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.


Hedda Schupak said...

Spot on, Ben. Another key point you alluded to with your Uber example, and I daresay is going to be more relevant than we probably realize, is access over ownership and luxury bargains, as evidenced by the burgeoning secondhand market. Sites like Rent The Runway allows one to wear a designer gown for an event and feel special for a night without shelling out thousands to own it. Attending wine and scotch tastings are more important than owning a $200 bottle of one's own. And the secondhand market is on fire--that, I suspect, is going to do one of two things, either flame out because prices are too close to buying new, or luxury brands will jack up the prices of new goods to a stratospheric, and unsustainable, level.

Peggy Jo Donahue said...

Spot on Ben and Hedda. Ben, this is one of the few articles written by someone of our generation that I will send on to my kids -- they will agree with every word. Our daughter and hub are in the gig econ and doing very well, and our son is well employed in what looks like a secure job. But none of them feel truly secure about the future. Such is their reality.

Katleen Garcia said...

In the world of work, Millennials are “killing” permanent employment by choosing gig work. But is it true that the gig economy is gaining popularity only because of Millennials? Or is it merely a coincidental statistic because Millennials happen to make up the majority of the workforce today?

Ben Janowski said...

Are millennials killing permanent employment, or are corporations doing the killing. Right now, we are seeing millennials getting slugged for the second time in a decade - first by the Great Recession, now by Covid-19. And this time Gen-Z is getting dragged in too. The Gig economy has been boosted by 40 years of stagnant wages that deprive people of the ability to build a life and pay off college loans; and by so many corporations being merged, stripped of assets, and showing no concern for employees.
You are right that millennials are now the largest consumer group. And as such they will have the largest influence in the American economy. We are about to learn how they really feel about the US economy!