Friday, February 21, 2014

Top 10 trends for 2014 - trend # 10 - The end of growth?

The end of growth?

The sale of Zales to Sterling announced this week did not come as a surprise to many.  It looks like one of the final strokes of a long term consolidation that has occurred in the mall-based jewelry field - in all of retail, actually - since the years of near-rampant expansion in the last century.

What is notable about all the consolidations we have witnessed is not so much that that the stronger, more aggressive companies have slowly taken over particular channels, as that no new competitors have come up within those channels.  In mall jewelry there have been a couple of efforts, but they too have been sucked into the black hole of consolidation.  People make note of the handful of chains that have disappeared in the last few years.  But I remember making a list in the late '80s of mall chains that were bought out or absorbed, very often by Zales or Sterling.  I came up with 40 names.

So is all this just an accumulation of power, or is there more to it?  From the supplier point of view, it certainly has not been beneficial.  Trade shows in the '70's and '80's were very busy with hordes of buyers from dozens of expanding mall retailers.  There was real diversity in what they bought, and how they bought.  That is largely gone now.

Zales had perhaps 100 stores at the time, and was growing rapidly through acquisition and expansion.  (And so was Sterling.) Many of the acquisitions were the dominant guild stores in larger cities around the country.  They initially retained their names and historic uniqueness, even as they were being assembled to form Zales' guild division.  That division was led by Bailey, Banks and Biddle, a fine Texas jeweler, into which all the others were eventually merged.  BBB never could fully exploit the images and histories of all the original stores, and a long decline began.

Now Zales will be part of Sterling, essentially doubling Sterling's size.  Is this growth?  Of course not.  But there is more to think about.

I would like to draw a parallel with a different product entirely - cars.  In 1970, there were 8.4 million cars sold in the US, both domestic and foreign, owned as well as leased.  In 2010 sales totaled 5.635 million, 33% less.  (The peak in those 40 years was 10.979 million in 1985; the lowest was 5.401 in 2009.)  In 1970, US population stood at 203,211,926.  In 2010 it was 308,745,531.  That means that in 1970, one car was sold for every 19 people.  In 2010, the number is 57.  I do not want to make too much of this, as there are many factors involved - the prices on cars, people moving into cities, a change in public mindset, etc.  Still, this is a dramatic demonstration of the decline of the middle class.  Over the same period, I am guessing, car prices went up tenfold, or more, while employment in the industry plunged.  Inflation does account for some of push on prices.  More of it was a need to maintain profitability - the fewer the number of cars sold, the more prices had to be pushed.  I feel that the major factor is a gradual erosion of growth, even as replacement of cars remained a necessity.

Jewelry, however, does not wear out like cars.  Tastes do change, leading to some replacement.  But so does the public's priorities.  Unfortunately, there are no comparable statistics in jewelry.  But even without hard numbers, there are facts we do know.  Around 1980, the year we saw a crazy spike in the price of gold, diamond sales were very strong.  I recall manufacturing three, four and five carat total weight diamond cluster rings.  In the many thousands.  Women's and men's.  Imagine a 7-stone, 5-carat total weight man's ring - that's 7 three-grainers - in a heavy solid-back shank!  This heavy use of fifths, quarters, halves and up carried across all categories.

Unlike cars, however, retailers and jewelry manufacturers over the years felt they needed to hold certain price points.  (After all, jewelry is not a necessity!)  So, as wholesale prices generally climbed, diamond weights and qualities declined, gold weights declined, until now we have a preponderance of jewelry where diamonds do not exceed one point in weight.  In many ways, the industry has done the equivalent of painting itself into a corner.  Where do you go now, when stones cannot get smaller, and shanks can't get any thinner?

One direction, as I pointed out earlier this week, is the move to silver and non-precious materials.  The line between fine jewelry and costume has blurred, and we are training the public to accept inexpensive, bold, disposable alternatives to fine jewelry.  The pressure mounts to offer those key price points.  Are we eroding the image of jewelry as we fight the end of growth?

To some degree, the same has happened with cars as the struggle to maintain sales of mid-priced cars for the middle class continues.  More stripped down cars and small cars, down to two-seaters, have appeared because real price limits are being reached in the mass market.  Concurrently, in both jewelry and cars, super-luxury is rolling along fine.

It is not as if there is too much competition, and too many companies entering the field.  The Jewelers Board of Trade has reported that there is a continuing decline in the net number of operations.  No doubt that a key factor is stagnant wages and stubborn unemployment, driven by accelerating technological advances that are extinguishing jobs and steadily raising productivity.

We see major retail chains in all types of merchandise appearing to hit limits.  Maybe it is just this long, difficult recovery from a major financial crisis and recession.  And maybe not.  Either way, real damage is being wrought on the industry and on the public's view of just how they will accessorize apparel.  There is little doubt that great talents will still rise, as will new concepts in jewelry that will excite the public's imagination.  But when we hear that sales have risen 6%, that is dollars, not units.  Where is the growth?

We should not dismiss out of hand that growth as we experienced it in the past will return.  It very well may not.
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This completes my own view of the Ten Top Trends for 2014.  I trust you have enjoyed these two weeks, and that I have provided food for thought.  I hope you will take the time to give me some feedback.  And let me know if you are interested in hearing about the possible seminar!  (see below)
 

Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Top 10 trends for 2014 - trend # 9 - Experientialism and Environmentalism

 This past Christmas might have been another indicator of how our society has changed.  For decades we have accepted that 70% of our economy is driven by consumerism.  But it now seems as if consumers across all income brackets are stepping back from impulsive buying.  People are not trying to keep up with the Jones's.  Or maybe they are, because the Jones' are changing too.

Here is how the Luxury Marketing Council described an upcoming session.  "All the most current research on the changing definitions of “luxury” agrees that “luxury” is no longer about ‘stuff’ or ‘boast and brag;’ but about the experience, appreciating tradition, the savoring of the special, the bespoke, the artisanal, the unique, the precious. AND also about the memory of that experience and the ability to tell a story about it to one’s friends and families."

This parallels a study finished about a year ago by American Express and the Harrison Group which predicted that huge amounts of cash held by wealthy individuals, the top 10% of US households, would start to spend on luxuries by late 2013 (as did in fact happen) and that the bulk of it will go towards experiential purchases.  Of a list of about 20 categories of products, they said, only two were predicted to decline - watches and jewelry.  Not what we would like to hear.

That is not to say that there are not people who spend a great deal on personal luxuries, including jewelry.  If anything, the top end has boomed in a way not seen for many years.  And diamonds have been there.  The major auction houses have seen prices on large, exceptional diamonds rise to extraordinary levels.  We are about to see the first $100 million sale of a condo in New York City.  As the quote says,  people are reaching for the unique - 100 carat D-flawless diamonds, treks across Antarctica, trips into space, and $4,000 Loro Piana wool coats.

Actually, those purchases of diamonds and fine coats are, in their own way, experiences.  They are experiences that can be fondled every day, and they count just as much for some people as does a safari to Kilimanjaro.  We note that CD sales are dropping steadily, but live concerts are bigger than ever - and far more expensive.  Many young people do not drool over a souped up Chevy like the old days, but buy expensive dirt bikes.  The bike is needed to create the experience.

At the same time, while the diamond and gold business has worked to counter negative publicity - conflict diamonds and dirty gold - the inescapable fact is that public awareness is growing, however slowly.  Even if the record was perfect, mining does harm the environment, sometimes seriously.  We hear of extensive delays in the approval of new mines.  Sometimes approval is not given.

That is becoming the case even when it comes to resources that are essential to our economy.  We are having a battle in the US today about fracking, even though that process has been going on for many years.  There is the XL pipeline, planned to traverse some of America's prime farmland and critically important Ogallala aquifer.  Years ago, there would not have been a battle, and that accounts for all the fracking that already goes on.  But the public is becoming keenly aware of the possible catastrophic damage.

Desecration of the environment for the sake of luxuries face even greater barriers.  For the moment, most mining for gold is done outside the US, and no diamond mining of any consequence goes on here at all. That puts some of the negative perceptions a little further from home, but it still hangs in the air.  Recall for a moment the tragic collapse of an apparel factory in Bangladesh.  The worldwide uproar was well heard everywhere.


Experientialism and Environmentalism.  We know that, for sure, that these two aspects of our world are here to stay, and will continue to mount in importance.

Slowly, everything we do will be measured against tough standards; standards intended to maintain the Earth's complex ecology in the face of rapidly increasing populations.  The Kimberley Process was developed under steady pressure from NGO's.  But even those NGO's walked away when the results were not strong enough, or were undermined by the very committees established by the industry.  Not good enough, they said.

All this being the case, what will the future bring?

We can start by assuming that there will be growing pressure from both governmental regulations and demands from the public, however slowly that may progress.  Might as well get ready for the future. There are countless scenarios that might roll out.  Perhaps some methods for far better controls from mine to consumer will be developed.  Perhaps there will be the international political will to finally put an end to human abuse, terrorism and environmental degradation.  Do not hold your breath waiting for those scenarios to emerge.  And we cannot wait for all mines to be played out, thereby foreclosing the problem.  That will still be some time off in the future.

The public will unquestionably want to include jewelry, in all its potential magic, as a part of the desire for experiential fulfillment.  But it must happen without guilt, or even a tinge of guilt, about far off abuses.  That surely takes the edge off any personal experience.  And the public will increasingly attach knowledge of abuses to the jewelry or watch in front of them.

2014 will be the year in which we start to really feel the weight of these responsibilities.  Responsible sourcing and manufacturing will turn personal experiences into real parties.  Let's go party.


Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Wednesday, February 19, 2014

Top 10 trends for 2014 - trend # 8 - Maturing of brands

It would be impossible to count the times we have all heard advisers tout the need for us to build a "brand" for ourselves and our companies.  The efforts to do that over the years have been intense and expensive, and largely failures.

This, after all, is the Age of Advertising.  I find ads that appeared in old newspapers and magazines to be quaint.  Perhaps they are innocent.  All they seem to want to do is let you know that a new snake oil mixture is available, or some new durable boots.  Those were not ads so much as public notices.

But in this Age, it is often hard to even know what is being advertised.  We see elaborate ads on TV that finally sneak in a product name at the end.  It is as if there is some shame in being so crass and commercial as to disturb our fantasies by showing a name.  Of course, these way-out ads are usually for products that aim to dip into our deepest desires and dreams.  A soap ad comes right out and says what it needs to.  Not so for super luxury categories.

So how did we get here?  Advertising of brands had the desired effects in the dawn of this Age, going back to the '50's.  Coke, Chanel and Cadillac became embedded in our minds as tastes, scents and status, not just words.  The persistence and strength of those images is impressive, though Cadillac had to come back from the edge of extinction to do it.

Over the years, the number of brands being promoted has become a flood.  So big a flood, that we are becoming numb to their messages - if there is one.  The connection between a brand and success has become tenuous.  We all know how Apple, Tiffany and Zales have strong brand identity with the public.  But Apple and Tiffany were near bankruptcy not that many years ago.  And Zales, which has not been able to find its footing for many years, has just been bought by Sterling, and at a price that would have been laughable, on a per store cost, 30 years ago.

In jewelry and watches, big conglomerates have been created by buying established brands.  The global brands do not even attempt to create a new brand.  The cost and the likelihood of failure is simply too great.

A person in the perfume business once described to me how that works.  New brands (labels, actually) are constantly concocted, heavily advertised and promoted.  If it works, even if only for a few years, great.  If not, the line goes quickly to discounters and mass marketers who run it out at much lower prices until it is gone.  That is only possible in a product where the public expects to pay very high prices for a fancy bottle and 50 cents worth of content.  Extremely low material costs, and very high margins.  Exactly the opposite of jewelry.

If we want to see a replay of the boom in brands in the West, we only need to see what has happened in China and other Asian countries.  A new, brand-rabid middle class wanting to demonstrate status and being "in."  Superb marketing, honed over the last decades is doing the job.


Maturing of brands.  I am not being cynical at all about this.  An impoverished Chinese farmer works very hard just to get a bowl of rice on the family table.  But that farmer has not set aside the normal human urge to find some rewards in life.  Living close to the earth does have its rewards for many people all over the planet.  But for those grinding out a life in crowded cities and noisy, dirty factories, personal rewards become very real.  Especially when they can see those rewards displayed every day in the lives of others around them.  As jaded as many of us might be, we still love the feel of wearing of a beautifully made garment or piece of jewelry.

Cities are where the overwhelming majority of the world's peoples will continue to live.  I live in New York and never see the Milky Way, snow-capped mountains, or prairies the reach to the horizon.  The closest I get to Mother Earth most of the time is a stroll in Central Park.  I do love the city, warts and all, but touches of luxury well-done never hurts.  Nor does a trek to exotic locations.

Brands today want to do that.  Somehow to give us a psychic lift, a smile on our faces.  Does a new I-Phone give us a spiritual lift?  Maybe, or maybe it's just the possession of a marvelous creation that we can shape to our needs, that answers our questions and links to our communities.

Jewelry branding has a checkered and diverse history.  In the US, retailers have been the brands, whether local or national.  On both scales there have been many great successes, but local stores have had almost no success in extending their brand beyond their local markets.  In Italy, by contrast, the brands have been the designers and manufacturers.  Stores are notable by which designer brands they carry, rather than their own name, though local reputation is always important. 

As for building brands in the US, we have noted (in prior blogs this week) the big successes of a few, amidst many efforts that have gone nowhere.

Jewelry branding confronts real barriers.  Products are rarely sold in high volumes (a prerequisite for broad promotion); they are easily copied (usually with the intent of undercutting price); the choices are endless (unlike any other luxury item one can think of); and most cannot be recognized across a room (unlike a handbag).  There are many other distinctions which I could note.

We all know this, but the issue is that fine jewelry is a product that does not lend itself easily to branding.  The public has become very tired of the volume of brands thrown at us.  But the public also immediately recognizes the value of something very new and imaginative, with an easily recognized benefit.  Think Go-Pro cameras.  Or, as I reviewed this week, Pandora, Alex and Ani, etc.

We have become good at spotting honesty and genuine talent.  A brand can no longer be a name without a real creative talent or skill behind it.  Cutting diamonds to ideal proportions is no longer a big deal - everybody does it in better qualities.  But being a designer that consistently grows a style and look does work.  You do not have to be big, you just have to be very good.  We will all benefit if that becomes the rule.

I recall a conversation I had with a successful retailer years ago.  I asked him this question.  If I brought him a fantastic piece of jewelry, or a good idea, which would he take.  He did not hesitate.  He said the good idea.  He was buried in great product, but good ideas are hard to come by.

Building a real brand is hard to come by.  And the public is now completely unimpressed with mediocrity.

Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Tuesday, February 18, 2014

Top 10 Trends for 2014 - trend # 7 - The Millennials are arriving

For many years now, we have been riding the Boomer wave.  It is hard for us to recall a different age in jewelry marketing.

The Boomers were born into a post-war period of great retail expansion.  We became a country driven by consumerism and acquisition.  Advertising skills were turned to sharpening the public's desire to acquire.  Two cars in every garage, replaced often with the latest models.  Suburban life became a realized dream, and the rise of credit cards meant that we did not have to wait.  We could have it all right now!

Part of that was an important change in the targeting of fine jewelry.  Pre-war, jewelry, and particularly diamond jewelry, was primarily for the "upper classes", who wore their pieces for evening wear and special occasions.

By the 1960's, a diamond engagement ring became a must, and we then saw the rapid development of mass-market jewelry.  Stud earrings, solitaire pendants, diamond bands, bypass rings, clusters, and more became huge businesses.  Colored stones found a mass market.  As demand built, so did the range of diamonds offered.  Diamonds that had previously been relegated to industrial uses, now satisfied a public that wanted diamonds they could afford.  They just wanted to own diamonds!

The ultimate success in popular, affordable jewelry was the tennis bracelet.  It started out as a higher-priced item, selling most often at $1,000 and up.  It ended up being massively promoted at prices as low as $100.  One chain retailer stated that for a period of a few years back then, that one category represented 10% of all its sales.

It was also an item that, in retrospect, marked a pivotal moment, the slow closing of a remarkable period of growth in the mass market.  All of the items I mentioned continued to sell, and still do today (stud earrings are probably the first diamond purchases for young women).  But nothing else like it has come along in the years since the introduction of the tennis bracelet.

The next important and heavily promoted item, driven successfully by De Beers, was the 3-stone ring.  This was essentially a step back into the past.  And a good one.  One retailer told me that the De Beers program came along just as they were about to scrap a lot of 3-stone inventory.

The Millennials are arriving.  So, why was this a good move?  It came at a time when the public was becoming more interested in classics, in value, and in design that will not go out of fashion.  It was also important because the Boomers were aging, and so was unbridled acquisitiveness.

The new generation, the Millennials, come to us with very different standards and outlook.  They have been raised together with computers and instant information.  They not only experienced 9/11, but also are daily witnesses to worldwide insanity.  They know about climate change, environmental devastation, political gridlock, and how much work it will take to return the US to its foundational precepts.

Even a cursory browse on the internet reveals how much our children look at all our assumptions and question them.  Inch by inch, they are pulling the country into their world, and away from fossilized thinking.  We hope they are right, and often we do see they are right.  Grudgingly, sometimes.

Millennials have not walked away from jewelry.  The marriage rate may have declined (as has the birth rate), and marriages have been pushed off into later in life.  But emotion, love and commitment are as serious as ever...when it occurs.  But their thinking is far more open as to what symbolizes those feelings.  If it is a diamond, they are into it.  I have often seen how they studiously review their options and make informed decisions.

So bridal remains important today, and we have seen many companies move into the category.  But Millennials will want to hear your story.  More and more, they will want to know how diamonds fit in a "green" world, and how diamonds can be meaningful in their lives.  (I would point out that De Beers did a great job in building the diamond image in the US.  They also did that in Japan, but there it suffered a steep decline when the public turned conservative and turned back to old traditions.)

In non-bridal jewelry, the road is tougher.  Here we see the need for customization and uniqueness.  This generation does not seek conformity with anything like the passion shown by young Boomers.   Millennials are quite comfortable with bold costume pieces, or pieces that mix precious and non-precious, that are where the two blend so often these days.  Any fashion magazine shows how readily such jewelry is used. 

Boomers are still with us, but their buying days are largely behind them.  They seek to unload "stuff" now, not acquire more.  The oldest Millennials are now in their early thirties.  Their day is arriving.

Are you ready?


Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Let me know if you want to hear details about a seminar.  Thanks!

Monday, February 17, 2014

Top 10 Trends for 2014 - trend # 6 - The evolution of retail channels

We tend to believe that things change slowly in retail.  After all, Macy's, Tiffany and Zale's have been around now for many years.  Independent stores, from the local shoe repairer, to the corner diner, to the independent jeweler, come and go, usually when a new generation opts not to enter the family business.  But, of course, it is not that simple.

Many years ago, as a store closed, another came along to replace it.  There was growth as population grew, as new towns and suburbs developed and as new ranges of products came onto the market.  No need for auto dealers and electronics stores when there was little or no need for either.

The explosion in retailing started in the 1950's, a period that saw the start of the Interstate Highway system, and the concurrent boom in mall construction.  Independent retailers moved from downtown to mall, discounters and catalog showrooms emerged from nowhere, local department stores and the big three cataloguers (Sears, Ward and Penney) expanded nationwide.

As we know, none of that worked out as expected.  Independents left the malls as they realized that mall demographics, in most cases, homogenized mall retailing.  Some of those that stayed on grew into major chains. We now have a handful controlling 80% or more of mall jewelry business.  Discounters got wiped out by the most aggressive - Walmart and Target.  Barely a few now survive.  Catalog showrooms disappeared entirely, though the next iteration, warehouse clubs, came up quickly (only three remain).  Department stores consolidated at a dramatic pace.  Of the three cataloguers, Ward is gone, and the other two are struggling to survive. 

Evolution of retail channels.  So that is quite a story of change at retail.  Most dramatic, perhaps, is the change among independents.  We have seen the rise of very strong independents who have moved into the top end of the market (where none of the channels I mentioned above compete).  That has come through good management, updated facilities, good marketing and the right locations.  Some have gone from $1 million stores, say 20 years ago, to $10 million and more today.

At the same time many stores have not been able to compete with the buying muscle and ad budgets of the big chains, and have closed.  We have seen a steady decline in the number of independents in the last 30 years, but, in fact, many of the survivors have established and excellent position for themselves.  Part of that success has come at the expense of others.  A city that might have had a dozen upscale jewelers 30 years ago now has two or three.

Over that same 30 years or so, we have also seen the steady expansion of global brands - Tiffany, Cartier, Van Cleef & Arpel, De Beers, Chanel, and relative newcomers like Graff.  They will never have the brick & mortar market penetration of the top line independents, but they do contribute to the image of jewelry through their extensive advertising.  (In some ways, replacing the image advertising done by De Beers over the years.)

So we now have a jewelry marketplace that that remains understandably stratified.  But how has the consumer changed, and how will that effect the future course of retailing?

I have not mentioned what everyone knows is the single greatest disruptive force in retailing - the Internet.  Of course, the Internet is not a retail channel, or any other kind of channel for that matter. It is a communication tool, a fast and relatively cheap one at that.  The only restraint today is a lack of imagination. 

People do focus on the disruption it has caused.  Stores selling software and computers, or renting movies, have just about been wiped out.  Booksellers are holding on, clinging to people's love of browsing.  Newspapers and magazines are under heavy pressure.

Jewelers pooh-poohed using the Internet for years.  They said that it takes a great deal of work to develop a good site, to get consumers to come to the site, and dedicated effort to maintain and freshen the content.  All true.  Then they offer the rationale (excuse?) that consumers will simply not buy jewelry without touching and trying on.  Not true.  And this past year, clearly not true, as better than 50% of buyers used the Internet to search for purchases they wanted to make.  Internet retailing for a few years now has been, by far, the fastest growing retailing channel.

( I wrote a blog relating to this subject two years ago.  Go to Best Buy, Ask Why which was posted on 7/1/12)

We see that all major retailers now run web sites as an essential part of their business, as do many small progressive ones.  Yes, these sites generate sales, but more important is informing the consumer about who they are, how they care for their customers, and what they carry.  The most aggressive want consumers to buy any way they wish, but also to communicate any way they wish - on-line chats, telephone, e-mail, on a wide variety of social networks, or face-to-face in a store.

Today, the heat is on.  Consumers, and especially affluent consumers, will use the Internet to find out what they can about a jeweler, new pieces, alternatives and choices, and pricing.  They will demand the service, and will come into stores very well informed.

We already have stores that e-mail you sales tickets (Apple showed the way), and all the information about what you bought, when you bought it, and what you paid.  Jewelers will need to find even better ideas.  Send sales tickets, but also photos and appraisals, maybe even insurance quotes.  Maybe chits good for checking settings and re-polishing. 

And that old favorite demand made by retailers of their vendors, geographic exclusivity, is about dead.  Retailers will be selling their lines everywhere (and will want the right to do that).  But being the local jeweler that offers great service will mean keeping the business.  This will drive many jewelers into proprietary lines and actually broaden the selections the public can buy.  (That feeds into another issue I will cover in the next blog.) 

Retailers will open far fewer stores, maybe closing some, as they see their customers use the web more.  Centralizing inventories and service is a plus.  The number of stores needed in a metro area will go down, even as business is enhanced. 

I could go on from here (as of you can) in imagining how things will change, but it is certain that the Internet is going to continue to change the landscape in many ways, often in ways we cannot totally envision.


Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Friday, February 14, 2014

Top 10 trends for 2014 - Trend # 5 - The new designers and manufacturers

It is easy to get a bit down on the outlook in the jewelry business.  Except for those who have managed to position themselves well at the top of the market, or those who have hit a marketing mother lode, the balance of the business is floundering. 

That is understandable given that we are still fighting to get fully out of a major financial crisis.  People are nervous about jobs, getting them or losing them, and everyone knows we are in the midstream of a new age - the technological age that is rendering much of what we do obsolescent at a stunning pace.

Still, much of what we see in the business has not changed, mostly because so many believe that there is little reason to think it can change.  New designs are drawn up, models made, stones picked, samples produced, a price list is printed, and presto!  We have a new "collection."  The latest "creations."  (Two words that I think have become as threadbare as an old doormat.) 

For those who have really been paying attention, all that just does not work anymore.  It might suffice to scratch out a living, but hardly a way to build a company.  It is time to move on.

The new designers and manufacturers.  The jewelry business is not unlike many other arts.  True talent is a rare thing.  A very rare thing.  Which does not mean that millions of pieces are not sold.  Just walk through an art fair and we see tons of lithographs priced for modest pocketbooks, for those who just want to decorate some walls.  And then one is stopped by one artist's work that displays exceptional skill and originality.  If we are lucky, we find one.

We do need a range of products designed to satisfy consumers of varied taste and budgets.  In recent years we have witnessed the rise of innovative companies that have succeeded spectacularly.  Let me mention a few.  David Yurman, Blue Nile, JAR, Hearts on Fire, Pandora, and Alex and Ani. 

What do they have in common?  All are retailers, though all except Blue Nile did not start out that way.  All have a compelling aspect to their businesses that sets them apart and satisfies a consumer need. 
  • Yurman took classic design, then blended silver, inexpensive colored stones and 18 karat gold, and offered the public great value and design.  He did it when everyone else thought the idea was nuts.  I guess they were wrong.
  • Blue Nile offered low priced diamonds over the Internet, while dealers and retailers thought that was a joke.  I guess they were wrong.  How many $400 million diamond businesses has anyone seen develop that fast? 
  • JAR almost fanatically pursued the design and execution of spectacular jewelry using extraordinary stones and immaculate finish.  He slowly built a super-rich clientele.  He just had a special exhibition at the Metropolitan Museum of Art in New York.  
  • Hearts on Fire recognized that the combination of GIA grading reports and AGS cut grading had not been done.  Offering the public the chance to buy "ideal" diamonds, and using tools to demonstrate that perfection, was a big hit with retailers.  He was a first mover.
  • Pandora gives the public the chance to customize their own jewelry, at their own pace, and at an acceptable price for each addition.  Is it the finest jewelry?  Maybe not, but it is a huge hit with the public.
  • Alex and Ani offer one-size-fits-all bracelets, and many other products, and are very aggressive marketers.  They ran a 30-second ad during the Super Bowl.  
In every case, a distinct and instantly understood message is delivered in well developed multi-channel marketing campaigns.  Even JAR, who never advertised, used the subtle message of one-of-a-kind art, private sale, and incomparable design and execution.  He was patient, and it paid off big.

These examples, most of all, demonstrate that price range or market sector are not inhibitors.  Success can be found within all ranges and styles.  What they also demonstrate is that very often the product is the conveyor of a much more important message, something that makes the heart skip a beat.

So what is the trend?  Well, we need to start out by acknowledging that jewelry is not going away.  That the public (particularly women, of course) love the psychic charge that jewelry offers, much as watches do for men.  It is magical, it is emotional and it is eternal.

But packing up a bag with a bunch of "me too" pieces and going on the road and knocking on doors is probably the hardest way to earn a living in this business.  Today we see technology stepping into the breech.  People are printing jewelry and offering immediate service on customizable designs.  Even JAR and Yurman are using aluminum, and other alternate materials that offer options in colors and personalized jewelry.  Trained personnel are showing up in stores to help run special events. 

But mostly it is relationship building using every tool imaginable (and yes, including a number of social networks), including full e-commerce, well-designed web sites that tell a compelling story about the designer or the retailer, and allow the consumer to buy via any channel that suits them.

At every turn we see these 'new' designers and manufacturers do wonderful things.  We will see a lot more in the year to come.

As today is Friday, 10 days of trends for 2014 will take a break for the weekend, but we will be back on Monday (even though it is a holiday!). 

Please note:  If you are interested in seeing the subjects covered in these 10 days of trends for 2014, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand and deepen the discussion, cover other issues, and include options for the future.  I would be happy to hear from you if you are interested in hearing the details when they are worked out.  Leave me a note here, or e-mail me at benj@janosconsultants.com.  Thanks!

Thursday, February 13, 2014

Top 10 trends for 2014 - Trend # 4 - No capital, no business

All through the history of the jewelry business, and especially the diamond business, the support offered by banks to suppliers has been an essential part of the industry's growth and prosperity.  This has been particularly true in the decades after WWII, a period in which there was steady expansion of the US economy and a rapid recovery and industrialization in Europe and Japan.  People were making more money, the most since before the Great Depression, and the war years had built a backlog of consumer needs that were being satisfied.

De Beers played a key role in the expansion of appetite for diamonds and thereby the desire for people to own jewelry in general.  De Beers played a very important role in another way.  They acted as the market buffer, holding stocks when the economy suffered recessions, and releasing more when boom times returned.

This was an excellent environment for banks.  They could lend against inventories, with De Beers protecting their backs on diamonds; and gold hedging, or gold leasing, aiding in protecting the key metal.  There is no question that the leverage so afforded helped many companies reap profits over the years, even in soft years.

There was a strong reliance on long term personal relationships in all this, with banks often accepting that inventory values were being accumulated by manufacturers through careful manipulation of inventories.

No capital, no business.  We are now reaching a critical turn in this long history of bank financing.  The unraveling of these close relationships began in the late 1970's and early 1980's.  Too many companies were caught up in the diamond investment boom in that period.  When values peaked and then crashed, many companies ended up underwater.

That was further exacerbated by the Fed bumping interest rates to extraordinary levels in a push to stop the inflation that was ripping through the American economy.  Investors were fleeing cash and buying any kind of hard asset that made any sense, including gold and diamonds.  Lending rates reached 18-20%, and that was enough to wipe out many companies.  Banks were taking heavy losses.  Major lenders to the diamond and jewelry business, like European-American Bank, bailed out of the industry.  The bank itself was dissolved not long afterwards.

The road since then was a slow retreat by the banks from lending to the diamond and jewelry business.  That retreat was accelerated when the major diamond producers started to unload their inventories in the 1990's.  De Beers, BHP, Rio Tinto, Alrosa, and several African producers, in effect, stopped buffering diamond pricing, and we saw the beginning of price volatility, a problem that has become much worse in recent years, discouraging or stopping banks from lending on inventories.

Banks discovered that in too many bankruptcy cases the key asset, diamonds, disappeared.  Diamonds can pack great value into small packages, and desperate people took advantage of that.  Even worse, excess capacity and competition drove margins down in a business that already suffered from thin margins.  External forces, like Internet retailers selling diamonds (led by Blue Nile), resulted in reduced margins at both the wholesale and retail level.

Moreover, banks were finding that receivable banking, even at low percentages, had risk.  Merchandise might be invoiced, but that did not stop retailers from returning a great deal of what they had bought (and may not have paid for as yet) but not sold.  Many invoices had, as one industry person described it to me years ago, a "rubber band" on it.  One never knew what would actually stick.

Add to that, the increasing government regulations on diamonds and jewelry enacted to counter money laundering, terrorism and human abuse activity, placed banks in the position of being policemen and monitors.  That was something they were not good at, even if they ignored the costs.

So, today, banks financing this industry, on the supply side, are faced with thin margins, volatile prices, unreliable receivables, heavy and expensive compliance costs, and government oversight that could cost them huge penalties.

In the US, one could add, the market is over-supplied and over-stored largely because this is a very mature market.  So growth for banks would depend on whether their particular clients are smart enough to capture market share - kill the competition.

In just the last month or so, the last large lender to the industry in the US, Bank Leumi, has informed all their clients that they are getting out.  Unlike times in the past when banks left, only to return, this might truly be the end of major bank financing.  True, banking facilities continue in Antwerp, Ramat Gan, and Mumbai, but at much reduced levels from just a few years ago.  The outlook is not good.

Where does that leave manufacturers?  Some financing might be available with outside collateralization - assets easily controlled that are not part of the business.  Credit insurance will make some receivables bankable.  Properties could be mortgaged to raise cash.

One possibility is non-traditional money sources, e.g. hedge funds.  But that money will be at least twice as expensive, and will make today's thin deals that much more dangerous.

All these options, and others, raise the same question.  Are the risks reasonable? Many are starting to say no, and are looking to see what they can change in their business model.  

Of course, I speak mostly, but entirely, of the larger manufacturers.  Small companies, designers, and local private dealers have always found ways to finance their businesses through personal loans, mortgages, and even credit cards.

The drying up of bank financing is going to be another big step in the consolidation of the business.  Some owners will bow out, not wanting to take greater risks.  Others will merge.  Jewelry lines will get smaller (less inventory and development costs).  Jewelry will drift even more into basics, thereby reducing risk - but also becoming even more boring.  The supply side will get smaller.  We jsut do not know how far that will go.

Like I said, no capital, no business.


Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Wednesday, February 12, 2014

Top 10 trends for 2014 - Trend # 3 - Top-Bottom mirror of society

We read a great deal about the economic divide in the US and how the gap is growing.  Actually, it is a global problem, with many countries, both developed and emerging, now trying to deal with this issue.  When I think of my own experiences in various workplaces, it becomes inescapably clear that this problem has had a long arc, and is not about to change.

Simply put, a 200 year development of technologies is now reaching warp speed, and much of it is aimed at eliminating the need for people to perform fairly routine and repetitive chores.  The assembly line now has a few supervisors.  We are now watching the process move on a very fast track in China, India and elsewhere in Asia and the Americas.  It is as if we are observing our own industrial development in double time.

Just imagine a world that has 7 billion people, 6 billion of them of working age, but there are only 4 billion jobs.  Make no mistake, we are all in the same labor pool.  Education is improving the skills of hundreds of millions, and these technologists will fill the skilled labor jobs available.  They will also be the basis for a growing, global market in discretionary luxury products.

The world is now realizing that incomes will boom for the relatively few, while many people will be left out in the cold as their jobs are extinguished.  Our global productive efficiencies will be capable of churning far more goods than we can sell.

Top-Bottom mirror of society.  Jewelry has always been the "canary in the mine."  Economic conditions are reflected in how well jewelers do.  Early in 2007, for example, we saw jewelers reporting an unexpected decline in sales, and we know what followed in 2008.  In the mid-market and lower market, we just saw some canaries keel.

This past Christmas was clearly a case of a rising tide not raising all boats.  Top end guild stores reported a great year, some saying it as their best year ever.  Others say it was a difficult year, with sales and profits suffering.  The distinction this year was very clear, and does not bode well for the overall health of the industry.

All retail seems to have followed the same track.  Walmart seems to be hitting a wall; luxury apparel is selling very well; mid-market and low end retailers ended the year with a frantic flurry of deep discount offers; and a classic New York closeout clothing store, Loehmann's, declared bankruptcy and is closing all its stores.  Two stalwarts of multi-line department stores, JC Penny and Sears, are both in real trouble.  Retail is being shaken to its roots.  And about half of all shoppers search for what they need on the Internet, even if they don't execute their final purchase with an Internet retailer.  This has driven margins down, and it will shake out those manufacturers and retailers who do not source well and do not produce efficiently.

Some would say that a shakeout will correct the excess capacity all through the value chain, but I am not sure that will be a reliable fix.  An historic problem has been that the jewelry business has low barriers of entry, which invariably leads to the market being over-stored and over-supplied.   There is always someone who is totally convinced they have the next great product or just the right marketing scheme.  And, once in a while that does happen, as is currently the case with Alex and Ani.  But getting the right mix of product, price points, marketing and branding, message, distribution, retail location, etc, is extraordinarily tough.  There is very little room for error.

Suppliers and retailers are trying every approach.  Innovation - that magic word - takes exceptional talent, and maybe a good measure of luck.  Niche marketing takes particularly sharp focus. Internet retailing requires patience and very hard work.  We could go on. 


There is some growing political awareness of the dangers inherent in a deeply divided public, and there is at least a chance of seeing more progressive solutions that may, in time, start to rebuild the middle class that for so long supported a large part of the US jewelry industry.

In the meantime 2014 will probably not bring discernible changes.  We will be dealing evermore with a jewelry business that reflects a society with a growing and deepening income disparity. 



Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Tuesday, February 11, 2014

Top 10 trends for 2014 - Trend # 2 - Emergence of MMD's at retail - a paradigm shift

Man-made diamonds (MMD's) have been around for quite a while now.  It has been a constant subject of discussion from the outset, ever since the technologies have evolved from production of industrial qualities.  GE and Sumitomo developed industrial production decades ago, and their productions have been important for a wide variety of applications, all of them completely free of controversy.

That changed as methods for producing gem qualities first appeared in Russia.  HPHT (high pressure, high temperature) equipment was used for both improving certain qualities of diamonds, and for the production of new diamonds, a more lengthy and difficult process.  Somewhat later, CVD (chemical vapor deposition) developed, a quite different process that "grows" diamonds by depositing carbon atoms onto a diamond seed.

In recent years, both processes have been used to expand the production of diamonds, often in concert.  CVD diamonds are often subjected to HPHT treatment to enhance their quality.

That is the story in brief, but from early on the industry has called for producers to fully disclose the fact that these are MMD's, or HPHT treated, and not natural diamonds.  The problem was that detection of MMD's is difficult without specialized equipment that can be expensive and not broadly available.  So non-disclosure is easy, for those so inclined, even when the originating factories sell the MMD's with full disclosure.

The abuses are well known and have been for years.  Legitimate vendors of HPHT treated diamonds have faced asymmetrical competition because non-disclosers can afford to overpay for type IIa diamonds, the type best suited for HPHT treatment.

The industry, in fact, largely ignored the problem for years because many believed that the public would never accept MMD's as a replacement for the magical, billion year old diamonds offered by mother nature; and, more practically, because MMD production was very small.

But then it hit their pockets.  Importers discovered that finished jewelry coming from Asia often had small MMD's mixed in with naturals.  But they were being charged for naturals, a price difference that could be 30% or more.  Now the issue was not so much that the public was not accepting the jewelry, as was happening anyway out of indifference or being uninformed, but that wholesalers, distributors and retailers were being fraudulently over-charged.  In an age when sales are tough, and decent profit margins are even tougher, this is no small matter.  The temptation to make the extra money could be overpowering, even more so when it means survival itself.  What better symptom of desperation - not just pure avarice - is there than the submission of MMD's to grading laboratories.  What better way is there to earn large profits than to have MMD's documented as naturals!

It also became evident that CVD equipment was improving and becoming cheaper (the cost of a machine can be amortized in about 18 months).  So production facilities are being rapidly expanded, in a few Asian nations, without there being adequate controls or methods of identification, especially of small goods that are used in the bulk of all categories of jewelry.

So, I have stated all this as background - my apologies to those readers who already know all this - not as a description of a new trend, but rather to bring us to what I believe will be the pivot point, my Trend # 2.


Emergence of MMD's at retail - a paradigm shift.  We can see that a reasonably normal growth of jewelry sales worldwide will develop ever larger shortages.  And MMD's will be the natural filler of the hole.  To the degree that mines and recycling does not produce enough diamonds, the expansion of MMD production will be stimulated.

But in the shorter term, what might create a paradigm shift?  Considering the pressure retailers feel to increase sales and margins, especially in the mid-market and lower end market, we will see some retailers fully merchandise MMD lines.  This is not a minor step, in that  the effect on sales of naturals is a question.  So is the possible degradation of reputation.

But we do have some parallels.  Retailers have been selling silver and other alternative materials aimed at bringing price points into line with consumer's ability to pay.  We see silver and diamond jewelry and bridal pieces.  We see silver plated with platinum; silver plated with palladium and gold; bronze, plated or not; and wood and aluminum.  I just saw a new ad from Yurman offering his classic  designs in a choice of aluminum, silver or gold.  I was struck by the recent JAR exhibition at the Metropolitan Museum of Art here in New York, where using all sorts of non-precious materials were evident in some pieces, concurrently with the display of beautiful, expensive diamond and colored stone jewelry.  No fear there at all.

Part of all this has been a recognition that the public has become far more open in how it views jewelry as an accessory.  I can just imagine a woman cashing in old gold pieces for good money, and going out to buy a variety of well-made costume jewelry that she knows has little value but can be tossed when taste and fashion changes.

This leads to retailers fully accepting that the game has changed or is changing.  And I believe that retailers will aggressively go after MMD jewelry and letting the consumer decide what case to buy from - natural diamonds and gold or platinum; or MMD's mounted in a variety of materials.  From a retailer's point of view, the issue may hinge on whether they can properly state that all diamonds they now sell are naturals.  If that is not practical (as it seems now may be the case), then they might as well benefit from the significant price differences.  And maybe get ahead of their competition in the bargain.

For the supply side, such a change will be greater than proving that consumers will buy MMD's.  It will force MMD manufacturers out into the open in order to compete for this new business.  It could also put pressure on the price of small naturals, especially in the lower qualities now used in mass market jewelry.  Will the consumer buy lower quality natural diamonds, or far better quality MMD's at a lower price?  No choice, as I have proposed for years.

We could find ourselves, over time, in the almost bizarre situation of seeing small lower quality (maybe even mid-quality) naturals trying to compete with MMD's.  A real paradigm shift in the diamond business.

From the point of view of the environment, conflict diamond issues, and good value for the consumer, it could all be a big winner.  We will have to wait and see.  But be prepared!



Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

Monday, February 10, 2014

Top ten trends for 2014 - Trend # 1 - Growth of recycling

I took a shot last year at the 'top 10 trends' for 2013.   So I am taking another shot this year.  But I thought I would do it as 'a trend a day' for the next ten days.

We continue to see the gem and jewelry business as a whole changing day by day.  The number of jewelry retailers and manufacturers in the US continues to slowly decline, now about a thirty year trend.  Diamond prices are volatile while colored stone prices reflect growing scarcities.  Diamond distribution still hangs onto the "sight" process, but there are more and more auctions and special sales.  Worst of all, there is no conference (no, not a trade show) where the pressing issues for all sectors of the industry are discussed openly and thoroughly.

In any case, I offer my Top Ten, in no particular order.  None of these are just for 2014.  All of them have been cooking a while and will be with us for some time to come.

Growth of recycling.  I remember my first road trip, a zillion years ago, and visiting a good retailer in West Virginia.  He bought a selection, but pointed out that the bulk of his jewelry needs, and particularly diamonds, came off the street.  It allowed him to make hefty profits, and to still easily undercut the mall chains.

If that was the case then, we now have a far more organized and wide-spread recycling.  My guess is that over the last four or five decades, there were some $150 billion is diamond jewelry sales in the US.  There has been a surge in recycling since the start of the great recession, boosted by the rise in precious metal prices.  Going forward, with well-established recyclers offering easy access to the public, we will see a portion of the US market self-sustain.  It will also offer opportunities for retailers to offer non-conflict "old" stones and metal.

Recycling will intensify for other reasons.  The almost certain decline in new productions over the coming years is one factor.  Diamonds of every quality will be sought to fill demand.  The current imbalance between rough and polished prices will enhance the value of recycled polished that will enter the market at initially advantageous prices.  Many people have made substantial profits that way, and that will continue to be the case.
The degree of markup from newly recycled to the new consumer will more accurately reflect the realities of market demand, but there will be the flexibility to do that, unlike the present miniscule margins available in converting rough.
We already see an important effect of both recycling and over-priced rough.  The closing or downsizing of factories, especially in India, is a strong sign that demand and margins are far too weak, and that these are not just transient problems.  There will be great difficulty in justifying the reopening or expansion of factories.  Employees are moving on the better wages in other growth industries in India and China.  And the tight margins in diamonds will not allow comparable wages to be offered to new employees, even if the market turns more positive. 

Factories will try and turn to those diamonds that have consistent supply and demand and generate reasonable profits.  Is there such a range today?  Is there a prospect of such a situation?  Not that we can see.  Moreover, can factory expansion be a reasonable long term investment when there does not seem to be any reasonable expectation that mining output will expand, or that the required bank financing will be available?  No, except for the prospect that productions of man-made diamonds will expand dramatically.

That's the next trend in the next blog.....

Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!