Friday, August 7, 2020

The Future of Jewelry, Part 8: Demographics - In the Age of COVID-19

Here is the list of issues we have been covering — we are up to number 8.
  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
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I am always surprised at the range and depth of demographic information that gets published in every media.  The flood of data that the federal government and private organizations gather and distribute gives us a remarkable view of where we stand, and where we have been.  Maybe even where we are headed.

As ever in demographics, the view is global, or national, and then, if one is interested, it can be sliced and diced even further by state or city.  For us in the gem and jewelry business, it is helpful to see macro trends and projections, even though we are such a stratified and fragmented industry that our specific outlooks can vary greatly.  

Let's start by looking at longer term trends in the US.  As seen in the charts below, we can note the following:
  • The number of births per year since 1950 has barely budged, even though the total population has more than doubled.  That has taken us below the replacement level (2.1 children per woman), now down to below 1.7.  That would indicate a declining population.  In spite of that. the US has for many decades done well in that immigration has been strong, making up for declining birth rates. And that has had the added benefit of keeping the average age from rising steeply, a problem that has beset other countries, notably Japan.

  • At the same time, the death rate has steadily risen, slightly exceeding the rate of population growth.  That appears to be true even though longevity has improved, at least until recently, from about 70 years of age to 80 years of age.  

  • None of this is special to the US.  There are worldwide trends of declining populations, especially in South America and parts of Asia, that could lead, on one hand, to real benefits (better wages, less food shortages, environmental improvement, etc), but also some daunting overall economic pressures (principally, a downward spiral of production needs causing further population declines) .  For those interested, read Empty Planet, The Shock of Global Population Decline, by Darrell Bricker and John Ibbotson.

  • Much has been written about the stalling growth in wealth for most of US population.  Buying power, according to Pew Research, has gone nowhere in 50 years. Their study points out that a $4.00 per hour wage in 1970 has as much buying power as the average wage today of nearly $24.00.  Talking about lost buying power in our industry, think of a comparison in the price of gold - $35 an ounce of gold versus $2,000 an ounce.

  • We know that wealth accumulation has gravitated heavily to the top quartile, but especially to the top 10% of US population.  There is a wide range of valid causes, but an important effect has been the steep decline in the middle class and the increased pressure on the lower income population.  About half the US population has little or no retirement savings, and that is a looming problem for the country as a whole because everyone will be involved in solving, and paying for, that problem.




The wealth of U.S. families is yet to recover from the Great Recession


The gaps in wealth between upper-income and middle- and lower-income families are rising, and the share held by middle-income families is falling


It is important to remain aware of these trends, especially as all of them have been accelerated by the pandemic.  (The charts above do not reflect the demographic and economic impacts of Covid-19.)  We will undoubtedly see aftereffects in our industry that are not clear as yet.  I will try to speculate on that in an upcoming post on a restructured industry.

Obviously, those companies that deal with the upper income range are doing well, even now, and should continue to do well.  Even then, traffic patterns and living patterns are changing and that will bring advantages to some and deficits to others.  Think of how many wealthy people have left the cities and how work-at-home has placed so many people full time in the suburbs. 

What demographic changes can we foresee?  Many people will be going through their savings trying to deal with unemployment.  Birth rates could decline even further, at least for some time.  A recent article in Bloomberg Businessweek points out that when couples delay having children, typically in an economic downturn, it is often the case that many planned births end up never happening.  

Marriages may step up as people opt to make commitments while they still can.  When retailers reopened in June, many saw a rush of business as people were able to act on their delayed decisions.  That seems to illustrate that public sentiment still seeks to sustain pre-Covid lifestyle.

The income gap, and the wealth gap, will probably get worse. If the government acts vigorously to mitigate income loss until the pandemic is under control, the damage could be limited.  In the meantime, we should not be surprised if some of the the longer term demographic changes we have considered seem to be hitting us a lot sooner. 


 








Friday, June 26, 2020

The Future of Jewelry, Part 7: Image - In the Age of COVID-19

Here is the list of issues we have been covering — we are up to number 7.
  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
_______________________________________

I have been writing about these "issues" for a while.  I did not start out trying to put them in any particular order, but here we are addressing the first of the last four, and all are bound to be particularly affected by the pandemic, no doubt in ways that none of us could have conceived of just months ago.  

The definition of image, and how that definition is being forcefully altered, is one we ponder carefully these days.  The word itself is in many ways more powerful than an alternate that some people use - brand.  Some brands, say Coca Cola, have instant global recognition, but what we retain is sensory - what it tastes like, what the classic bottle looks like.  Such images are far more powerful than any words, though it is the word or words that evoke the images.

Images, and brands, are very hard to develop.  I once heard a highly successful couturier (can't remember the name!) say "My brand hangs by a thread."  Aside of it being a good pun, he was saying that brands are hard to build and maintain but are so easily destroyed.  How true.

In jewelry, we have always seen a parade of companies or individuals proclaim their brands as if they were done deals.  Almost all of them go past us unnoticed and unremembered. Why?  Because there is too often no compelling images associated with them.  A successful brand need not be global or even national.  It only needs to be instantly known by some group of cognoscenti who truly value the story, the design element, the creativity, the extraordinary skills - the image.  

We can call up only a few brands in jewelry that instantly evoke a response - good or bad.  JAR never advertised, but built a brand worthy of special museum shows.  Verdura lives on well past the life of the creator.  We know exactly how Yurman built his brand, and what his image is about.  The global retailers, such as Tiffany, Cartier, Van Cleef & Arpel, and Chanel, have distinct images.  So do some retailers in local markets.  How about Pandora?

But all brands have now been swept up in a storm that has been building for decades.  We first saw that in the diamond business with the reactions to the horrors of African wars and uprisings, funded in part with illicit diamonds, and culminating with the Blood Diamond movie in 2006.  De Beers immediately responded to that film, knowing full well that the diamond "brand hangs by a thread".  

At the time, the public barely reacted, though the Great Recession hitting shortly thereafter, diverting attention away from such concerns.  Since then we have seen an ever-growing   wave of issues accruing social awareness - climate change, sustainability, equal pay, equal access, minority rights, social justice, and personal responsibility.  We witnessed how social media exploded, which contributed to seeing celebrities of all sorts quickly condemned and fired for everything from sexual harassment to racist comments.  There goes their brands.

Now, image/brand has taken on new dimensions that were rarely addressed in the past.  The pandemic has only intensified and accelerated the spread of the nation's structural problems.  We feel the weight of the responsibility we have for each other, and for the need to reinforce ethical standards.  People say that we have politicized our social relations, but I say we have socialized our politics.  People and companies, and their images/brands, are now viewed on where they stand in the spectrum of environmental and social behavior.  Neutrality is out.  A company can no longer say that it stands aside of social or political issues.  

How a company or individual sources components, employs people, and plays a role in the community all count as never before.  A company's policies on a range of issues are as much a part of its image as are the products it sells.

So, perhaps we have a new four C's, those critical to building an image - Competence, Compliance, Content and Character. 








Friday, June 5, 2020

Trade Shows Post-Pandemic

Trade shows have been an essential part of the jewelry business in the US for the last half century or more.  We have seen transitions, expansions, contractions, and evolution over those years, but we now confront unfamiliar, highly disruptive forces. Pandemic and social distress.

The pandemic will leave us with an altered retail environment, but it is one that was coming slowly anyway.  Department stores have not been able to counter the efficiencies and range of cyber-retail, and have been shrinking and fading for years now.  Independent stores of all sorts, not just jewelry, have also been disappearing at a rapid rate, though mostly because the country became badly over-stored in the boom years of the malls, and for many other reasons.

So something had to change.  We didn't know into what, but we did know that retail formats were not keeping up with how people lived, worked, and shopped.

What I recall so clearly are the halcyon days when there were dozens of expanding jewelry chains and working at trade shows meant appointments from opening day to the last hours of the show.  For a few years now a few chains dominated, with many dozens of others either closed or merged.  There went the endless appointments.

It was also a time when there were nearly three times as many independent jewelers in the country then there are now.

Some trade shows used to have vendor waiting lists.  Trade shows used to have aisles crowded with buyers.  Trade shows used to be big party times.  Much of that is gone now, pandemic or not.

Does that mean trade shows should disappear?  Not at all.  I listened in today on a CIBJO event on the subject, where the speakers were from four major shows - Basel, JCK, Hong Kong and Vicenza.  It was informative and confirmation of the problems. All the participants fully acknowledged that the shows will be back, but not as we have known them.

There are the obvious new issues to deal with, principally procedures to protect visitors from Covid-19, and dealing with what will probably be a slow return of both buyers and vendors.  There was a consensus that any show going forward will need to be virtual as well as actual, though nobody is sure what that will look like or how effective it will be.  No doubt, plans are being developed that were not revealed during the session.

This is going to be tough, and many questions remain open.  Will the shows shrink to match turnout, and if so, how will the costs be carried?  Will vendors and buyers pay more to attend?  At least as far as we can see, air travel will be resisted, and may not be available.  Will hotels and restaurants be set up to deal safely with conventions?  And how will merchandise be sanitized and handled as they go from one person to another, a problem confronting retailers as well?  And will the shows survive if 2021 does not work?  If an effective way is developed to promote lines on virtual shows, will that in turn produce more actual shows, perhaps more focused and smaller, but more expensive?

If we dig into the issue, the questions and possible solutions are almost endless.  No doubt that the efforts will be made, and 2021 will be the first test of new show models.

However it turns out, shows have real value in this business.  There is serendipity - the chance discovery of a previously unknown line that suits a retailer's business.  There is the importance of working on and deepening partnerships between retailers and vendors, on how to handle product that does not turn well, for example.  There is the maintenance of industry relationships - we are, after all, a small industry - that help in learning about new ways to promote and sell, in hearing of trends, and in general education.

The path will be found, because jewelry has timeless attraction.  It isn't going away!  But shows will need to be relevant, accessible, affordable, and fun!

Tuesday, June 2, 2020

The Future of Jewelry, Part 6: Banking - In the Age of COVID-19

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Here is the list of issues we have been covering — we are up to number 6.
  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
_______________________________________

Have you been wondering where I am?  So have I.  We have all, it seems, been wandering in a wilderness with no milestones, road signs, or even taco carts.  I started out months ago offering some thoughts about an industry that was having a bumpy ride, and found that when I was half way through, everything was turned on its head.  So I paused, just to see what we might see as we look ahead that is not a mirage.

But now, as we observe worldwide assaults on the status quo, ailing as it is, we need to stand back, take a deep breath, and prepare to dive into very unfamiliar seas.

Our case in point in this post - banking.  Answer - what banking?  There isn't any that we recognize in the jewelry business, and understandably so, as banks have no idea where they are heading themselves, except into uncharted waters.  Double that issue when considering the specialized needs of the gem and jewelry business, further complicated by regulations on money laundering and terrorism.  Further, jewelry is not, by any measure, an "essential" service, so it falls down the list, far down the list, of economic priorities.

In defense of the importance and relevancy of the business for mankind, we make a point, for example, that there are perhaps 10 millions of people involved in the diamond business.    That's a very small percentage of the world's population, and a tiny part of the American economy.  So we do not stand out either for the essential aspect of what we do, nor as a big employer.  In the age of Covid-19, there is not much of an argument we can make.

That is not to say that banks or other financing entities as simply going to throw in the towel.  Their first priority, surely, will be to see what can be salvaged, or sustained, even in short term increments.  But over the last decade or more, many banks have abandoned the business altogether, and especially in the case of major lenders in the diamond business. Unfortunately, major frauds have proved over and over again that the diamond business in particular is risky.  

A few months ago, I watched a series of videos covering a diamond-oriented conference held in Dubai.  I found it quite interesting because many of the panelists were quite open with their views on the state of the business.  In one case, I was particularly struck by the comments made by an investor who helped finance a company that was manufacturing and marketing man-made diamonds.  The investment of millions made total sense to him as the business was growing by solid double digits.  

My immediate thought was how unusual it was to see a major investor in our specialized business.  Here he was sitting at a conference filled with big-time natural diamond mining companies and their clients.  It seemed apparent that he did not consider going with any of them.  Deep trouble?  Very narrow growth potential?  A decline in natural diamond production?  Limited future in a business with far too many competitors?  I don't know, of course, but maybe all of that.

Still, we need to look at the issue of banking for the jewelry business prospectively.  No matter the nature of the end products, the public will continue to desire jewelry.  By its nature, jewelry is endlessly diverse, and that requires financing during the extended time frames required for design, production, distribution and selling.  In fine jewelry in particular, turnovers are slow, and that takes patience - and money.  But these processes are being rapidly transformed in the tech age, sharply reducing the need for financing and the risks involved for both parties.

It is helpful to look at banking in the context of the diamond business, central to the issue.  The business model used by De Beers over many decades worked very well, by and large.  Their core objectives were to protect the value of diamonds by acting as a buffer against changing economic conditions; to see sightholders make some profits (though not too much!) by cycling goods through ten times a year; and by protecting the producers, the mid-market - and the banks, by managing supply.

This all worked fine until Rio Tinto, owners of the Argyle mine, went their own way, followed by the EU requiring Russia to stop selling to De Beers, and Angola selling directly. Botswana and South Africa pressed for more control and beneficiation, and everyone started worrying about conflict diamonds.  Suddenly, diamond prices started to fluctuate like any other core product.  Dealers saw margins shrink to near nothing.  De Beers edged further and further away from their own rules, especially after they got rid of most of a $5 billion inventory.  And the Oppenheimers sold all their interest in the company.  What more need be added to all that?  That man-made diamonds came on the market, including Lightbox, De Beers' own effort?

The old structure is keeling over fast and has been given a big shove by Covid-19.  We know the months and years ahead will be a period in which companies will find new ways to find customers, eliminate intermediaries, and sell jewelry as directly as possible.  Banks will be back when they see daylight.  So will new non-bank entities that will provide financing under new arrangements.    

The times are uncertain, but we can be fairly certain that in a period of profound change, the opportunities will be big.