Monday, March 28, 2016

Diamonds and Robots

I have not written in a while, so please forgive that.  I have been occupied with some real work, thankfully, and fitfully absorbed by a political process that is telling us there are some profound changes occurring in America.  We are seeing the tip of the iceberg, but it is that mass below the waterline that is causing the real damage.

Rather than mention everyone's shoot-from-the-hip reactions to the race for the presidency, is there a way we can suss out what it means for the jewelry industry.  How is this insanity we are watching related to our business, or even more generally, to the economy as a whole.

On the surface, the likely economic scenario is not that troubling.  Regardless of who wins the election, Washington will no doubt continue to be a battleground that will preclude Congress causing real harm.  Some people view a divided Washington as a benefit, even as the public is giving Congress historic low marks.

But that is not the underlying case.  It is not considering the the danger out of view underwater.  For all our voiced concerns about the income gap, terrorism, faltering economies all over the world, the state of our educational standards and infrastructure, we see the US economy continue to recover, albeit slowly, from the battering it took during the Great Recession.  The President considers climate change our greatest challenge, one that might cause us, and the whole world, disruptions of immense proportions.

OK, I guess I should not try to be too down about the future.  I am often surprised and impressed by the young.  They show real awareness of the problems, and, at times, unbounded optimism that we will confront and overcome them all.

Well, getting back to our subject, what about jewelry.  We already know that an important base of the business in the US is the middle class.  Historically, that has been the support of the mass market jewelry business that blossomed in the mid-twentieth century.  The substantial decline of the middle class, abetted by the economy's shift from manufacturing to services, has stalled the US jewelry business.  For some 20 years or so, US jewelry business has stayed at about $30 billion a year, in spite of steadily rising material costs.  So we sell fewer units, year by year, even as we struggle to create product at affordable prices.

Meanwhile, technology is advancing, and is now accelerating its impact on how we live.  There are the obvious impacts.  Swiss watch exports last year dropped by 8%, at the same time that Apple sold millions of Smart Watches.  Jewelry design is increasingly computer designed and produced.  Maybe good, maybe not.  But how about robots?  What impact will they have?  

I recently watched Bill Gates being interviewed by Charlie Rose.  Gates is a very thoughtful man, and we all know about his, and his wife Melinda's, remarkable devotion to solving human problems.  The conversation turned to AI, artificial intelligence, and what that might mean to us.  We already know that technology in all its manifestations has already wiped out many jobs.  At every turn, we see where the interaction with people is no longer needed to get something done. Just think secretaries, assembly line workers, and meter maids, and countless other jobs.

Yes, we know those jobs are not coming back, and many more are fading away.  Even China is automating, thereby creating unemployment is some industries.  Rose asked Gates where does it go from here, as machines get smarter.  Gates responded by saying that in the short term, maybe five to ten years at most, machines will be developed that are as smart as us in many ways.  The range of jobs they will be able to assume will grow exponentially. 

But beyond that, he said, in the next 40 to 100 years, machine will become three or four times smarter than us.  He did not mean, I would think, in a creative sense, but rather in their ability to solve problems by cranking masses of data, by figuring out how to improve on processes and even redesign themselves.  Think of IBM's Watson, which beats the world's best chess players and wins at Jeopardy, and extend that into every aspect of our lives.  Self-driving cars, coming soon to your neighborhood, will eliminate cab drivers, will park themselves and come to your front door when you call them.  Call your robot about dinner, and it will be ready when you get home in that car.  You like that suit you just saw on TV?  Robbie knows your exact measurements, suggests colors, fabrics and design tweaks, and you have it delivered in two days, maybe the next day.

But Gates in not sanguine about all this.  He knows that every step forward in automation is a step away from needing people to get something done.  When Rose asked him if it worries him, he said yes, that he is very concerned about automated production and massive unemployment.  He says that the social upheavals are unimaginable.  And he worries about who will control those machines.  (Note: if you want to watch this interview go to  It a a version that was broadcast on Bloomberg, so ignore the market data.  The part I refer to starts at about 26:50 minutes into to interview, though it is interesting to watch it all.)

I think we are already seeing the first signs, as reflected in a worried youth championing Bernie Sanders' call for universal health and free education, two basic needs that seem to be slipping out of our grasp.  And we see it in Donald Trump's boastful, arrogant, bullying call to rip up political correctness.  His supporters are losing hope, are sinking economically in a world composed more and more of have's and have-nots.  The more they feel they have nothing to lose, the more revolutionary they will become, to everyone's peril.

So, to come back to my point, how will this affect our tiny piece of this huge economy, this huge problem?  These are complex issues, requiring far more study and discussion than I have done, but here are my bullet points:

  • People already sense that they need to become savers (witness the decline in outstanding credit card debt).
  • The return of high paying jobs for the masses, say $25/hour or better, has no chance of occurring.  It's a pipe dream, with politicians offering false hope to struggling people.
  • Robots, or robotics, will be the only way the US economy stays well ahead of most of the world.  We may not like that it kills jobs, and we may even fear it, but it is coming fast.
  • Jewelry will not fade as a desirable product.  How it is manufactured, what it is made of, and where it is sold will rapidly change.  More robotics, more non-precious stones and metals, and far more multi-channel marketing - a mix of stores and Internet.
  • Engagement rings will remain a staple, for both married and unmarried couples.  But jewelry will not live by the solitaire alone.
  • The number of retail stores in the country will continue to decline.  But destination stores will become much bigger and stronger.
  • Customization will become king.  Think fast design, 3-D printing, automated setting and finishing, fast service, and large service providers backing up retailers of all sorts - not just jewelers but many fashion oriented retailers, on-line and not.
  • Serving the rich and super-rich will be dominated by brands and global retailers who will essentially own the category.  
I am sure that I underestimate the changes to come.