Thursday, March 15, 2018

Fine Jewelry in 2018 - In Trouble and Drifting

This year has been, if anything, disorienting.  We keep thinking that things should happen in the same way that they have happened in the past, even given the business cycles.  But somehow, they have not, even though the US economy, and the low unemployment figures, keep telling us that things are all moving in the right direction.  GDP is up, the stock market has hit record highs almost every day until recently, consumers are spending and credit card debt is rising (though that may not be that good!), and so forth.  And yet, the diamond and jewelry business seems stuck in a rut.

If we are to develop progressive business policies, we need to look closely at market realities, especially those that we should accept as fundamental, not cyclical, trends.  So here are some thoughts.

  • Retail as we have known it is rapidly disappearing.  We have lived through countless revolutions and evolutions in retailing over the last decades.  This one is different in scale and impact.  Large chains are closing stores at a rapid rate, and some are disappearing altogether.  In jewelry, the pressure is across the board; independents are closing, chains are hitting walls, and global brands are no longer growing significantly.
    We can blame it on the Internet, but that is too simple.  Yes, we will probably see overall retail sales that shift even more heavily to Internet sites - some expect that sales via the Internet will go over 50% this season, though that may not be the case in jewelry.  But many people search on line and then come into stores educated and price aware.
    But it is more than that.  All stores now compete with all stores.  The Internet has allowed everyone to reach into everyone else's pocket.  In total, we have far too much retail space (including cyberspace) for the business that is done, huge as that is.  The pie slices are getting to be too small for many firms to survive.  What we are seeing in the way of closings is an effort to scale back enough on brick and mortar stores to restore reasonable profitability.  We just don't know how much cutting will be needed.  It may be a lot more than we can imagine.
      
  • Retail formats have gone stale.  Closing unprofitable stores is an obvious thing.  Sears keeps closing them but that does not seem to make a difference.  They are not cutting fat, they are cutting muscle at this point, and we can probably guess that they will be gone relatively soon.  The essential problem is that the format - big stores, very low service and assistance, and abysmal merchandising and stocking processes - is boring beyond belief.  As everyone now knows, the store is not needed for the bulk of the merchandise.  The public has gotten totally used to ordering on line and having it delivered.  It isn't as if we need to go to a mall to pick it up.
    Speaking of malls, what better indication of massive changes in retailing do we need to see than hundreds of malls failing or being converted to a wide range service establishments.  It used to be accepted by some that consolidation brings the benefits of scale.  Signet went on that track, absorbing dozens of smaller store chains over the years.  But now Signet is planning many changes, including far greater emphasis on Internet sales, personnel changes, etc.  Being the Big Gorilla, as we have seen elsewhere (e.g., the apparent total closing of all Toys-R-Us stores), may not be salvation, but more like a millstone.
  • Retailing will focus on four important skills.  Those would be service, speed, well-informed salesmanship and innovative customization.  Retail will rely on sharply priced staples (think food, soap, apparel, stud earrings, etc) with a range of choices not possible in a brick and mortar store.  And a seamless operation blending the Internet and physical stores.  Store sizes will shrink, carrying selections that need personal involvement or produce high turnover.  We will see chains close stores that overcrowd a market area, or are too large to fit these schemes.  We already know that many retailers are ill-suited to convert to this new world, and, as in the past, whole ranges of them will disappear.
    I think of department stores (again, they consolidated and now struggle), who have huge spaces that carry anything one might want. But turnover stinks, and merchandise imbalances are eating them up.  The real estate is worth more than the business.
    I was in an Orvis store here in New York, looking for a particular item that was in their catalog.  Sorry, not in the store.  Orvis sends catalogs frequently, sometimes a few a week.  The selection in print is far greater than the store can carry, and I asked about that.  I got a good response.  The sales person opined that in the future in-store people will assist in making purchases by knowing a great deal more about the products, and their applicability to one's needs and desires.  The store format will become smaller.  He then went online for me and ordered the item I wanted, sent directly to me at home.  These are not minor changes to how retail will work.
    I also saw a column about a new movie theater in New York.  Imagine that!  But they show only older classics; they have actors, directors and producers come in to talk about the films they made.  They have a library, a bar and restaurant, a place for people to sit and chat.  I'm ready for that.
  • The question is - can we do something similar to that in jewelry? That's a head scratcher.  We can all quickly line up lots of issues that limit what we might be able to do.  Negativity is easy.
    I recently attended a panel discussion that included, besides the moderator, an estate buyer, a designer and a social media expert.  Not one of them could articulate a cogent rationale for what they do, or what the future means to them.  The estate dealer loves classic pieces with great provenance (he showed some and they were wonderful!).  He believed strongly in buying pieces with proven longevity.  Very sensible, I think.  The designer also showed beautifully executed pieces (all high end, great for big events) but then went on to say that the future will contain far more non-precious materials  than are used now.  That suggests concern about price points, but that was not mentioned.  The social media expert, essentially, said that Instagram is great, and it is so much fun to find and shoot wonderful jewelry.
    So that session, for me, was a flop.  This actually could have been an exciting occasion to dig hard, ask good questions, and make sure that the panelists prepared well.  A Blue Sky moment.  But, as I have seen so many times, people in the jewelry business are anchored in the past.  We have lots of creativity in design.  What we lack is creativity in business.
Next time, some thoughts on the supply side.

7 comments:

  1. I agree. I'm biz to biz and your lessons apply there too at least in part. Fewer refiners and prime suppliers. More custom work, service intensive. Vertical works only until too heavy. Imho

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  2. Well put, Daniel. There are tough distortions occurring on the supply side which will force adaptations in the years to come. You are correct, in my opinion, that we may return to the old format of lateral strength rather than vertical consolidation. Specialization and advancing technology to attain special skills is already a global trend. Thanks for your comment.

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  3. As the middle class disappears, the market is drying up. Those who can't afford gold, even for engagement and wedding rings, are going for alternatives. We're seeing people crafting their own rings from wire or wood. Or opting for non-traditional markers--including tattooing.

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  4. Bea, you describe what has been going on for a while. First because wages have stagnated for 30 years while the cost of living and the cost of jewelry materials - most importantly diamonds and gold - have risen steadily. That puts much fine jewelry out of reach fo more and more people. So costume jewelry has taken the place of fine jewelry for many people. Thanks for you comment.

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  5. "But, as I have seen so many times, people in the jewelry business are anchored in the past." Ain't that the truth.

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  6. Ben, one thing that would help family businesses transition to the next generation is for parents to fully engage their kids as early as possible, share with them your vision and plan for a succession and START TEACHING! It's a mystery why current owners think that "some-day-this-will-be-yours" is a poor plan.

    If they "kids" don't have access to the financials and are not part of the management process for years before the parents plan to step aside, the business is probably not going to make it. Then what? Blame the kids? Abe Sherman

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    1. Abe, what you describe is a chronic situation in which owners of family businesses somehow feel that their children need not, or should not, know much of how they run the business. I know of some outstanding exceptions to that, but essentially, what you say is correct. i would add that too often over the last decades parents have told their kids 'don't go into this business'; or the reverse, the kids say 'no thanks!'

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