Fine Jewelry in 2018 - Suppliers in Transition

Suppliers are regularly in turmoil over how to respond to the significant shifts in distribution and consumption.  It should be noted that many suppliers are far upstream, and feel the realities of the front lines last.

We already see that upcoming technological and demographic changes are causing distress at the retail counter, and we covered some of that in the last blog.  Suppliers have been forced to make changes in their modalities, sometimes painfully.  What factors are at work:

• The number of retail operations is shrinking, and so are the number of outlets.  That means fewer retailers as customers available.
• The market has been forced to adapt fully to the fact that the US is a very mature market, and has been way over-stored for a long time.
• What might have been a more gradual adjustment to supply and demand (fewer stores to serve a stable, slow-growth market) has been radically accelerated by Internet marketing.
• Internet marketing puts everyone on a service-oriented platform.  You need to be quick, efficient and fully responsive.  Low-cost producers win, notably in the mass market, but even very high-end jewelers need to provide good access and flexible service.
• Many retailers have adapted to higher priced jewelry - an aspect driven by high material costs - by buying less, closely managing inventories, and asking for more support.
• Many retailers have shifted emphatically from precious metal jewelry to costume and hybrid products in a desire to maintain important price points.  That leaves manufacturers of precious jewelry with thinner slices of the pie.
• Many designers and manufacturers have essentially given up relying on selling retailers as the core of their business.  They have gone direct to consumer (DTC) after struggling for years with the demands of retailers.
• Diversification has become a key word among retailers and suppliers, but basic merchandise continues to be the bedrock of the business.  That means that everyone competes on stud earrings, solitaires, line bracelets, etc, and diversification ends up, at best, on a back burner.
• Suppliers are confronted with some hard choices because the middle market is weak.  As the so-called middle class has declined over the decades due to stagnating wages, job insecurity, automation, etc, suppliers have sought to either move into true luxury products or into low-end costume lines.  Both choices can represent huge structural and economic challenges.

There was a time when the rapid expansion of shopping malls and urban sprawl provided a near ideal environment for growth and the establishment of new businesses.  We are not ever going back to such halcyon days, and are probably better off for it in many ways.  The intensity of competition for the business that is there today will result in better value and service for consumers.  The key question for suppliers is how they can play a key role in that process.

I recall a chat I had with a long-dominant supplier of colored stones, and he described the problem well.  Historically, he had large manufacturers as customers who bought from him in bulk and in a predictable pattern.  Most of those businesses have deconstructed, especially in the US, and now he gets many requests from designers seeking specialized selections in small quantities.  The business is still there, but radically changed, and he is confronted with trying to revise and upgrade his systems optimized for dealing with a very different customer base.

In the diamond business, dealers have adapted to the vicissitudes of fluctuating prices by buying closer to their needs  - many retailers don't even bother stocking much loose goods any more!  While the days of the De Beers monopoly and reasonably stable pricing are gone, the on-line data bases have arrived in strength, offering far more efficient ways of meeting consumer needs.  The old hands may not wish to invest in the needed skills in communication and distribution that comes with these changes, and so they will fade away, replaced by those with full involvement in these new realities. 

There are, of course, countless variations on how suppliers used to work, and how they now work, as they try to feed an industry that has gone from a quite hierarchical and specialized structure that was regional and local, to one that is mostly flattened and international.  And new variations will rise to meet specialized needs.  

There is no doubt that we will be dealing with these changes for years to come.  There is also no doubt that the business will continue, though the path from source to consumer will be much more efficient and far more responsive.