Friday, December 14, 2012

A different consumer, a very different jewelry market

 There is no question that manufacturers and retailers have been contending with difficult product decisions for a couple of years.  Foremost has been the price of gold, which has made made some hot products of the past into things of the past.  An Italian gold chain manufacturer pointed that out to me in describing where his business has gone.  At one time he cranked out tons of gold as machine-made chain, but that has essentially disappeared.  Italy now has perhaps six companies left that are making machine-made chain, and most of that is silver - 90% in his case.

OK, one might say, that is a reality, but at least consumers are buying silver chain.  Is that all there is to it?  Exchanging gold for silver, or steel, or titanium, or rubber?  I think not.  No doubt that retailers need to fill price points, and some have stated that silver has been a huge help.  But are more profound changes happening?  No doubt.

Unity Marketing recently wrote about their survey of consumer preferences.

"In our most recent survey of luxury jewelry customers, we found that the share of luxury consumers who purchased jewelry rose from 13 percent to 15 percent.  While this measure of demand still lags the 18 percent tracked in 2010, it points to people’s willingness to shop once again for jewelry items.
But what they don’t seem willing to do in the current environment is spend more for the jewelry items they buy.  The amount spent on jewelry was down both from previous quarter and same period last year.  In the current environment, luxury jewelry shoppers are making choices for less expensive, more affordable jewelry items.  In today’s jewelry market value is key and even high income consumers who can afford the real thing are opting for less-expensive metal and gemstone options, as well turning to discounters and other value-oriented retailers to make purchases.  The key for jewelry marketers is to create strategies around the new realities of today’s jewelry customers – what they want; what they value; what features, benefits, experiences they are willing to pay more to obtain."

That is well put.  I put the key phrase in bold, but what Unity Marketing, and others, are describing is the real shift to a variety of alternative products that serve a need (adornment) that fits their life styles (transitory fashion) and perceived value.

Our tendency is to believe that marketing assumptions of the past decades have been carved in stone.  But even in our lifetimes we have seen societal changes that should be telling us that the standards and values once thought to be eternal are subject to great changes. 

The Jewelers Board of Trade, in their most recent analysis of market trends, only reinforces a belief that the changes we are seeing are profound, suggesting that the jewelry business is undergoing a broad-based transformation that affects product ranges, marketing focus, and business models.  The JBT analysis shows a continuing decline in the number of jewelry stores, particularly among independents, that has been going on for decades.  The cause, at one time,was the explosive growth of chain stores, discounters, TV, and other mass marketers.  Now it is the maturing of Internet retailing (which is growing at double digits) and the rising prices of precious materials.  I venture to add that independent retail stores are not readily salable.  Who, after all, would spend millions to buy a one-store operation that requires 5-6-7 day weeks and comes with (undoubtedly) a load of dead inventory.  Sometimes, a younger generation wants to take over, but that has become a rarity. 

Many issues compound the problem of adapting to this rapidly changing environment - more than we can do justice to here.  It takes a careful and lengthy review.  But here are three aspects that just start the conversation. 

Many, if not most, retailers view the bridal category and diamonds as the core of their business.  De Beers is quite right to say that supply will diminish, and if we faced a pure supply/demand equation the outlook would simply be for rising prices and fewer dealers and retailers.  But unlike almost any other product, diamonds retain value and are efficiently recycled, making the US public into one of the best sources for diamonds in the future.  There are billions of dollars in private hands in the US alone.  At the same time, the Internet has become the pricing standard for most decent quality stones over a quarter carat.  That has driven margins down.  Add to that a declining marriage rate, birth rate, aging Boomers, changing lifestyle values, and a disappearing middle class, and we have a stressed jewelry category.  Gone?  Not by any means.  But definitely indicating much more power in fewer hands.

Another aspect.  Precious gem productions are falling.  Yes, if you go to trade shows it looks as if there are tons of stones for sale.  But very fine colored stones are already in very short supply, and declining.  Mines are played out or closing, and some governments are making opening new ones very difficult for environmental reasons.  Quartz, in all its colors, is still plentiful, but even there the outlook for clean material is uncertain.  Diamond production is falling worldwide, as even De Beers recently acknowledged, with no major finds in sight.  So, if anything, we know that the top of the market will become even more expensive.  And, if we consider what Unity Marketing has to say, that pie will get smaller and there will be less room for both suppliers and retailers.

Third aspect.  Silver has been a life-saver for many people, providing a precious metal that consumers will know and accept.  The use of silver, both with and without stones, recaptured important price points and pleased consumers with great value perception.  For manufacturers and retailers, silver also offered margin relief, generating better bottom dollar profits even with lower retail tickets.  But now that is changing too.  So many companies have gotten on board that margins are shrinking as competition has increased.  For companies that swapped top line dollars for better bottom line dollars, this could present some real problems.

In all of this, it remains clear that the jewelry business is not going away - it still is one of the most important gift categories, if not the most important one.  How we fit, how we respond, and how we address such different conditions is the central question.