Monday, October 7, 2013

Diamond headaches today, a different world tomorrow

The diamond business still cannot seem to get weaned off mama De Beers.  That is not in the way of a complaint to De Beers, but rather an admission that clinging to the old, sheltered ways is gone.  And most of the trade refuses to admit it.  Even the Oppenheimers knew it was time to move on.

Sure, a $30 million auction sale is made.  And other big stones are fought over.  But something is wrong at the core of the business.  There are big bankruptcies in Antwerp and Mumbai.  Banks are backing off financing the trade, except for financing solid receivables.  Government authorities are investigating diamond companies in Belgium and India.  De Beers sights are being rejected for lack of money.  Boxes are being sold at discounts - sightholders prefer to take a loss rather than try and convert the goods and lose even more money.  Cutting factories have sharply reduced output, especially on small goods.  And everywhere we hear that due to overpriced rough, profits are gone.

Is this any way to run a business?  How does a normal business keep buying supplies that cannot be resold at a profit?

Well, too many people believe in the tooth fairy.  After all, we know that demand is supposed to keep rising as the large Asian economies continue to grow.  We know that mine output will continue to decline.  So if we just hold on, the math has to help us out.  So some feel they must keep cutting in order maintain factory personnel and some continuity.

That is exactly the thinking that would have arisen in prior downturns.  De Beers would act as the buffer, assuring everyone that they would not allow a precipitous drop in diamond prices.  We all remember their aggressive response to the drop in prices in the 1980 crunch.  But De Beers is no longer there, our backs are not protected, and yet the myth continues.  We now live in a world where pricing reflects demand, even as the trade continues to think it is supply driven.  That is an error that is causing great pain.  Too many individuals and companies plod on now, losing money every day, mostly, I guess, because they do not know what else to do.

There are arguments to be made that the forces at work today will not permit the simplistic assumptions I stated above.  The recycling of diamonds is an expanding business.  The economies of the leading industrial nations are struggling, with many observers expecting long term slow growth and persistently high unemployment.  The millennial generation does not have the same drive to collect valuable objects.  While the bridal business remains a bright spot, unit sales are flat or down even as dollar volumes might rise.

Most critical might be the burgeoning man-made diamond business.  We might all not like it, but this is where some companies are actually making money.  Mix in MMD's with natural goods, sell it all at natural prices and we have a profit.  The temptation to do this is huge, especially where there are little or no controls.  Illegal, yes.  Profitable, definitely.  And we are ill-equipped to catch the tonnage of small goods that are like a rising tide.  And the public either does not know or does not care.  The public will react well, I think, to unbloodied, environmentally favorable diamonds.  I have always contended that the public will fully accept MMD's, especially when they look great and are at very affordable prices.

Ultimately, the day will come when the business will "flip", when there are more MMD's sold than naturals, when the supply can well exceed demand.  That may take another 10 years, but the pressure is already there.  When that happens, pricing will be driven by MMD's, not naturals, though carat+ natural diamonds will have their appeal, not unlike natural pearls today, which are far more valuable than cultured pearls.

If there is a future in overpaying for, and hoarding, diamonds, it is not one to be sought for long.

Friday, September 13, 2013

The De Beers Forevermark Promise - real or illusory?

De Beers has a superb history of managing the diamond business and the public perception of diamonds.  No one will ever do it better.  The two parts of its business - mining and marketing - have over long years evolved into the distinct positions they now hold, neither of which give the company very much breathing room.

While that might sound drastic - and we are not looking at any imminent change - the outlook for the status quo is not promising.

On the mining side, we have all been aware for a while that no mining company is excited about the future.  BHP sold out; Rio Tinto tried, but could not find a buyer who would take on their huge investment in going underground at the Argyle mine.  Never mind that mining companies want no part of the bad publicity involved in operating in some countries.

And where is De Beers?  They continue to be a dominant supplier, and that will not change soon.  But, just before the Oppenheimers sold out, they signed a new 10-year agreement with the government of Botswana.   Now, even government ministers are open about the future, stating that the country needs to diversify its sources of revenue.  As it is, Botswana reaps the lion's share of the profits from its giant mines, and De Beers has fully moved its sorting and selling operations to the capitol.  This major source of national revenue has 20 years of life left, and one questions if Gabarone, Botswana's capitol, will have the infrastructure and heft to become a top diamond center even if it no longer extracts diamonds locally.

So it looks like De Beers (or rather Anglo at this point) gave themselves a 10-year window to transform their business.  Either a real change in the outlook for mining diamonds (not very likely); or doing something else.  They have expanded Element 6 operations - man-made diamonds - which could open the door for either a variety of diamond applications, including man-made gem stones.  Or the current big push, Forevermark, sucks up a significant piece of the diamond trade.  Maybe both.

Man-made diamonds (MMD's) could have a very big future.  As diamond production continues to decline, the door opens wider and wider for MMD's to expand.  De Beers could be well-positioned for that.  A technological breakthrough that would radically increase productivity would be the turning point.  Who knows when that will happen, or if it will happen.  Even so, there is even now a steadily increasing supply in the market, sufficient for EGL to offer special grading reports in Hong Kong, due to the volume being generated there.

And what about Forevermark?  Many diamond cutters are involved and leaning on the program, as they have historically every time De Beers spends big money on advertising and marketing programs.

Of course, this time it is different.  In the past, De Beers programs allowed other miners to ride coattails.  This time, De Beers is trying to make it an all-inclusive program, and to have everyone down the distribution pipeline share the cost.  They provide the marketing, the stone marking, and the diamond grading.  You are either in it or not.  No coattails.

Throwing enough money at it makes it attractive.  And unlike the past, it seems that the commitment is there to keep at it.  De Beers certainly has the wherewithal to keep going.  On the plus side, the sightholders, dealers and retailers involved are pushing it as they have skin in the game.  Some uninvolved dealers have been hurt because some key customers are boxed in for now as they feel obligated to buy from Forevermark suppliers.

On the downside, will enough of the public buy into paying a premium for the singular benefit being offered - a diamond with known provenance?  This year, 2013, is when the big push is being made to sell the pitch.  It is doing so at a time when several factors mitigate against success, at least in the US.  The economy is still on shaky ground.  More and more diamonds are being recycled, and that will continue to grow as a far cheaper way for retailers to acquire stocks and generate solid profits.  De Beers no longer does image advertising, and it shows.  Even a casual look at September fashion magazines reveals nearly a total lack of diamond jewelry advertising.  If anything, the magazines are showing edgy costume jewelry that is feeding the strong trend towards inexpensive, well-made adornment.  Diamond sales are tough at retail, and we are seeing anomalies in the buying pattern.  Most ominously is the mounting evidence that the Millennials, the baby-boomers, do not have the attachment to diamonds that was so strong with the Boomers. 

And then there are the bigger questions.   How many retailers will consider the program a success and renew next year?  How many more will judge that the advertising campaigns and the "message" warrant the fees and the premium prices?  If Forevermark makes money on grading and marking diamonds, will the business make money - enough money for all the overhead carried by Forevermark?  And will Anglo be patient, or turn off the spigot at some point? 

There are significant weaknesses in the program.  Consumers, even as they nod their heads in agreement over the non-conflict message, are predominantly moved by design and life style relevance.  On this aspect, Forevermark is unfocused and the products are mostly very dull and all over the map because every distributor makes their own collections.  Does a high-end store want to promote a brand that is also in middle and low end stores? And retailers are in a position of making excuses for non-Forevermark diamonds. 

Can the whole plan be to create a new empire for De Beers once the productions dry up a decade or two ahead?  An empire based on taking over the world of diamond grading and marking?  As compared to building a huge business selling MMD's? 

Something does not ring true.

Thursday, July 18, 2013

De Beers, Forevermark, and everybody else.....

The recent trade shows and recent press reports offer a spectrum of opinions and a range of actions in and around the diamond business that leaves a distinct sense of a train hurtling uncontrolled down a track.  No derailment (as yet) in sight, but enough clatter to cause concern.

Some facts are clear:

  • De Beers, now not totally free to act as it wishes, and now with a new CEO who comes from the mining sector, is all-in with Forevermark.  This is their future. and either it flies or they may be done, at least on the marketing side of diamonds.  Or is there another future possible?
  • Two major mining companies, BHP and Rio Tinto,  are working to extract themselves from diamond mining, with some success.  Nominally, it is because there is not enough scale in diamond mining, or the outlook for it, to make the investments worthwhile.  BHP has made a sale, Rio Tinto has now backed off, as it could not find a proper buyer. 
  • The banking industry is broadly retreating from financing diamond companies (or jewelry companies, for that matter).  In particular, this has had real impact in India and Israel.  (One major Indian firm is reportedly under major pressure.)  These moves are not temporary or a reflection of current market conditions.  It is permanent.
  • Donna Baker, President of GIA, abruptly left the company, and the only explanation given by the board was "a difference in opinion on future direction." GIA, whose presence all over the world has set the standard for diamond grading and issuing of reports, is suddenly without a permanent CEO.
All these may seem unrelated, but in many ways they are not.  On the mining side, it is clear to all parties that the future is not what we have seen in the past.  What could be stranger than De Beers, the great diamond mining powerhouse, now looking to revenues from grading labs, retailer fees and sightholder marketing as their new future?  Of course, they still have mining operations going in several countries, and continue their significant and first class service from a brand new sorting and sales facility in Gabarone.  De Beers has always taken the long view in its planning, which has been to its benefit over decades.  So what is the long view now?  They, as other major mining companies, are taking a realistic view of the prospects for new major mines.  They are dim to none.  So now it is seeking to become the great source of conflict free, untreated diamonds, certified as such by their own grading laboratory.  Aside of the conflict of interest, there is a litany of forces that mitigate against success in this direction.  I will devote a blog post to that issue.

The banking industry has come to fully recognize the downside potential problems of the diamond business.  There are endless regulations now regarding money laundering, illicit trade and duplicitous bookkeeping.  The risk of substantial penalties, coupled with the inherent difficulty in controlling, tracking and evaluating inventories has led many banks to cease financing the industry.  In India alone, some three dozen banks have done so, all of them, however, smaller operators.  Worldwide, those still in the business have almost entirely gone to financing receivables and some have instituted tougher audits.  An element in all that is the realization that there are no price buffers in the diamond business (the role once assumed by De Beers for generations) leading to enough volatility to make stocking or financing inventories far more risky.

We have to wonder about the resignation of Donna Baker.  GIA has refused any further explanation of the board's action, and it could be many things.  Baker was very aggressive in expanding lab operations worldwide, and that has worked out very well for GIA.  Now, however, De Beers' Forevermark program has drawn in many prime diamond suppliers who are pressuring retailers to sign up in the program.  Part of that has been retailers accepting Forevermark grading reports.  GIA is still swamped with diamonds to grade, but probably sees some falloff in activity due to the pressure being applied by Forevermark on suppliers and retailers.  This is purely speculative, and may have nothing to do with Baker exiting GIA, but she might have pushed to have GIA aggressively counter this new threat to their core business.  As I noted, a review of the issues involved in the expanding Forevermark campaign, and to the issue of grading labs, is for another blog.

One of the observations made at the recent Las Vegas shows was that jewelry sales were good to very good.  But diamond sales were not.  Mining companies, and to a degree cutters, are seeing that there is a new paradigm at work.  Retailers and dealers are buying diamonds off the street.  While this has been going on for years (in a presentation I made at the JCK Show 5 years ago, I called the US public the "next great diamond mine") but is now truly booming.  Retailers can make extraordinary profits with such purchases.  What would you do?




Tuesday, June 11, 2013

Las Vegas Shows - 2013

I must apologize for being 'off the radar' for these past weeks, as a series of events have preoccupied me and precluded me from stopping long enough to give this blog some thought.  Nothing bad at all, though, just concentrated activity.

Among that, of course, was attending the shows in Las Vegas.  This year I had the need to work intensively with a large number of vendors at the Luxury, JCK and Couture shows.  It was an exhausting (as usual) few days, but filled with timely conversation.  In sum, after years of tight economic conditions, high gold and diamond prices, and growing shortages in fine colored stones, the industry is showing its ability to adapt, or not.

Some vendors have really come through with well thought out lines that are innovative and address market realities.  At the high end, in fine non-bridal lines, we saw excellent use of 18 karat gold with diamonds and color.  In silver, designs have greatly improved, as has quality, and price points have distinctly moved up.  Colored stones have become more important.  Other alternative materials (titanium, steel, wood, bronze, etc) are there but not in large numbers.  Diamonds remain most important, but that sector is now enmeshed in struggles for dominance.  (I will cover that subject separately in the next blog!)  In all cases, there is a realization that the public is beginning to adapt to higher prices and has been buying again. 

Many vendors have upgraded their systems and now give quick service when asked for proposals, line sheets and product revisions.  Some deliver printouts on the spot.  In some cases, we saw combinations of US-based marketing, sales and product development capabilities well-integrated with Asian manufacturing.  In some of these cooperative efforts, a desirable level of comfort and efficiency has been attained.  I suspect there is much more to come along these lines.

At the same time, we saw many small American designers with high quality lines that they make themselves here in the US.  Many need help in achieving success, and often are ill-prepared to deal with a difficult and changing market.  I took time to make suggestions, even where the lines were not suitable to my client's needs.  I would like to see our young designers succeed.

Retailers relate a range of experience.  In most cases, dollars are up, units are down, and margins are down.  I am reminded of a comment I heard years ago from a salesman in a clothing store.  I had just bought two suits, and in the course of the purchase I asked him how business was.  He said. "lousy."  I asked why.  He said that customers like me would have bought three suits in years past.  But, as prices had risen and business dress was becoming more casual, business was down by a third.  Market position is more critical than ever - image conveyed to the consumer, location and merchandising specifically - and it tells.  Some independents up big figures.  One prominent operator said business rests on three areas - bridal, Rolex and Pandora ("don't ask me to explain!") - and sales this year up good single digits overall.

So the question we have to ask is, what can we learn from recent experience?

I have long held, together with other commentators, that the Millennials, the demographic that has become critical to all luxury businesses, are a different breed.  What seems to be emerging is a strong, independent mentality.  Traditional values and thinking may or may not be relevant for them.  Cars (and "cruising") are no longer top of mind; marriage may or may not be important before having children; security and social action are gaining importance; jewelry is nice to have, but needn't be expensive; and the "establishment" is to be viewed with caution and skepticism.  It is as if we took the hippie generation and overlaid it with social and financial responsibility.  

We hear of the affluent buying, but not as often and at more modest prices.  While this is not true of the new nouveau-riche  - Asians and Russians flush with mountains of cash - it does have profound importance to retailers and suppliers. 

This cultural shift is in process, and we know not where it is headed with any certainty.  But the jewelry shows are important for observing and learning, perhaps more so than ever in the past.  The industry remains a highly diverse, fragmented and specialized business, but not everything will continue to be viable.  Retailers, more than ever, need to be present in order to distinguish between stagnating modes of the past and burgeoning models of the future.

Tuesday, February 26, 2013

Top 10 trends for 2013 - Part Two

Last month I covered five market trends that I view as important for this year, and no doubt for years to come.  I have five more here that I see as part of the rather remarkable transition that this industry has sustained over the years.  The ten trends are not ranked in importance.  It will be different for each of us.

6.  Social media.  The power of social media, in its now countless manifestations, cannot be underrated.  We are awed by its power in spawning the Arab Spring, raising money in response to disasters, or electing a president.  No doubt it has hit a nerve - 500 million users of Facebook is not an accident.  There are definite efficiencies in communication, presuming one wants to send brief notes to dozens or hundreds of people at the same time.  I, for one, use Facebook, Twitter and LinkedIn to tell people that I have written a blog.  That notice is better transmitted that way than by e-mail, say.

Nevertheless, I must say that I am a terrible user of social media, as are countless people I know.  I rarely look at Facebook, and when I do I find endless posts that are far too personal, or worse.  I know of many people, even in their mid-20's, who have stopped using Facebook.  Some people, however, thrive on it.  But is this the venue for commercial success?

Some major retailers have already found that this is not that great a way to move product, though many are very active on Facebook and Twitter.  Certainly Amazon and eBay are better.  And I get that.  I have witnessed concerted effort to reach a target audience using a range of social media techniques, and with little success.  I also witnessed the same venture using print media very successfully.  Is this a condemnation of social media?  Not at all.  It seems clear that this communication medium is going to evolve into something dominant and powerful.  The evolution is happening quickly and at some point it will be much easier to use social media to get answers to questions, to find what one needs, to connect with the right person, and to conduct transactions.  This is the big battle that Google and Facebook are fighting, and the war is just warming up.

7.  Globalization.  I know this is not new, but it has ever more profound effects.  I buy two batteries for my phone for a nice low price, and it arrives three days later from Hong Kong.  What?!  The Chinese want my battery business?  Globalization is not what it used to be.  Ten or twenty years ago we thought of it as industries moving to other countries to take advantage of lower labor costs, lower taxes and less regulation. We saw electronics, toys and socks move out, together with just about any popular manufactured product.  Repeatedly, however, we have seen a model emerge of foreign companies gradually developing skills and technology.  This path enables foreign companies to start out with the least demanding product and then move up the skills ladder.  In the steel business, for example, foreign companies started out making cheap re-bar for construction, but then slowly developed the ability to produce special alloys.  Leica taught Asians to make cameras; Italians and French jewelry manufacturers taught Thai and Chinese to make fine jewelry.
We can say OK to all that, and admit that we are a country that is going to lead with innovation, technology and and high level skills. But should that prevent us from still having a decent jewelry business?  After all, good retail cannot be outsourced, and manufacturing is just as open to technological advances.
Well, not quite.  The question is not whether strong local retailers have an unbeatable edge.  They do.  Rather, the question is, who is the customer and how many do I have?  Recent statistics show that over the last few decades income has risen sharply for those in the top five or ten percent income brackets.  Everyone else's income has stagnated in dollars, and fallen significantly in buying power.  Our booming technologies have enabled us to steadily reduce the need for employees in every trade and job category (except high tech and engineering), and the process is only gaining momentum.  That produces structural unemployment and gives employers the ability to continue hiring at low salaries.  In such a market, the middle class has gotten hit the hardest, with jewelry sales exacerbated by soaring metal and stone prices, and retailers have shifted emphasis, moving upscale or downscale.  That has intensified competition and left many with too small a slice of the pie.
Of course, the story is not over.  As we are already seeing, rapidly rising wages in China and India are undermining the rationale for some imports from those countries.  We have experienced that in the past, as car manufacturers found that it was preferable to manufacture in the US.  The point is not that jewelry manufacturing will follow a similar evolution - it may or may not - but rather that we might see a gradual rebuilding of an American middle class that will have far more discretionary dollars to spend.  Let's hope so.
Meanwhile, globalization - an essentially unstoppable and irreversible tsunami - has turned us into a nation dependent on certain skills; communication, high tech, service.  The two biggest employers in the US today are government and Wal-Mart.  We have too much retail space for such an environment - a shrinking and transformed middle class cannot and will not buy as it has in the past.  And, as I pointed out last month, the millennials, our important future consumers, are of a very different mindset.  The low-end market will grow, but mostly through expanding mass merchants.  The high-end market will be served by global brands and unique, specialized independents.  The mid-market will continue to exist, but largely as fringe businesses for the top and bottom end retailers - and some very innovative specialists.  Count on that for a while.

8. Consolidation.  The other long-term trend that we have observed for years is the consolidation of channels.  Federated is the big remaining department store chain; Wal-Mart and Target wiped out dozens of discounters; and mall jewelry sales is now substantially owned by a handful of companies.  At the independent level, there has been a steady decline in the number of operations for decades, and we now see dominant operators in each market, some of whom now do multi-millions in one store.
We all know this.  But where can it lead?  For one thing, the larger a business, the more it has to rely on top-sellers.  So there is little tolerance for longer-term experimentation and support for new talents and innovation.  Add that to the restrictions enforced by global sourcing, limited training of personnel, and restrictive banking lines, and we have the makings of a poorer, less diverse jewelry business.
New designers have a very difficult time managing in this market, and we see more of them turning to the Internet as the channel of choice.  That actually might help in the longer run, as designers will be able to substantiate the viability of their lines.  Right now, it is a complex and difficult mix.  And we will see consolidation in the Internet space as well.
The caution is about the stagnation of the product - something we have seen in the past.  Jewelry is a wonderfully variable of personal product.  Let's try and keep it that way.

9.  Diamonds?  For most retailers diamonds have been, and are still, the bedrock of the business, and rightfully so.  There are profound changes occurring in American marital customs, but the bridal business will be with us for a few more centuries.  However, the entire diamond business has been changed right down to its foundations.  The historic leader, De Beers, is running out the string.  The company, now an arm of Anglo-American, sees that its major mines are nearing end of viability.  They may not be a factor in ten or fifteen years, so their interest now is to extract as much value as possible.  That is understandable.  They are pushing for equipment that will identify man-made diamonds (MMD), as that is one threat to their business.  That too is understandable.  Even then, we see more MMD's in the market, and some news-making events, as in the discovery that hundreds of MMD's were submitted to a lab for grading.  It has been known for years that white and yellow stones have appeared steadily in the market, especially in Asia, that are not naturals.
This does not represent an existential threat to the business.  At least not yet, if ever.  There is little doubt in my mind that the day will come when the gap between new productions and public demand will become so large that new "sources" will have to be found.  Even now, as many retailers will acknowledge, the American public is becoming the next great diamond "mine", a point I elaborated on a few years ago at a JCK Show presentation. 
That, in itself, is fine.  Better to know that the diamonds being recycled and sold are not "conflict."  Or are not coming from Zimbabwe. 
We also see that major miners, Rio Tinto and BHP, are seeking to exit the business.  I would not be at all surprised to see Anglo make a similar move in the next few years.  On the surface, it seems logical for Rio Tinto and BHP to do that.  The diamond business is a very small part of their volume.  But if MMD's become the natural substitute for unfilled demand, then investments in mines could be radically degraded.  Better to get out, even if the risk is still years away.
The final question here is whether the public will mind buying jewelry that contains diamonds made in laboratories rather than by mother earth.  My contention has always been that the public will readily accept that, especially since the overwhelming majority of pieces are made with stones five points and smaller.  I believe it will become a reality some day.
Will we see if this all begins to emerge more openly this year.

10.  Street cred.  It has been a few years, as I recall it, since I have seen TV reports about fraudulent acts by retailers, though I imagine that some digging on-line would reveal a bunch.  This has been a perennial problem for the business, mostly because there always seem to be people ready to take advantage of the public.  It is too easy in our business.  And it constantly breeds distrust.
If anything, it has become far more important to establish one's credentials.  At the retail level, the public has shown a readiness to buy at global branded stores, even though it seems that the quality of sales people in those stores has not been maintained.  The mass market chains have steady turnover of personnel and that tends to keep them from effectively selling upscale product.  And then there are the thousands of Internet sites now selling product.  Unfortunately, in too many cases the pieces are not properly described.
We are being inundated these days with "brands", promotional messages, and scams.  The public has adapted, and now views all of us with skepticism.
The jewelry industry, fragmented as it is, has a harder job here than most industries.  We need to pay attention, and go the extra mile for our customers.

I have gone on a bit, but would like to hear your opinions. 

Tuesday, January 8, 2013

Top 10 Trends for 2013 - Part One

We enter a new year and for many people that means getting on with business in pretty much the same way that they approached prior years.  It is business as usual.  And, to some degree, that is true.  Retailers will review their sales results and plan on deletions, additions and solving persistent problems, like gaps in price points.  Suppliers will want to find new ways to tweak old standby's and turn new materials into innovative products.  But everyone will be scratching their heads trying to figure out where our industry is headed.  There are many market conditions inundating us, but here are five of my top ten for the coming year.

1.  The Millennials are comingMore and more of our business is shifting from boomers to millennials.  And with that has come a shift from brand to concept.  For years we have heard of the importance of creating a brand or image.  All industries have pushed to create or enhance their brands, but in most cases that has been little more than labeling a line, often at considerable cost.  Now that we are buried in so-called brands - and have seen countless failures - we find that remarkably few are meaningful to us.  Yes, BMW, Apple and Vuitton have all attained a cachet that means status and personal gratification to many people.  I view those as unique feats that are stupendously difficult to achieve - and it is so easy to lose that cachet.
Jewelry retailers at all levels have attained some brand success, though even a Tiffany had to be saved from disaster about 30 years ago.  But for the bulk of the industry, branding has meant very little.  Three very different manufacturing successes, JAR, Yurman and Pandora, demonstrated that concept is more important than brand.  JAR did it with zero promotion or advertising by creating extraordinary jewelry.  Yurman did it by creating classic designs with great perceived value using silver, 18 karat gold and colored stones as the main components, which the industry sneered at.  Pandora did it with inexpensive elements that gave the consumer the option to personalize their piece.  And it should be noted that these three successes came at the very top end of the market, the middle market and the lower end market.
There are some other examples of this kind of success, but in each case success came by impressing the consumer with a product aspect - concept - that was meaningful.  The millennials in particular seem unimpressed by brands per se, but do respond to the right message.

2.  A rising tide is not raising all boats.  We used to think that was true, that a recovering and growing economy benefits everyone.  We have a few things working against that.  The well-documented rift between the affluent and the working class means that a luxury category, broadly defined in our case as of a discretionary, status-oriented nature, has a narrowing appeal.  Recent history illustrates that very well.  In recent years there has been an effort by many retailers to "move upscale", thereby following the money.  There has also been a broad expansion into bridal lines, the one area where the public at large does dig deeper to come up with the money to buy this signal product.  Both efforts have met with very mixed results and many abject failures.  The luxury/bridal pies are only so big, and several studies show that the truly affluent have assumed far more cautious habits in buying discretionary luxuries.  In such an environment, weaknesses are quickly apparent - competence, location, marketing, inventories, quality, service, personnel, and image all play a role.  Given a market area, for example, that has a number of fully qualified retailers, is there enough high-end business to carry all of them?  In many cases, the answer is no.  There will be a few strong winners, and far more losers.

3.  Price volatility.  The bedrock materials in the jewelry business are diamonds and gold.  Both have experienced real swings in pricing, and we can expect that to continue.  Some ten years ago, in a conference presentation, I emphasized that De Beers was backing out of its historic role as buffer in the diamond industry, and that we should expect price volatility, driven by changes in the supply/demand equation.  Not only has that proved true, but it is compounded today by the continuing decline in the US market share, with 30% or less possible in the next year or two.  US buyers will be dealing with availability and currency exchange rates at the same time.
Gold prices have already killed some one-time strong categories (especially gold chain).  Gold is no longer much of a factor in jewelry under $2,000 retail, which was for so long a critical price range for retailers.  Worse yet, we can reasonably expect prices to rise to well over $2,000 an ounce, possibly even this year, and higher in years to come.  Will diamond fashion jewelry (that is, excluding bridal) become an elitist product? 

4.  The blurring line between jewelry and costume jewelry.  We should note that silver is no longer the material of choice for the bottom of the market.  The price has quadrupled in a few years, and it will rise further, especially because so many industrial and medical uses are being developed.  Silver jewelry used to be the top end of the costume market.  Now it is trying to find its footing in the "fine jewelry" field.  This is occurring with some success (after all, David Yurman showed us the way!).  Experimentation is rampant.  We started with silver and gold-plated silver.  Now we have silver-plated bronze, platinum-plated silver (as a step up), tarnish-resistant silver alloys, and the addition of steel, copper, wood, resin, ceramics, cobalt, titanium, and synthetic stones of every variety.  The line between "fine" and costume jewelry is about gone.  In the process, is the public being taught that it is acceptable to satisfy their desire for jewelry with products that bear only a taint of precious elements? The supply side is pushing the transition, in the hope of extending their existence.  Jewelry manufacturers are interested in units - they want to produce more and keep factories busy.  High priced gold and diamonds only reduces productions, and radically of late.  So many companies have shifted to alternative materials, which makes life much easier.  They bring fine jewelry skills to the costume business, which does mean more innovation and creativity in that world.  But nobody really knows how all this will evolve.
  
5. The Internet.  This is hardly a new issue.  Still, it is important to accept that the development of the Internet, in all its manifestations, is still at a very early stage.  I have often imagined - and read about - where it could all go, and the prospects are stunning.  This industry has in large part hated this intrusion into our comfortable, established, profitable business.  But the Internet now accounts for about 10% of all retail, and is expanding all the time.  The reality today is actually quite simple.  Every time any of us hear about a name, a brand, a store, a company, or anything new to us, we instinctively run a search on our smartphones or computers.  How one appears on the Internet now sets the tone for who we are and what we offer.  Absence is inexcusable for anyone in business, any more than not having an e-mail address.  As we can readily see, there are many retailers and suppliers who do not have web sites, and many that do have done an awful job.  Whether a company offers e-commerce or not, those that do not present a strong message on their sites (or do not even have a site) are obsolescent and will decline or fail.
All of that should be apparent to everyone (though I know some are still in denial).  But there are more changes to how our industry works that have already been imposed by the presence of the Internet.  One has been the long-held requirement by retailers that suppliers give them exclusivity on the products they buy.  For a long time, this made some sense for distinctive product (one could hardly ask for exclusivity on serpentine chain or Tiffany-style solitaire mountings).  The retailer down the street should not have the same product, as that diminishes its uniqueness and it breeds price competition.  That is all fine where a retailer's world is truly local.  Today, that is gone.  Retailers in other cities now show the lines they carry, and compete across state lines.  Internet retailers offer the lines for immediate sale.  And the public has become very accustomed to buying all kinds of products from all over the world.
In the years to come, jewelry retailers will find that this change to non-exclusive arrangements will be of great benefit to them.  Jewelry, as everyone loves to point out, is a product that many, if not most, people want to see, feel, and try on.  For those people, seeing a piece on-line and then going to a store to ask for it will be their preference.  I have seen that effect lately, with a supplier calling up an Internet retailer to relate that they received calls and orders from traditional retailers because of the Internet retailer's campaigns.  Both types of retailers will be accepting that broadly advertised lines will benefit everyone.  This will no longer be just a local business.  A good part will be national, and international, in nature. 

Next time - the other 5 trends I see.......