The Future of Jewelry, Part 9: Retail Evolution - In the Age of COVID-19

Here is the list of issues we have been covering — we are up to number 9.

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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We have all been witnesses to an economy under sustained pressure.  The pandemic is indiscriminate in its attacks, but the effects are very diverse.  Our cities are marked by closings of retailers of all sizes and channels, many of which will not reopen when the pandemic passes.

I have held off writing on this subject simply to see if any predictive patterns emerge, or if the Federal Government comes up with additional assistance to carry business owners past the crisis.  The pattern is not totally clear, but we already see that retailing is seeing changes that will be permanent, regardless of what the government ends up doing whenever it emerges from paralysis.

About a year and a half ago, I received an e-mail from PBS asking for an interview about the diamond business.  I agreed, and expected a phone call (this was PBS in California).  Instead, they asked me to download Zoom.  What's Zoom?  They may have heard opinions about diamonds from me, but I experienced a new technology that gave me an inkling of where the world was headed beyond e-mail, texting, FaceTime, Instagram, etc.  Some inkling!

A few realities have emerged quickly.  Apparel is a huge problem.  Big stores carrying lots of inventory (I think of Macy's) were crushed.  How do you try on clothes?  Or return them?  What do you do with quickly out-of-season merchandise?  How do sales people help customers up close?  

Restaurants were crushed, as were their suppliers, right back to farmers.  As were street-front stores of many categories.  Never mind airlines and hotels; cabs and mass transit.  The economy shook as if hit by an earthquake.

Did anyone benefit?  Sure.  Producers of toilet paper, masks, sanitizers and wipes.  And, Internet retailers - Amazon, Target, Walmart - even Tiffany.

But what about jewelry overall?

It would not be shocking to state that jewelry sales were affected.  Depending on the focus of any one business it could go either way.  High end retailer?  Has been doing well, as people are not spending on other luxuries, such as travel.  Same for some high end manufacturers.  Mall retailer?  Getting slammed.  Internet retailer?  Doing OK, or not so good.  But the record, either way, has been erratic.  Engagement rings continue to do well, but the initial resurgence after the Spring restrictions were even partially lifted, has slowed a great deal.

Reading that, one could say that with the successful testing of vaccines, and broad immunization now on the horizon, things will gradually but steadily return to normal.  Eh, not so fast.

Before we attempt to gauge the future, let's briefly consider where the jewelry business has been:

• After many years of seeing channels for jewelry sales open up and expand, we have now been watching many stall and decline for over 20 years.  For example, Walmart has essentially given up on carrying precious jewelry; department stores, especially in malls, have steeply declined in number; diversity in mall-based jewelry stores have gone through steady consolidation and shrinkage as well; and the number of independent jewelers have steadily declined for decades.

• Wages have stagnated for over 40 years.  It has been amply demonstrated that global competitive pressure and a constant drive to grow net income have pushed companies to constrain their biggest cost - labor.

• Barriers of entry into the jewelry business are typically very low, especially anywhere in the mid-stream.  As a result, there is far too much competition, and that drives margins down to numbers so low that it largely forecloses effective marketing and promotion.  The growth of Internet retailing has only added more competition, and pushed margins even lower.  A one-time large domestic jewelry manufacturing sector has in large part been obliterated, though high end manufacturing still has viability.

• There has been a steady urbanization of the US.  Gen-Yers and Gen-Zers have looked to find employment in cities, and in the process many rural areas and small towns have become poorer and less capable of supporting jewelry stores - or many other businesses.  Historically, jewelers have depended on establishing long-term social contacts in their markets to sustain their businesses.  When local demographics change - departure of the young, say, or steady declines in manufacturing - they are particularly affected.  At its peak, there were about 40,000 independent jewelers in the US.  Today, that number is around 18,000, but Covid-19 will likely push many jewelers into retirement.

• Unlike many other products, even some luxury products, components of jewelry saw steep increases in cost over a few years.  Gold went from a few hundred dollars an ounce to now pushing $2,000 an ounce.  Diamond producers have tried very hard not to bend to market pressures and sustain their prices, even increase them.  But if sales are not there anyway, changing prices might not mean much.  Colored stones have become more popular, and some stones have increased in value as mines have played out.

• Perhaps most importantly, Covid-19 has exacerbated a long-festering problem - the income gap.  The middle class became very important to the broad expansion of the jewelry business during all those growth years.  It has largely disappeared now.  We wonder how jewelry can flourish again in just the low-end and high-end prevailing.  It was the middle class that gave retailers the range of prices that were critical in sustaining a low-turn, high cost inventory. 

OK, I can hear the yelping already that I am being too negative.  Actually, these are not new conditions, and if we think further we could list a few more nasty trends that have assailed us for years.

But, as is always the case, we can actually see some positive possibilities for each of these points!  Change does not always have to be negative.  Let's look at a few of these factors.

Yes, there have been booms and busts in various channels.  Many worked for a number of years because overall growth in jewelry sales floated many boats.  In time, however, it became apparent that handling low turn jewelry is not for everyone.  Can we look back at the history of malls and say that they were powerful forces?  Sure, they were the "new" gathering places for many years until they got overbuilt; until people got bored; until Main Street got renovated and revived.  The public's taste has shifted, especially with Millennials, and other than the exceptional malls, the draw has been fading for a long time, never mind the Covid bomb.  

We could say the same for other channels.  Will Macy's (and the department store channel in general) get into deeper waters?  Too much space, too much overhead, too much inventory for an age in which efficiency and speed are tantamount.

Independent retailers are well-positioned to make the most of click-and-brick.  But if they fail to fully integrate such a business they may well join those leaving the business.

There will be new opportunities for jewelers of different stripes.  Someone is going to pick up that volume.  Jewelry will be with us, no matter what.

Yes, wages have stagnated.  But now we have seen that boosting wages has not meant a return to inflation, at least so far, and even for minimal wage workers who are finally seeing $15 an hour, more money will go for discretionary purchases.  Setting aside the actions taken by Congress and the Fed in confronting the pandemic impact on workers, we could be looking at permanent longer term changes in wages (like guaranteed annual income) and tax reform that could lead to a revival in the middle class.

Let's remember that millions of Americans have dipped into any savings they had in order to survive through this pandemic.  Even if the money faucets get turned on, it will take some time before people have rebuilt some savings and start spending more freely, certainly when it comes to discretionary spending.  

Barriers of entry in retailing will not go away, and will probably grow, but distribution is definitely going to change - and has already.  The decline in the number of independent jewelers is attributable in large part to retirements.  The businesses are not salable and many operators simply liquidate and retire.  But there are structural problems as well.  Jewelry retailing as we have known it cannot respond readily to shifts in demographics among many other factors.  For many years, designers and jewelry suppliers faced choke points in trying to deal with a multitude of retailers with diverse needs, loyalties, demands, physical space, financial capacity, and local economic conditions.  Under those conditions, the business is highly fragmented, and many possible sales are lost by the inability to reach the right customer with the right product fast enough.  

The pandemic is in the process of throwing all those barriers away.  Yes, retailers will continue to serve their base as in the past.  But now we see new tools being built to virtually serve regional, national and global customers in ways we had not imagined even a short time ago.

Long years of stagnant wages have also altered how people make decisions on what they can afford.  The public has learned that it is OK to mix fine jewelry with costume. Adornment for athleisure wear is a new world.  Many jewelers who would never had considered silver lines, treated and man-made diamonds, low-priced colored stones, 10-carat gold, beads, and a range of non-precious materials, are selling them.  Even with the agonized complaints of purists, jewelers have faced reality.  They have to.

What will happen with urbanization as 'work from home' becomes a permanent result of the pandemic?  The tech sector is already heavily into this (Google, for example, announced that WFH will continue well into next year).  Financial firms are opening regional offices, and reducing head count in their main offices.

Imagine the relief many people will have not having to commute for hours a day.  Sure, it will not work for everyone, but even a 20% shift, or staggered days in home offices, will mean saved hours, saved money, less pollution, and more hours to shop in the suburbs - or in smaller cities that were in decline during the "old" economy.  

It is time to unblock thinking.  Yes, the ground we stand on, or stood on, is being plowed up. But it is not the end of it all.  Our new world may not be all that bad, once we get past the horrors of the pandemic.