Tuesday, July 23, 2019

The Future of Jewelry, Part 2: Millennials

Last time, we wrote about the Gig economy, and now we move on to an important part of that movement, the Millennials, and, by extension GenZ.  It is most important to think about our youth carefully, not only out of concern for their future, but also because they now account for the biggest part of our economy.  And, in many ways, they will either accept or reject much of the extraordinarily complex world we are passing on to them. 

I restate the list issues covered in the series of posts:

  1. The Gig Economy
  2. Millennials
  3. Climate Change
  4. Consolidation and/or Decline
  5. Natural Diamonds vs Lab-Grown
  6. Banking
  7. Image 
  8. Demographics
  9. Retail Evolution
  10. Industry Structure

Millennials.   This generation is now fully into its prime working years, but does not have the sense of optimism felt by the Boomers and even GenX.  For those who are the children of the top 10%, there is some sense of entitlement, earned or not.  But for the rest, forget any sense of entitlement.  For them it may become a battle not seen in the US since the 1930s.  GenZ, now entering the world of work and (maybe) college, is even more skeptical about where we are headed, as exemplified by the worldwide marches they have organized protesting the lack of action on climate disaster, gun control, education.  It may be oddly appropriate that they are named GenZ, the end of the alphabet.  We could interpret that morbidly, or, in a positive way, say it suggests the need to start all over again for the next generation, as GenA.

For both groups, the opportunities for entering the middle class are barely there, and with it many of the long-touted benefits of expensive college educations.  College debt is rapidly approaching two trillion dollars, default rates are rising, and even our crippled Congress is trying to implement some form of debt forgiveness as a way to salvage some kind of future for many in these generations.  Consider for a moment that in 1990 student debt barely existed, around $24 billion according to the Federal Reserve.  

Pose this question:  What would you do if you left college today with $40,000 in debt (which is the mean debt today for graduating students who borrowed for their education) and poor prospects for well-paying jobs?  Go on a spending spree?

When, and if, aid for Millennials acquires some momentum; when wages rates and jobs truly grow in the digital age; when we might even see guaranteed annual income; when the coming boom in retrofitting our infrastructure to protect the environment kicks in; that's when we might see real growth in the economy and the ability of many people to responsibly spend on luxuries.  For now, their actions suggest shifting priorities and financial caution.

But will all the changes come in time to truly benefit these two generations?  Hopefully, yes.  In the meantime, we do see a part of this population truly rise in an age of VC-financed startups, hedge funds, and advancing economies, in the US and China in particular.  But the bulk of the millennials are struggling in an age when corporate policies are focused on expanding technologies that improve efficiencies and reduce head count.  By default, that means minimal loyalty to, and from, employees, and a steady erosion of confidence in long term career advancement.  To the degree that companies succeed in implementing advanced automation, the benefits will fall largely to the top managers, who have already been seeing huge increases in income (abetted by the recent tax cut).

At every turn we see where these efforts are impacting all our lives.  I can think of dozens of examples, but here are a few that I bump into daily.  Apple Pay, or Google Pay are going to eliminate the need for cashiers.  Amazon is already testing cashier-less stores.  Advanced ATM machines spit out cash in any denominations, and conduct all sorts of transactions.  My local bank branch has gone from four tellers to two and branches are closing everywhere.  Movie theater attendance is dropping.  Some performing arts are suffering a decline almost everywhere in the country, partially for the same reason as movies - excellent giant TV screens, and home theater transmissions.  And, of course, we see rising closings of stores, and entire chains.  The retail revolution is in full swing.

Yes, we have experienced much of this for a while.  We also know there is great reluctance on the part of government to interfere with the workings of capitalism.  They tinker with it, but do not essentially change the direction in which we are heading, at least so far, even as they acknowledge that the income gap is a serious problem.  Millennials, college educated or not, are fully aware that the globalization of commerce - undoubtedly a result of the rise of the communication age - does not favor the worker.  US unemployment rates are at historic lows, but the announcements fail to recognize that working age people who are no longer seeking jobs are not counted.  US employment of working age people now stands at about 60%, and the trend is for more people to quit trying to find a job.  Let’s just say this is a complicated and dangerous time for the country, and the world.

Both the millennials and GenZ sit at a crossroad.  On one hand, they know very well that higher education and developing modern skills are the keys to success.  On the other hand, they know that the risks are high.  Technological changes could blow right past them, even with a good education.  There is much discussion of not going to college, thereby avoiding a financial trap, and learning trades on the job.  Even with states turning to free education for those who cannot afford it, we still cannot see where all this will lead.

Millennials have seen the results of financial mismanagement.  The 2008 recession taught them early in life that outside forces can crush lifetimes of saving and careful planning.  They recognize now that brands better be genuine; that value needs to mean long term value; that experience outweighs possessions; and that commitment needs to be real.  For many, Uber is more valuable than two cars in every garage.  The future will be full of sharing, both experiences and objects.  Auction houses tell you that collectors are becoming rarer.

A recent study showed that jewelry placed next to last in a long list of categories that people spent money on last Christmas.  I first heard that expressed by American Express in a study they did after the Great Recession.  At that time, they felt that jewelry and watches were the only two important consumer categories that were going to suffer and decline.  It surprised me then - it does not today.

Millennials will not avoid buying jewelry.  Not at all.  Setting aside the inherent problems that the jewelry has in marketing, personal adornment and gift giving is not going away.  Millennials are still very much committed to engagement and wedding rings, as they are imbedded in an outstanding event in life, an experience that needs to be marked in a visible way each day.  

But beyond that, jewelry purchases are weighed far more carefully when it comes to value judgements.  A $20,000 engagement ring works fine with body jewelry that does not even need to made up entirely of precious materials.  Jewelry needs to take on aspects, at times, that has little to do with the product itself, like a memorable walk one evening on a Paris street.  Who made the piece, and what is their story?  In what country and under what conditions was it produced?  Is it unique?  Can it be customized?  Can you make a piece that I designed?

Most important, I guess, is that millennials will be more self-expressive than previous generations.  Yes, their development of large cohorts means that they share opinions, even contradictory opinions, when it comes to life style.  Increasingly, in all of that, is a rejection of some traditions, and establishing new ones.  Many will buy diamond engagement rings, but many will not, or will use a colored stone center.  

The jewelry industry will need to deal with that in new ways.  It will need to listen, to expect widely varying demands and requests, and to have developed the tools and skills needed to respond robustly.  It will need to be truly non-judgmental in what they see and hear.  Think of it as a reflection of the hyper-speed in which our world is changing.  Accept it, or not, at one’s peril.

Friday, July 12, 2019

The Future of Jewelry, Part 1: The Gig Economy

It is about a year since I last posted to this blog.  Have you noticed any changes in the jewelry market?  I have been preoccupied with planning a possible book about the state of the jewelry business in the US.  I have no publication date - possibly because it seems that everything is changing faster than I can handle!  In any case, if you are interested in knowing about such a book, please do just drop me a quick note and I will e-mail you if and when it arrives.

We all know that our world is profoundly changing and at a pace that keeps us breathless.  As we move into new paradigms, people and companies that are in the vanguard are leaving most of us further and further behind.  We are in a moment now where a majority of the population lives in resistance and confusion, seeking to maintain the patterns and infrastructure built over the past century or more, even as we see that mode of life collapsing in front of us.

We only need to imagine for a moment for example, just how we would build our cities, roads and airports today, were we able to start from scratch.  Our populations are now struggling with the problems of concentration in big cities, a failing and outdated infrastructure, an agricultural and manufacturing base that has seen radical transformations and a steep decline in the level and opportunities for employment.  All of it is compounded by growing serious problems in our climate, a level of problem that will demand sacrifices we can barely understand and properly foresee.

We cannot for even a moment think that somehow all this will bypass the jewelry business, and we will be able to merrily go our way.

These days, we spend a lot of time looking for good news.  Yes, the US economy seems to be continuing the long, bumpy, slow growth it has experienced since 2009, and yet there is uncertainty and anxiety prevalent in most of the country.  Consumerism, the hard core of our economy, seems to be rolling along, put it seems to be doing it by reaching levels of debt, both public and private, that has to give us great pause.  And some undercurrents of how people spend, and on what they buy, has changed in a way that does not seem cyclic.  It seems permanent and deepening.  In one recent analysis I saw on ranking the popularity of different product ranges, jewelry came out to be 58th out of 60 categories of products.  Why that is so, and how we got there is a question we have to ask.

The issues are complicated and it would not be for me to even try and take a full shot at it here.  But there are prevalent factors at work that we can see pretty clearly and are worth noting as we think about the future.

This is the first in a series of posts that will cover these issues.  Some of these are long term problems that will be difficult to resolve.  Others are positive factors that could help the jewelry business.  Our business is very fragmented and stratified, but there are core aspects that effect everybody in some way. It is critical that we adapt, at our own pace and in our own way, to how we are affected.

Here is a short list of trends that are changing the face of our future.  Some are global, some are specific to the jewelry business.  None of them (or others I will touch on) are static, dying or fully comprehended and managed.  All of them will, in relatively short periods of time, affect how we think, live, work and survive.
  1. The Gig Economy
  2. Millennials
  3. Climate change
  4. Consolidation and/or decline
  5. Natural diamonds vs lab grown
  6. Banking
  7. Image 
  8. Demographics
  9. Retail evolution
  10. Industry structure
  11. etc, etc, etc...
*  The Gig economy.  The unbundling of labor has been going on for many years.  Think of the auto industry, which once manufactured the bulk of components. Now, much work is contracted out all over world, and with that has come the undoing of labor power and progressive wages.  Contractors now dominate many businesses, offering the possibility of greater income if one possesses strong skills, but also contains the uncertainly of very irregular income.  That has made people very careful about how they spend money.  This trend will intensify in the years to come.

Some thoughts on how this directly affects the jewelry business.  In the US, we have to acknowledge that we have a very mature business.  Growth is slow (this year we have seen declines according to the US Department of Commerce), and we feel lucky to see it rise at low single percentages.  But both suppliers and retailers tell the same story - business is tough and is requiring us to work much harder to maintain volume.

While there are many reasons for all this (as I will try and enumerate in later posts) the Gig economy has a role.  Companies are not adding payroll.  They want flexibility that allows them to respond more easily to the vagaries of business, and they want to avoid the ancillary costs (such as health) that comes with full time employees.  As a result, many people see that their working lives will be one of a series of temporary employment as contractors.  Contractors quickly learn that irregular income means great care in how they spend.  And that, in turn leads to tempering the purchase of luxuries, both in quantity and price points.

I recently watched the Gig at work.  I was a mentor here in New York at a session run annually by WJA (the Women's Jewelry Association) aimed at young aspirants in the jewelry business.  In past years, the conversations would most often focus on what to expect in the employment world and how to best be prepared to enter a job search.  This year, almost everyone came in presuming that jobs will be near impossible to find.  Instead mentees came in with plans, some very advanced, on how to develop their own businesses or services.

The Gig economy will only grow.  The days of long term employment are ending, and with it will go the sense of lifetime financial security and pensions, an aspect of American employment that has significantly receded already.  There is little loyalty between employers and employees any more, though we have say that if there is any it can usually be found in small family businesses like those found in the jewelry business!  Too often, though, in those cases the benefits are thin, and there is little or no room to advance in a family business.

If you are in retail, you will need a compelling pitch to sell a Gig-er when they show up in your store.  And that applies in both the Internet store and brick and mortar store.

Nevertheless, as our industry contracts, as it continues to do, the future will will need to increasingly deal with the inherent income gaps - and insecurities - that are an integral part of the Gig economy.