Monday, September 19, 2011

Where is Everlon?

Where is Everlon?

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

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

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

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

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

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

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

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

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

Thursday, September 8, 2011

Good business, and not

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

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

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

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

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

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

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