therefore need to maintain large labor forces to convert the rough) are particularly concerned about continuity of supply.  The recent breathtaking surge in the price of stars illustrates the point.  Cutters, especially in India, are unwilling to open factories and pay high wages to cut these goods without knowing there will be a steady supply, especially after the many closings that occured in the downturn three years ago.  So that is a real bottleneck that has created serious shortages.

The producers, I am sure, think of their own benefit first.  A good case can be made for seeing the industry evolve into a well-structured distribution system, based on efficiency and diversity.  Obtaining rough, whether through tenders or from after-sale, would be based on economic viability, good (or specialized) market position, and downstream outlets or customers.  The present situation, as described by Ganz, is supply driven rather than demand driven, so we have companies seeking rough at "affordable" prices that feed factories the principals want to maintain.

This is going to change whether we like it or not.  Tenders give the producers the ability to maximize profits in a supply-short market.  The bottom line is that they will not want to give that up.  The only reason they have not switched wholesale to it, is their fear that the present distribution is still to frail to handle it.  But they are pushing it to change, even if it is unspoken.

Friday, July 22, 2011

Fabulous class and fabulous fraud

I was really impressed with the Van Cleef and Arpels exhibit that was staged at the Cooper Hewitt Museum in New York.  The Arpels touch was extraordinary.  The perfection of metal work and quality of color serves to remind us of what true jewelry talents can do.  The colored stones were extraordinary, and a knowledgeable dealer who was present said that these qualities can no longer be found.  As if the industry does not have enough stress.

I found it interesting to find myself unimpressed with many pieces from a design point of view.  Our taste has really moved far since the 1920's and 1930's.  Some pieces were truly classic and timeless, but others were clearly done to suit specific customers.  There were actual ledgers displayed, showing for whom pieces were designed, the components, and the costs.  All of it was written out in careful script.  A wonderful look into the past, in days before any automation.  Great show.


By contrast, just a few days later, I read a remarkable article in the Times, on July 1.  Armand Hammer, the noted American tycoon, acquired much jewelry from Russians in the 1920's and 30's.  He offered to buyers in the US, claiming that the collection was owned by various czars, and had been crafted by Fabergé.  Turned out not only to be untrue for many pieces, but it seemed that Hammer used Fabergé hallmarking tools to mark pieces and sell them as genuine Fabergé!  Hammer's records have disappeared, but contemporary experts have revealed the fraud.  (If you want to read the article click here NYT article)

And we thought the scams were a recent problem in our business.

Sunday, June 26, 2011

De Beers Forever, or maybe not the way we know it

A couple of years ago I proposed that everything De Beers was doing pointed to the end of the sight process.  First off, they offered "additional" goods to sightholders, then proposed to sell off excess goods to non-sightholders. They quickly backed off from that when, undoubtedly,  sightholders saw their price and marketing edge dented and squawked loudly.  Also, everyone knew by then that production was going to decline and fall behind demand.  BHP was already demonstrating that auctions were producing solidly better prices - though the quantities were not that great.  Moreover, De Beers was being put into a tighter and tighter box by the producing countries, notably Botswana, South Africa and Namibia.  Russia was already fated not to be a supplier to De Beers. 

People in the trade pooh-poohed the idea, saying that De Beers would always want to distribute through a small number of clients; would not give up the power of dictating the content in the boxes; and needed assured tracking of all goods, necessary for the non-conflict pitch coming in the Forevermark campaign.  Not very convincing.  And the history since then does not support such thinking. 

For one thing, when push came to shove at the worst of the recession, sightholders simply refused to take boxes, and De Beers could do little about it.  So much for power.  The Supplier of Choice program has flopped, and badly.  De Beers is essentially selling to the companies it wants to sell to.  Period.  There is no semblance left of the original marketing/branding/controlled distribution concepts.  Best practices became a shell when alleged misdeeds by sightholders in the stone grading scandal were swept under the rug when no prosecutions were forthcoming.  Had that happened, the whole industry could have been severely damaged.

So where are we now?  All we hear about is shortages, especially in prime goods.  It could be real - these stones are just not coming out of the ground.  Or there is some serious hoarding going on, which is possible given the open wallet attitude of the Indian government and Indian banks.  Either way, De Beers is further behind the eight ball.  If there are real shortages, then De Beers must know that every sight is under-priced.  Boxes are immediately being re-sold at good profits.  If there is hoarding going on, then the real power in the industry is moving from De Beers (and other producers) into the hands of cash-rich rough dealers and cutters.  Even if that is only partially true, that alone could end the sight process.

De Beers still hold some strong cards.  The key holdings, especially the Botswana mines, are strong producers.  And in total, De Beers still markets the largest slice of global rough production.  The real question is whether there is any future in sustaining that path.  At the moment, the producing nations are continuing to assume increasing control of production and taking bigger profit shares.  That is not going to change.  On the other side, rough dealers, the De Beers clients, are becoming more independent in their thinking, and more aggressive in taking control of distribution. 

De Beers strengths are in mining, sorting and managing distribution.  We can assume that demand will stay ahead of production (even assuming significant recycling of publicly held diamonds).  If the emerging nations continue to grow as they are, notably India and China, of course, then marketing will become a questionable expense.  (I will hold Forevermark aside for another blog, as that program will be barely a blip in the diamond world.) 

So what should De Beers be doing?  Mining, sorting and running auctions.  That will maximize profits, and it should be easy for them to negotiate a share of those profits.  DTC?  Well, that could be a goner.  Diamdel?  Now, that could be the future!

Thursday, June 9, 2011

Rising sun - or false dawn?

The array of shows in Las Vegas are over, and we are all recovering.  The shows were busy--very busy--and many vendors had excellent results, the best since before the downturn.  Nevertheless, the mood was a mix of relief, excitement and more than a touch of worry. 
Why worry?  Well, we are all still staring at a stumbling economy, one that has shown signs of stalling, which scares everyone.  A major supplier has seen a double-digit increase in sales, and it appears to them that consumers are buying again, even if it is cautiously.  But they are still not sanguine about the months to come.  Part of the energy we saw might be due to retailers needing goods after working down their inventory levels.  Part may be because they have made good money buying gold and stone jewelry off the street.  One vendor said that every retailer they met with reported that buying from the public has been a big boon.
Another open question is whether the public will pay for much higher prices.  One can presume that the public does not (and cannot) keep track of where prices are going, and will pay the price, at least within their budget.  The industry has done very well in designing new lines (many in silver, of course!) that look great and recapture important price points.  A chain supplier said that probably 75% of all their sales are now in silver.  Totally believable.  And important price points have been recaptured.
Still, buyers swallowed hard as they bought gold jewelry, with stones, which immediately produced retails in the $3,000 to $5,000 range, as a starting point.  Will it work?  Nobody knows.

Tuesday, May 31, 2011

This year in Las Vegas

The JCK Show marks its 20th year in Las Vegas, and things sure have changed!  Las Vegas became the important battleground for jewelry trade shows, and then economic forces beyond anyone's control disarmed the battle.  Yes, there are still changes (JCK moving to the Mandalay, for example) but the reality has not changed.  There are fewer manufacturers extant that can exhibit--and others that have simply dropped out--and there are ever fewer retailers that can come and buy. 
We should set aside the question of whether this is good or bad; whether in some ways we are better off not having the overheated market of the boom years.  But on the supplier side, we know that we have long suffered from too much capacity, a condition that will probably continue for quite a while.  The low barriers of entry into the business assures that.  And on the retail side, we have undergone many years of consolidation and stratification that has forced retailers to adapt or die.  The mass market now belongs to a handful of big chains, and the independent jeweler now accounts for 40% or 45% of the US market, down from 75% about 30 years ago (as I recall).
So maybe we are approaching a homogenized market, as we have seen for books, drugs and hardware.  Amazon, Rite-Aid and Home Depot (never mind WalMart) have been eminently successful in dominating their market segments, so why not Sterling, Macy's and Sam's? 
I can think of many reasons (so can you), but one good one is the very nature of jewelry.  What we love most about it is the ability to produce enormous variety of innovative designs, and not needing to sell it in big quantities to make a business of it.  Creating jewelry is, after all, an art.  And people know that, and seek it, and will always need it.  Big chains need high volume producers (e.g., half-carat studs, and solitaires) but even they are fully recognizing the value of differentiation, good design, and quality.
I hope the shows can successfully promote these values to retailers and bring them here, for the moment the best place for retailers to find and buy good, new products.  And thereby reinforce jewelry's wonderful heritage.
Don't you agree?

Tuesday, May 24, 2011

Whereto diamonds?

A number of years ago, maybe ten or more, I was regularly asked by De Beers to do focused studies on the US diamond market.  In those days, De Beers was still working to keep the monopoly boat afloat and trends in the US market was important.  The US market was, after all, better than half the world market, especially after Japan faded away. 

In the course of one study, I pointed out to them that they were consistently minimizing the recycling of diamonds, especially better ones, in the US.  After many successful years of selling billions of dollars into the US market, and substantially expanding the consumer base, it made sense that a percentage of that was going back upstream as people sold jewelry out of estates or need.  I took a pure guess and said that it could be 5% of publicly held stocks.

Just today, I read a column by Chaim Even-Zohar in which he describes the US consumer as the next "diamond mine", precisely the term I used in a presentation at the JCK Show three years ago.  Even-Zohar speaks of the negative ripple effect on diamond stocking upstream as the recession hit, and the reverse, going back downstream, as the economic recovery kicked in. 

He treats the American "mine" as a newly important phenomenon (which it is not - it has always been there) and growing rapidly, which is correct.  Jewelers are making good money buying gold (and diamonds) off the street, and at prices well below those from suppliers. 

In my view, the recession will end someday, hopefully in the near future.  But retailers will have established a process for buying from the public that have many positive aspects.  I can think of a number of wonderful ways for retailers capture business.  The flow of diamonds from the public to retailers and wholesalers will become a fixed, critical part of diamond distribution.

Saturday, April 23, 2011

Mixed messages

We are now moving into the critical part of the year of the jewelry industry.  The summer trade shows are not far away, and suppliers are waiting to see, with bated breath, just what depth of commitment retailers are going to make in stocking for the fall. 

The political news, here and abroad, is unsettling.  The stock market is bubbling, but news about the residential market is bad.  Employment stays relatively high, but corporations are making money.  The dollar is weakening (making our exports more attractive overseas), but the cost of materials and labor for our jewelry seems to be rising geometrically.  Even US Treasuries have seen its credit standing trimmed.

All of this adds up to uncertainty about the future (as evidenced by the latest New York Times/CBS poll).  Is this a problem only for the lower and middle market, while the affluent are back buying?

What do you think?  And how are you responding in your business?

Better (a little) late than never ...

I started this blog in January of this year, thinking I would get to redesign and open my website fairly soon thereafter, and tie it all together.  Funny how life, work and family stretch things out.

Just today the site is open (http://www.janosconsultants.com/) and I think it has been tweaked enough.  So on to starting a dialogue about our industry, with all your help.

Friday, January 7, 2011

A New Year, and some new thoughts

Next month will mark 19 years of my consulting in the diamond and jewelry industry.  It has been a great run and I have enjoyed most of it.  I will not, of course, have another 19 years of doing the same.  I think now, at the outset of 2011, of the remarkable changes that have transpired, and of the greater ones to come.  So, I wish to make the most of the years to come, however many they may be.

I still have much work to do, thankfully.  But it also time to open a conversation with anyone inclined to consider the larger world within which we operate.  The jewelry industry is introverted, small, and entrepreneurial.  But we are nevertheless buffeted by an astounding variety of societal and technological revolutions.

So I open this blog in the hope that friends, colleagues and fellow members of this great industry will use it for a frank and profitable venue for discourse.

I can't promise to chime in every day, as I will be preoccupied at various times.  I will do my best to contribute and respond.

So let us begin!