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.