tag:blogger.com,1999:blog-80384063482197516962024-03-12T20:51:37.237-04:00GemThoughtsObservations on trends and events in the gem and fine jewelry business.Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.comBlogger82125tag:blogger.com,1999:blog-8038406348219751696.post-73638238950838193182021-01-28T21:31:00.000-05:002021-01-28T21:31:02.922-05:00A Fond Farewell<p>I have been posting to this blog for ten years, and I have to say it has been fun. But now it is time for me to move on, to end these years of venting and commenting on this constantly changing landscape of the jewelry business.</p><p>I first wrote a published article in 1993, at the urging of George Holmes of JCK Magazine, after he and I had a chat at a trade show about the business. My first article was about the Internet. I stated that if one does not learn how to drive on the "electronic highway" one will be run over. I guess I was a couple of decades too early! I often wrote for JCK back then, and for years again later on, courtesy of Peggy Jo Donahue when she was editor, with a monthly column I called <i>Our World. </i>And I wrote for other publications the world over at various times.</p><p>When publishing long-form paid analytical articles for magazines fell out of favor, I thought I would open this blog, which I did on January 7, 2011, suggesting that it could be a place for open discussion on the tsunami of changes we were already facing.</p><p>In these ten years I have written about so many important moments in the history of jewelry and the diamond business: the rise of the Internet; the departure of the Oppenheimer family from De Beers; the development of man-made diamonds; the decline, disappearance or consolidation of retail channels; and so many other subjects. On three different occasions I wrote about the Top Ten issues facing us, the last one just finished this month. All the posts are still up if anyone cares to read them!</p><p>It would be reasonable to ask why I am pulling back, especially as I say it has been fun. There are the obvious reasons - I am getting older and less inclined to do the digging needed to produce meaningful analysis. Another reason, without trying to be too dramatic about it, is that we are at a major pivoting point in the industry and in the world we live in. I leave to others, in large part, to comment on the new world the pandemic leaves behind. Every pandemic in history has caused major paradigm shifts in how society and economies operate, and we can be assured that this one will do the same.</p><p>My posts have been read in over 30 countries by many tens of thousands of readers, or so blogspot reports to me. I have written something over 100,000 words in the process of producing these 83 posts, though I have often felt that the subjects deserved more thorough discussion. After all, the posts were long enough as they were! And maybe here is one disappointing aspect - I had hoped, maybe foolishly, to see more responses and counterarguments than I got, even though so many readers thanked me for my writings. Many wrote directly to me rather than on the blog, so those did not add to a conversation.</p><p>I may occasionally write again when major events occur, though maybe as a post on LinkedIn rather than here. I may, as I have done in the past few years, consult on short, focused inquiries. I will continue to try and stay informed on all that happens in our business. I will still enjoy chats with so many friends and acquaintances. And I will look back on decades of immersion in this fascinating business with a thankful smile. </p><p style="font-family: Times; font-stretch: normal; line-height: normal; margin: 0px;">Always happy to hear from a reader! My e-mail is <a href="mailto:janosconsultants@gmail.com">janosconsultants@gmail.com</a></p><p style="font-family: Times; font-stretch: normal; line-height: normal; margin: 0px; min-height: 14px;"><br /></p><p style="font-family: Times; font-stretch: normal; line-height: normal; margin: 0px;">Wishing everyone a healthy, happy 2021!</p><div><br /></div><p><br /></p><p><br /></p>Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com3tag:blogger.com,1999:blog-8038406348219751696.post-6305128663487080862021-01-15T15:17:00.006-05:002021-09-19T13:00:55.452-04:00The Future of Jewelry, Part 10: Industry Structure - In the Age of COVID-19<p> Here is the list of issues we have been covering — we are up to number 10, our last.</p><ol><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif" style="font-size: 12pt;">The Gig Economy</span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><font size="3"><span style="font-size: 12pt;"></span></font><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: 12pt;"><span style="font-size: 12pt;"></span></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><b><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></b></span></li></ol><div><span style="color: #222222;"><b>_________________________________________</b></span></div><div><span style="color: #222222;"><br /></span></div><div style="text-align: left;"><span style="color: #222222;">I come now to the last of the posts covering ten aspects of the jewelry business that I see as important for us to consider. Of course, I started all of this over a year ago, well before we knew the word Covid. All trends move along- that is part of the definition of that word. But I took my time, being well immersed in this business, one which rarely moves along faster than a snail.</span></div><div style="text-align: left;"><span style="color: #222222;"><br /></span></div><div style="text-align: left;"><span style="color: #222222;">The jewelry business has been around for thousands of years. Some technologies have remained essentially the same. Other technologies have enhanced and broadened manufacturing, and, in the process, have made the distribution and selling of jewelry more complex, more inter-reliant, and more regional, if not global.</span></div><div><span style="color: #222222;"><br /></span></div><div><span style="color: #222222;">All of it has prevailed based on one consistent force - people want jewelry. This has been true in all societies, no matter how remote or insulated. Jewelry is intensely personal - it is worn on the body - and invariably evokes emotional associations unmatched by any other man-made product. That attraction will not fade even as we enter an epoch in world history that may bring change at a pace and depth that humanity has never seen. </span></div><div><span style="color: #222222;"><br /></span></div><div><span style="color: #222222;">All that considered, we plod along, a step at a time, dealing with what is at hand. Each of us sit at some point in the value chain, both contributing to and being affected by everything that happens between the material sources and the consumer. Those effects are now global in scope. Sometimes they benefit us individually, and sometimes they are severely destructive. Today, both effects have been greatly magnified by powerful natural, technologic and societal trends that are destabilizing established norms.</span></div><div><span style="color: #222222;"><br /></span></div><div><span style="color: #222222;">Some changes are already very evident. The Internet has now been with us for a couple of decades, so it isn't new. People in the business have long viewed it as being somehow unfair competition; that it fails to satisfy the most basic rules of selling jewelry. Almost in spite of that sentiment, it seems that the Internet has greatly scaled up most commercial skills to levels far beyond anything people have ever imagined. When the Apple store can effortlessly earn billions of dollars selling music one song at a time for 99 cents, we have to reassess how all forms of retailing are rapidly evolving.</span></div><div><br /></div><div>It would be fair to say that some long term market forces have been driving change in the jewelry business for years, and will now be boosted. Here are four prominent ones.</div><div><br /></div><div><b>Disintermediation.</b></div><div><br /></div><div>We have been experiencing disintermediation for years. In my early years in the business, I saw that jewelry and/or jewelry components passed through a number of hands before reaching the consumer. Even though the variations could be many, the path could go from miners to processors, to importers, to manufacturers to wholesalers to retailers. In this example, importers and wholesalers are essentially gone; many manufacturers are now into retailing; and processors are into manufacturing and retailing.</div><div><br /></div><div>This shortening of the string has been driven by constant pressure on margins all through the value chain. The jewelry business has been increasingly stressed by excessive competition, a direct result of a simple fact - the historic barriers of entry, especially in the mid-market, are low. The more the business has become global in nature, and the better communication has become, the more the margin pressure has built. When the world rebuilt and modernized following WWII, countries such as Italy, Belgium, India, China, Thailand, Israel - and to lesser degrees Turkey, France, Germany, Brazil - all brought significant added production into the market, and the pressure to cut out middlemen steadily mounted.</div><div><br /></div><div>This aspect is especially telling in the core products. The grading of diamonds by the 4-Cs has largely commoditized diamonds, and the documentation has led to wide open international trading as well as the lowering of retail markups as online pricing became readily available. When it comes to core products such as solitaire rings and studs, there is now little hesitancy for diamond cutters (who are well-upstream) to sell directly to the consumer. DTC (direct to consumer) has hit all retail, not just jewelry.</div><div><br /></div><div>Many such examples can be drawn, but the results are clear. In the mass market (which does include important retail price points up to at least $5,000), who makes the profit as the water gets squeezed out depends more and more on ancillary aspects - location, exposure, marketing, image and brand, expertise, salesmanship, even accreditation, history and social activism. But most critically, an online presence that covers all of that is an inescapable requirement.</div><div><br /></div><div>And all of that applies to the now increasingly competitive high end of the market, and that extends down to well-established, historically successful local stores.</div><div><br /></div><div><b>Access.</b></div><div><br /></div><div>The reach of many companies is now global, and it is quickly getting more sophisticated. Virtual connections will make in-store experiences almost as easy and appealing as the real thing. With the advent of 5G speed, the range and creativity of what is possible will become stunning. I recently "walked" through a gallery exhibition of high end photographs for sale. It was easy, and I could look as long as I liked, saw all the prices and details. We already see sales professionals in jewelry chatting directly with a consumer, showing pieces close up and bringing up images of other pieces that are available. Just take a look at Instagram Live, to cite one developing example.</div><div><br /></div><div>For the overwhelming market share, this kind of nationwide or worldwide access will take a real piece of the market. No, it does not eliminate the retail store, especially at the high end. A total integration of 'brick and click' is going to be an important format. By comparison to other luxury products, jewelry has done a poor job overall in this regard. Even homes, the highest cost purchase anyone makes, are now being sold based on virtual walk-throughs! Yes, the pandemic has killed open house events, but sales have boomed. It has also ended in-store jewelry trunk shows, but we see very few virtual trunk shows. Tiffany has already shown how important their online business can be, and all the important high-end global brands are rapidly building those abilities. None of this will disappear when the pandemic is conquered. Quite the contrary. </div><div><br /></div><div>Business after the pandemic will surely include open house events, trunk shows and galas. But the enhanced technologies we are now utilizing will be a big part of that. An in-store event can draw dozens of people - maybe hundreds. A virtual event can draw thousands, and if one includes celebrities, hundreds of thousands. The scale of what can be achieved will explode. And nobody will even think of giving up the global reach - <i>access</i> - that new technologies are offering.</div><div><br /></div><div><b>Obsolescence.</b></div><div><br /></div><div>Retail stores will be with us forever, regardless of how the format will change. In the last post I covered how the formats we know are either getting crushed or are booming. The number of malls, department stores and independent stores will be reduced to a fraction of what they were at their peaks, and the way the survivors operate will be modified in innumerable ways. Consumers are quickly learning how to pre-qualify a visit to a store beforehand. Do they have they kind of products being sought? What are the prices and how do they compare with other stores? Is there someone immediately available to answer some questions? Are the pieces in stock, and if not, when can I see them? </div><div><br /></div><div>I recently did something like this when I needed to buy LED replacements for old track lights that used halogens. No, the local Ace Hardware store did not have them, nor did Home Depot, nor Walgreens. And no, Amazon supplied replacements which, it turned out, were slightly too big. Even the fixture manufacturer could not help out. I found what I needed by dealing with a Texas store, where a well-informed sales person searched for replacements that fit perfectly. </div><div><br /></div><div>OK, this is not jewelry. But if I needed to have a chipped stone recut, or an antique piece repaired, or a custom piece made from scratch, I would no longer wonder how to do it, nor would I be constrained as to where in the country, or in the world, I could have it done. Just look online.</div><div><br /></div><div>This is not a minor change in how retailing will work. Almost any consumer, even those technologically challenged, fully understand that the very first thing they will do when even thinking of buying anything other than a quart of milk, will be to search online. And that is true, no matter how long a relationship that consumer has with a jewelry store. Viewed from the other side of the screen, any retailer that does not fully embrace the fact that survival now depends on how well they project themselves online is effectively obsolete. For them, the end is near.</div><div><br /></div><div>If retailing is under the gun, so is wholesaling and/or manufacturing and/or being any kind of supplier. </div><div><br /></div><div>Obsolescence comes in many flavors. I am reminded of a conversation I had with a very good long-time supplier of colored stones. His telling remark was that he built his business over many years by selling in quantity to jewelry manufacturers who used to stock stones a season at a time, even a year's supply at a time. That allowed him to buy in bulk at the mines, and to operate fairly efficiently, offering his customers a good price. Now, he said, his large customers, those that are left, buy small quantities, at short intervals, and based on careful assessments of what is happening at retailers. All of this, of course, occurring at a time when the volume of colored stone jewelry is produced in Asia, where manufacturers are capable of dealing directly with local cutters, even with the mines. </div><div><br /></div><div>While his traditional base has declined severely, his business with the designer class has risen sharply. These designers have gone through an evolution of their own. For decades, designers (whom we could generally define as small artisans reliant on selling unique lines of high quality jewelry) attempted to place their product in retail stores, inevitably local independents. For almost all of them, such efforts failed. They were faced with slow sales, demands for memo goods, slow or non-payment. The biggest problem was probably the inability of the retailers' sales people to properly display and convey the essence of the lines, the designers' "stories", if they even understood them at all. </div><div><br /></div><div>But now, the Internet has allowed designers to fully build their own "store" and to fully exhibit according to their own image. So now, such a supplier is faced with dealing with much higher volume of very low quantity sales. Yes, the margins, of necessity, are higher, but so are the managerial problems. Is it his business for the future? Is it the business he wants to be in? Or is he in the midst of being disintermediated?</div><div><br /></div><div>There are much bigger examples of obsolescence. That would not be the word that springs to mind in the case of De Beers. But is it inappropriate? Maybe not when it comes to their core business, mining and distributing diamonds. After all, that part of their business is still huge by diamond industry standards, perhaps a third of the world's production of diamonds. Still, there are two inescapable facts. One is that diamond mining is set to decline over the next decade or two, as the major mines expire. Second is that the heart of De Beers' business is in the highly productive mines in Botswana. Over the years the Botswana government had taken over a major part of the benefits of those mines. And they now own 25% of De Beers. The partnership between De Beers and Botswana, now tentatively continues for the next year, a reflection, no doubt, of the impact of the pandemic. But beyond that, who knows?</div><div><br /></div><div>I have posted often over the years in this blog about the implications of these movements (they are all still up, so please do read them!) and how De Beers has adapted to these long term realities. I believe they have assessed the issues well, as they are long-term planners, though it is still to be seen how well it all turns out. The pandemic has caused dents, no doubt, as in almost any business.</div><div><br /></div><div>But the point I wish to make here, is that while De Beers is juggling its traditional mining business concurrently with several downstream efforts, the industry has not. In the many decades that De Beers was a monopoly it built a distribution network that fit well. There were numerous sightholders that, by design or effect, served two key purposes. First, the ability to absorb and distribute a very wide range of diamond qualities. Secondly, to do so in a manner that allowed the sightholders to grow their wealth and financial power (thereby allowing De Beers to expand production) while still keeping the bulk of the profits in De Beers' hands and keeping prices relatively stable. That allowed for the overall business to grow, especially in Belgium, Israel and India. (Not in the US, the biggest market, as De Beers was kept out of direct business in the US due to anti-trust regulations.)</div><div><br /></div><div>But now, all of that structure is essentially obsolete. De Beers is no longer a monopoly, but the key centers have continued to act as if the old structure is necessary, even as they watch it steadily being taken apart. As the monopoly disappeared, so did the ability of De Beers to maintain price stability. Now we see swings in diamond prices that by the very nature of commerce cannot sustain the full pipeline that was possible under the monopoly. The banking industry has fully understood that, and have essentially stopped financing inventories as they did for so long. Furthermore, many mid-market companies, many of whom were part of the old De Beers distribution structure, have fought to stay in business. That has made margins even thinner, and that in turn has driven banks to largely give up any financing of the diamond business.</div><div><br /></div><div>Where is this all this headed? The diamond business (and for that matter, the fine jewelry business) will continue to flow. As I have stated earlier, jewelry remains a perfect product for adornment, for shows of commitment, love and status. That is not going away. </div><div><br /></div><div>Nobody can properly foresee what these forces will produce in the years to come. Technology will have a major effect, as will environmental, political and social forces that are immeasurable right now. Never mind the lasting impact of the pandemic on our lives and on all economies. But, with that caveat, let's take a shot.</div><div><br /></div><div>In the future, and especially as output from mines drop below demand, we could see definable channels develop. The higher end will still be managed by specialized dealers and retailers catering to the top 10% of earners worldwide, or maybe only the top 5%. We are breeding billionaires like rabbits these days, so that kind of personalized service will continue.</div><div><br /></div><div>The mid-market, which in the US might be a third of the public, will be well supplied by the production of middle qualities from 2 carat, say, down to smalls. But the supply of stones will come from recycled diamonds, MMDs (man-made diamonds) as well as mine production, however diminished that might be. Much of these goods might reach the market through auctions, not the traditional controlled sightholder process. </div><div><br /></div><div>I include MMDs because that might be the only way, some day, to meet all the demand. It is totally conceivable that the differentiation between natural diamonds and MMDs will disappear in small goods as such distinctions could become immaterial in low-priced or even mid-priced jewelry. I know that for many in the trade this is heresy. But it is already happening. </div><div><br /></div><div>The third channel, the low end market, is problematic for miners. That would be the use of heavily imperfect diamonds, especially in small sizes. The broad marketing of promotional diamonds has been going on for many years now. The problem might be that the cost of mining and processing these goods might become readily outdone by MMDs. The promotional market may have very little problem using a steady supply of cheap VS MMDs instead of poor naturals. And that could lead to some mines simply becoming unsustainable, thereby reinforcing the trend. </div><div><br /></div><div>The automated cutting and grading of diamonds could well spell the end of concentrated trading centers that exist today, not because the expertise in those centers are useless, but rather because it will be difficult to make a living where those skills have been disintermediated. We are back to that word. And the cutting may well get very dispersed.</div><div><br /></div><div>For some people this may all sound scary, even tragic. Or will it be a really good new beginning, a business in which people can actually make a good living, unencumbered by a structure built by monopolies reigning from ivory towers. </div><div> </div><div><br /></div><div><b>Diversity and branding.</b></div><div><br /></div><div>An outstanding aspect of jewelry is its diversity. It is also largely responsible for the lack of large scale branding. It is difficult to brand an item or a line, that is so easy to copy, imitate or emulate. Apple is a successful brand because it sells hundreds of millions of a very small number of products. Jewelry sells tiny numbers of millions of products. Even the most popular core products, think stud earrings, are produced by thousands of companies, and not in the millions, but mostly in the hundreds.</div><div><br /></div><div>Even so, companies downstream keep working on branding. Yes, there are recognized names (Yurman, Heyman, Pandora, umm...) that have built their names and survived for many years. It is not for lack of effort that more do not exist. There have been innumerable flash successes, but a moment of creativity, or some inspirational product, does not make a brand. A fad is just that, a fad, so there has to be something more.</div><div><br /></div><div>Maybe too many companies have been barking up the wrong tree. I mentioned studs. Yes, there need to be some companies that can bang out thousands of pairs for chain stores. But there is zero room for branding in those cases, as the margins are razor thin. And branding on those products belong to the stores. They are the ones that need to build a reputation. And local retailers will mount up a pair themselves for a customer, a pair meeting all the specifics worked out with the customer. And that is an excellent example of branding, one that is <i>service</i> oriented, not <i>product</i> oriented. </div><div><br /></div><div>We know that the mass market is a different animal. But all stores, in some way, seek "branding", and I include Internet stores as well. The branding in those cases are composed of many elements. Here are a few: personality of the owner; selection of designer lines - or only one; custom work; repairs and revisions; well trained and educated personnel; highly efficient and responsive systems and customer service; totally integrated online and in-store sales, marketing and, most critically, service. I bet we could add even more.</div><div><br /></div><div>Of course, the question remains why we see so little of all of that. It is a combination of the money needed and the willingness to risk high costs; a lack of creativity and innovation; and a lack of the needed skills. Even the big brands - especially retailer brands - spend lavishly at times trying to build a compelling identity, a brand, that the public can quickly absorb and be excited about. It is truly difficult. And an early question should always be should I brand at all? JAR never sought branding, did not advertising or use PR. But he grew an impressive brand, and wealthy followers, slowly and steadily through extraordinary skill and creativity. It landed him, after many years, with a special showing at the Metropolitan Museum in New York.</div><div><br /></div><div>That is just one path. The paths we can imagine can be as diverse as the nature of jewelry itself. </div><div><br /></div><div>In the process of accomplishing all of that, a truly unique brand is built. The fine jewelry business does not scale well. It takes great attention to detail, which can, and does, vary almost piece by piece. That does not lend itself to mass <i>anything. </i></div><div><i><br /></i></div><div>I have often heard people relate how they found a wonderful designer online. And then I hear about how the designer failed to do such and such. How many companies do destructive testing of their own businesses, just to confirm that they can deliver? </div><div><br /></div><div>For all I can see, this should be the future. A business, from top to bottom, that relishes its diversity and applies all means to built a sustainable, technologically advanced, efficient suite of distinct brands!</div><div><br /></div><div><br /></div><div><b>Final Thoughts.</b></div><div><b><br /></b></div><div>I started on this journey of writing about "The Future of Jewelry" a year and a half ago, and it took over 15,000 words to get here. Did I cover everything important? Of course not! I hope I kicked up some dust, got readers to stop, think, agree, and disagree. And think of lots more that we could discuss. </div><div><br /></div><div>Please do comment, publicly if possible, so that we can open a real discussion! </div><div><br /></div><div>Thank you, readers.</div><div><br /></div><div><br /></div><div><br /></div>Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com1tag:blogger.com,1999:blog-8038406348219751696.post-13640430597662541782020-12-15T00:22:00.001-05:002020-12-15T00:22:59.747-05:00The Future of Jewelry, Part 9: Retail Evolution - In the Age of COVID-19<span face=""helvetica neue", arial, helvetica, sans-serif">Here is the list of issues we have been covering — we are up to number 9.</span><br /><ol><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif" style="font-size: 12pt;">The Gig Economy</span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><font size="3"><span style="font-size: 12pt;"></span></font><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><b><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></b></span></li><li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face=""helvetica neue", arial, helvetica, sans-serif"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li></ol><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">_________________________________________________________________</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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!</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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? </span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">Did anyone benefit? Sure. Producers of toilet paper, masks, sanitizers and wipes. And, Internet retailers - Amazon, Target, Walmart - even Tiffany.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">But what about jewelry overall?</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></div><div><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;"><br /></span></div><div><span style="color: #222222;">Before we attempt to gauge the future, let's briefly consider where the jewelry business has been:</span></div><div><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></li></ul></blockquote><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></li></ul></blockquote><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></li></ul></blockquote><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></li></ul></blockquote><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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.</span></li></ul></blockquote><blockquote class="tr_bq"><ul><li><span face=""helvetica neue", arial, helvetica, sans-serif" style="color: #222222;">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. </span></li></ul></blockquote><span face="arial, helvetica, sans-serif">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.</span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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. </span></div><div><span face="arial, helvetica, sans-serif"><br /></span></div><div><span face="arial, helvetica, sans-serif">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.</span></div><div><br /></div><div>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.<br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span></div><div><br /></div><div>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. <br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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. </span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span></div><div><span face="arial, helvetica, sans-serif"><br /></span></div><div><span face="arial, helvetica, sans-serif">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. </span><br /><span face="arial, helvetica, sans-serif"><br /></span><span face="arial, helvetica, sans-serif">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.</span></div><div><br /></div><div><br /></div><div><br /></div><div><br /><span face="arial, helvetica, sans-serif"><br /></span></div>Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com1tag:blogger.com,1999:blog-8038406348219751696.post-79530948217503410122020-08-07T16:47:00.000-04:002020-08-07T16:47:19.053-04:00The Future of Jewelry, Part 8: Demographics - In the Age of COVID-19<div dir="ltr" style="text-align: left;" trbidi="on">
<span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;">Here is the list of issues we have been covering — we are up to number 8.</span><br />
<ol style="text-align: left;">
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li>
<li><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><b><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></b></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span face="" style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
</ol>
<div>
<span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);">_________________________________________________________________</span></span></div>
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<span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div>
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<span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);">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.</span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);">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. </span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);">Let's start by looking at longer term trends in the US. As seen in the charts below, we can note the following:</span></span></div><div><ul style="text-align: left;"><li><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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 <span style="caret-color: rgb(34, 34, 34);">countries, notably Japan.<br /><br /></span></span></li><li><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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. <br /><br /></span></li><li><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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 <span style="caret-color: rgb(34, 34, 34);">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 <i>Empty Planet</i>, <i>The Shock of Global Population Decline, </i>by Darrell Bricker and John Ibbotson.<br /><br /></span></span></li><li><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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.<br /><br /></span></li><li><span style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;">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.</span></li></ul></div><div><br /></div><div style="text-align: center;"><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><img class="GraphImage" id="imgGraph4" src="https://population.un.org/wpp/Graphs/1_Demographic%20Profiles/United%20States%20of%20America/Line%20Charts/5-Average%20annual%20number%20of%20births%20and%20deaths.png" style="caret-color: rgb(0, 0, 0); color: black;" /></span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div style="text-align: center;"><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><img class="GraphImage" id="imgGraph3" src="https://population.un.org/wpp/Graphs/1_Demographic%20Profiles/United%20States%20of%20America/Line%20Charts/4-Crude%20birth%20rate%20and%20crude%20death%20rate.png" style="caret-color: rgb(0, 0, 0); color: black;" /></span></span></div><div style="text-align: center;"><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div style="text-align: center;"><img class="GraphImage" height="453" id="imgGraph" src="https://population.un.org/wpp/Graphs/2_Probabilistic%20Projections/1_Population/Growth%20Rate/United%20States%20of%20America.png" style="font-family: "helvetica neue", arial, helvetica, sans-serif;" width="604" /></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div style="text-align: center;"><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><img alt="The wealth of U.S. families is yet to recover from the Great Recession" class="alignright wp-image-27692" height="454" sizes="(max-width: 420px) 100vw, 420px" src="https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png" srcset="https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png 836w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=277,300 277w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=768,830 768w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=600,649 600w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=160,173 160w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=375,405 375w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=200,216 200w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=260,281 260w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=310,335 310w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=420,454 420w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=640,692 640w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-3.png?resize=740,800 740w" style="caret-color: rgb(0, 0, 0); color: black;" width="420" /></span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div style="text-align: center;"><span face="" style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><img alt="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" class="aligncenter wp-image-27691" height="445" sizes="(max-width: 640px) 100vw, 640px" src="https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png" srcset="https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png 1274w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=300,209 300w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=768,534 768w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=600,417 600w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=160,111 160w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=582,405 582w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=200,139 200w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=260,181 260w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=310,216 310w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=420,292 420w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=640,445 640w, https://www.pewsocialtrends.org/wp-content/uploads/sites/3/2020/01/PSDT_01.10.20_economic-inequality_1-4.png?resize=740,515 740w" style="caret-color: rgb(0, 0, 0); color: black;" width="640" /></span></span></div><div><p><br /></p><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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.</span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;"><span style="caret-color: rgb(34, 34, 34);"><br /></span></span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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. </span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;"><br /></span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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. </span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;"><br /></span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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.</span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;"><br /></span></div><div><span style="color: #222222; font-family: helvetica neue, arial, helvetica, sans-serif;">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. <br /></span><p><br /></p><p> </p>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-74847820373245521802020-06-26T11:56:00.001-04:002020-06-26T11:56:05.844-04:00The Future of Jewelry, Part 7: Image - In the Age of COVID-19<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Here is the list of issues we have been covering — we are up to number 7.</span><br />
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<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li>
<li><span style="color: #222222; font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><b><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></b></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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 <i>images </i>are far more powerful than any words, though it is the word or words that evoke the images.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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?</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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". </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue", arial, helvetica, sans-serif;">Now, image/brand has taken on new dimensions that were rarely addressed in the past. </span><span style="font-family: "helvetica neue", arial, helvetica, sans-serif;">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. </span><span style="font-family: "helvetica neue", arial, helvetica, sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">So, perhaps we have a new four C's, those critical to building an image - Competence, Compliance, Content and Character. </span><br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-79756269015248725912020-06-05T13:50:00.000-04:002020-06-05T13:50:43.219-04:00Trade Shows Post-Pandemic<div dir="ltr" style="text-align: left;" trbidi="on">
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.<br />
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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. <br />
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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.<br />
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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. <br />
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It was also a time when there were nearly three times as many independent jewelers in the country then there are now. <br />
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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.<br />
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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. <br />
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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.<br />
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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?<br />
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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.<br />
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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. <br />
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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!<br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-21825365647027928212020-06-02T21:02:00.002-04:002020-06-10T13:30:27.211-04:00The Future of Jewelry, Part 6: Banking - In the Age of COVID-19<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; text-align: center;">_____________________________________</span></div>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; text-align: center;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Here is the list of issues we have been covering — we are up to number 6.</span><br />
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<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li>
<li><span style="color: #222222; font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li>
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<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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?</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">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. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The times are uncertain, but we can be fairly certain that in a period of profound change, the opportunities will be big. </span>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-15414010450691873202019-12-20T18:53:00.000-05:002019-12-22T00:32:38.210-05:00The Future of Jewelry, Part 5: Man-Made Diamonds<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; text-align: center;">____________________________________</span></div>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; text-align: center;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Here is the list of issues we have been covering — we are up to number 5.</span><br />
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<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li>
<li><span style="color: #222222; font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><b><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></b></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
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<b style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></b></div>
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Not a day passes where we don't read news about the steady expansion of the production, distribution, marketing and retailing of man-made diamonds (I have called them MMDs for years, even though the popular term these days is lab-grown, or LGDs). The issue is topmost in the minds of anyone in the diamond business.<br />
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I have been cautioning diamond dealers about this disruptive technology for over twenty years. (I have posted on this blog for years about the subject - see "The three tipping points of man-made diamonds"; and the post on De Beers announcing their jewelry venture using MMDs - Lightbox.) Production of MMDs started with GE and Sumitomo some 70 years ago, but until relatively recently it was primarily for industrial uses.</div>
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Over the last 20 years, most people reacted negatively to my stating a conviction that MMDs will find a willing market. De Beers had done a remarkable job of building the image of diamonds over a century, endowing diamonds with great value, and supporting that value by dominating the sourcing of diamonds and controlling its distribution. People have seen how synthetics of all kinds - CZs, YAGs, Moissonite, emeralds, rubies, amethysts, etc, have all failed to have any significant impact on the sale of the genuine item. That fact led people to believe that the same would be true for diamonds. But some agreed early on that this time the effect may be different.</div>
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Rather than repeating the views I expressed in my posts from years ago, I will assume that everyone, by now, sees what is happening these days is very different, and grasps that this case is unlike anything we saw with the advent of simulants in the past. Some quick points:</div>
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<li>Just recently, Harrod's of London, announced they will be carrying a line using MMDs. One can visit super high end Place Vendome in Paris and see a store carrying only jewelry using MMDs.</li>
<li>A while back, Rolls-Royce showed the dash of a car with the clock surrounded by MMDs.</li>
<li>Independent jewelers have led the way in adopting MMDs, with some reporting, with surprise, that as much as 75% of their engagement ring business is with MMDs. I have long felt that independent jewelers will be the first adopters, as they can react quickly, and they do not possess the deep natural diamond inventories held by large chains. But, over the last year or two, even the chains have jumped in. Recently, Signet announced that MMDs will be sold in all their stores.</li>
<li>Just as an example, I checked to see what the three retailers owned by Berkshire Hathaway, Borsheim's, Helzberg's and Ben Bridge were doing. The first two have a ready selection of MMDs, and they are listed together with natural diamonds, if the choice made by a visitor is to see both types of diamonds. No big deal is made to distinguish them. MMDs are roughly 60% under the price of naturals (no perfect comparison was available). Ben Bridge offers no MMDs, but does offer a choice of CZ centers in their process of creating a customized engagement ring. I was able to assemble a solitaire with a platinum ring, a CZ center of about a 1.50 carat size, and a few small side diamonds, for $2,000. Wow. I never cease to be surprised by what companies will do to reach a needed price point. Everybody, in their way, is fighting the battle.</li>
<li>I observed an informal survey of diamond dealers and manufacturers - midstream companies - that found about 70% of them are considering entering the MMD business at some level. De Beers is not making any effort to deter the sightholders from entering the business (how could they when they are in that business themselves?), as long as they do not promote those lines as environmentally and socially preferable. More about that later.</li>
<li>Even a casual search of web sites selling MMDs finds a large number. Here is a good-looking one I stumbled over that does a straightforward job of selling engagement rings. Vrai.com. This site, like others, talks briefly about "sustainability." But the big point is the pricing and the super basic selection of mountings. (full disclosure - I have no interest or involvement at all with this site.)</li>
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OK, we could go on and on about the explosion that is happening. So what does it mean now, and what does it mean for the future? Some comments:</div>
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Competition from MMDs has been building for years, but everyone ignored it because there were minimum productions; the technology was difficult and still in early development; and there was little, if any, marketing behind it. But the disruption was evident for anyone who realistically assessed it. I always felt that many consumers looking at cleaner, cheaper diamonds would have little problem opting for MMDs. </div>
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The "Real is Rare" program being run by DPA (the association of De Beers and other mining companies created to promote diamonds) emphasizes the unique rarity and value of natural diamonds. We know that rarity applies almost entirely to larger diamonds, say two carat and larger. But 90% or more of all jewelry manufactured uses small stones. People looking to sell their ordinary diamond jewelry find that those small diamonds have practically no value to speak of, certainly when one gets down to imperfect qualities that have been used so widely. </div>
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Not only does the "rarity" pitch completely fail at such levels, but the advent of MMDs in small sizes, say under a third or half a carat, is slowly replacing low quality diamonds, and with each passing day that is happening faster and faster. Imagine the impact on mines producing a high percentage of low quality stones. The viability of such mines may fade well before the final extraction of their assets. I have no way of knowing, but I would guess that this trend played a role in Rio Tinto's decision to close their huge Argyle mine in Australia next year. </div>
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MMDs may be getting a boost in a way that may be hard to divert. Some observers have been steadily looking to debase MMDs by proposing that over-expansion - so typical of an exploding consumer focused technology - will eventually make MMDs worthless. That is possible, but unlikely. But we have all seen the price of diamonds decline over the last couple of years. Is it that MMDs are pulling down the price of naturals? Doubtful, maybe excepting low quality smalls, where competitive price pressure has already been recognized. We do know that decades of stunted wage growth has played a role. We do know that Boomers were spenders and acquirers, but are now unloading personal jewelry as they plan retirement. We do know that Millennials, and even Gen-Zers, prefer experiential activities rather than accumulating property. We also think that miners see the coming tsunami of MMDs as a threat to natural diamond prices, and are pushing sightholders to buy. Unfortunately, too many sightholders still suffer from FOMO - fear of missing out - and buy goods they don't imminently need.</div>
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But the problem runs much deeper. The diamond business grew up with De Beers fully managing it with three important principals in mind. First, dominate sourcing. Secondly, prices have to be stable and supply balanced if prices are to slowly rise. That leads to growing profits, especially for them. Thirdly, sell to many sightholders, as this builds mid-level competition, which in turn shortens markups, which in turn gets diamonds to the consumer at a better price. In effect, controlled release of diamonds into the world market raised prices, and generally allowed dealers and cutters to grow in size and worth, spite of the low margins. That worked so long as diamonds were cut and passed downstream at a steady pace with each sight, ten times a year. Simply put, five percent gross profit turned ten times a year yielded 50% ROI.<br />
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This process fell apart once the monopoly was gone, which started its slide over 20 years ago. Prices now react to market conditions. But the industry structure has remained, and many companies fought to maintain their businesses with lowering turnovers and shrinking margins. The many companies that grew under De Beers market control are now out there fighting to survive. This is leading to profound changes in the industry, and part of the answer for many is turning to MMDs, where margins are available now, even though that may not be the case in the future. </div>
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The potential danger of ever-lower MMD prices, as production expands and exceeds demand, is real. There are more and more companies getting into manufacturing both CVD and HPHT diamonds, and the momentum is only building. I think the bottom will be reached in a couple of years, probably at a level where production costs approach market prices. It will not be zero. <br />
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De Beers, in my opinion, made their jump for good reasons (see my post!) but it isn't for the stated reason - turning MMDs into disposable fashion, and selling finished jewelry at a cheap price. No, they must see that this may be the future of the diamond business, especially after mines continue to close.<br />
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The big marketing push that miners are making is that a) natural diamonds are real, b) only natural diamonds retain value, and c) the environmental impact is no worse, maybe better, that MMDs. As I noted, does a .03 carat imperfect brown diamond have value? No. Is it rare? Of course not. Further, it is already common that jewelers are selling jewelry mounted with a mix of both naturals and MMDs. I saw lines several years ago that were set with MMD centers and natural side stones. This will inevitable lead to jewelers and consumers equating the value of both. As for environmental impact, an important consideration, MMDs have a chance to attain sustainability as the world switches away from fossil fuels, and as technology keeps improving the process. Mining could make some advances, but not ultimately.<br />
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A personal view on naturals: De Beers has consistently promoted their value as being born in the depths of the earth billions of years ago. Certainly true that naturals are old. So is a lump of iron. But is this what people really think whenever they are asked about their diamond pieces? Not ever in my experience. They talk about the high felt at the moment when that piece was bought, given or received as a gift. They vividly recall where and when it happened, with whom and for what event. People are excited about and love their jewelry. But the age of a diamond fades when compared to those memorable personal moments we all have.<br />
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So, let's be real about MMDs. where are we?<br />
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<li>MMDs are, and will continue to be, very much part of the <i>diamond business.</i> Period.</li>
<li>Every time an MMD is sold, it is a sale not made of natural diamonds. This is definitely nibbling away at natural diamond sales.</li>
<li>The prophets of doom, saying that MMDs are worthless, just have no basis for saying that. Are they dropping in price? Yes, as would be expected with so many companies jumping into the business. But they miss the point. They are filling a real consumer need, and expanding the diamond business at. time when it is struggling to capture luxury dollars. So a better approach would be to help the <i>diamond business</i> survive. Bashing MMDs, which is a reality, only does harm without any benefit for anyone.</li>
<li>The time will come sooner than we think when most mines will be closed. It would be wise to have a healthy business which will look primarily to two sources for diamonds - recycled diamonds, and MMDs.</li>
<li>It may be convenient to just consider the top of the market, where naturals will continue to sell in fabulous pieces of jewelry. But the business as a whole needs broad distribution and acceptance.</li>
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Every week I hear from people who are trying to decide how to adapt to MMDs. They never worried in the past about so-called competitors like CZs. Now they wonder if the diamond world is entering a strange new paradigm. It is. </div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com4tag:blogger.com,1999:blog-8038406348219751696.post-29519618239878296932019-10-14T22:24:00.001-04:002019-12-19T18:22:14.944-05:00The Future of Jewelry, Part 4: Consolidation and/or Decline<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Last time, we concentrated on the effects climate change might have on the jewelry business. This time, we cover a long lasting trend, the continuing consolidation of the business. It has effects that are particular to our industry.</span></div>
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Here is the list of issues we have been covering — we are up to number 4.</span><br />
<ol style="text-align: left;">
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></li>
<li><b style="color: #222222; font-family: "helvetica neue", arial, helvetica, sans-serif;"><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></b></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: small;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
</ol>
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<b><br /></b>
<b><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Consolidation and/or Decline</span></b><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">It’s not news to anyone that retail in the US has been consolidating and evolving for decades. Think of what has happened in drug stores, books, software, electronics, and department stores. In some cases it has been near total. Macy’s, for example, has absorbed hundreds of operations — in some cases merging with or buying some firms that had in turn absorbed other operations themselves, many of whom were important jewelry retailers in their home communities. Some formats, such as catalog showrooms, have disappeared entirely. Others, such as discounters and wholesale clubs are down to two or three huge chains.</span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Jewelry falls into so many categories, and is carried by so many different channels, that no singular retail format encompasses all of it. Still, consolidation is evident enough. It gives us great pause, because in so many ways consolidation is antithetical to the very core of the jewelry business, which is based on broad diversity and artistic creativity. </span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The changes in jewelry has had a somewhat different pattern than other retail categories. High on the list of affected channels are mall chains. They have disappeared by the dozens at this point, but it has been a process that has run for decades. I recall that some 30 years ago I was easily able to compile a list of nearly 50 operations that either merged with other chains, or closed. There is no prospect at all these days for any new mall chains appearing. For one thing, malls themselves have been in full retreat, with only the strongest surviving and remaining profitable. For another, the mass market jewelry store has some inherent structural aspects, mainly the demographics of mall customers, that limit the range of product that can be profitably carried. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The breadth of merchandise and services a good independent jeweler carries is typically far broader than in a mall store. And yet, the number of independent jewelers in the US has been declining steadily for decades, from a peak of some 40,000 operations years ago, now down to under 18,000. As these are the two most important channels for jewelry in the US, we may question whether jewelry is fading as an important product in the public's opinion, or is something else at work? The causes are complex, different for the two groups, and more related to paradigmatic issues facing all retail, and not just jewelers. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Mall chains and independents both feasted on basic products for years (think solitaires, studs, line bracelets, clusters, center color rings, etc) as did many suppliers. But gradually, both channels began to struggle for different reasons.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">There was an early period when chains were regional in nature and did build reputations in those regions. They also tailgated on the boom in mall construction that was in turn greatly stimulated by the construction of the Interstate Highway system. Inevitably, chains became super-regional or national in nature and the head to head competition soared. When you are selling primarily basics, the competition can crush profits. </span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Then add on predatory landlords; pressure to take space in every mall that opened; suppliers that see their margins shrink to low single digits as mall chains pressure them to lower prices; and the inherent problem of personnel turnover that impedes the development of well-trained sales people capable of building effective, long term relationships with customers. All of that just a part of the problems for chains as they fought to build a national presence. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In part, it all begs the question as to how well mass marketing is suited to the jewelry business. It certainly led to the popularization of diamond jewelry, especially with the introduction of promotional qualities. But was its own decline inherent in the effort? Is a key element in jewelry sales being able to display knowledge and confidence across the counter to perspective customers the essential skill in selling more than low-priced trinkets? Judging by recent history, we have cause to think so. We see big retailers in various channels deeply reduce their jewelry efforts (e.g., Walmart, QVC) </span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The two biggest mall operators, Signet and Zale’s, have merged, and we see how tough a time Signet is having in coping with profound changes in the public's preferences.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">For independent retailers, it is a very different story. Yes, they clearly felt the competition from every new channel selling jewelry that popped up starting all the way back in the '50s. After all, they pretty much had the business to themselves before that. Over the years they went from being the dominant channel, perhaps as much as 80% of all jewelry sold in the country, to around 40% today. Their nature varied tremendously (one of the beauties of the jewelry business), from elaborate, large stores, to upstairs operations, to edgy designer stores, and even lessees operating in strong general retail stores.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">For them, the edge was in local promotion, the personal involvement of the owners, the ability to customize pieces for customers, the ability to react quickly to new trends and stories, etc. Service was, and still is, very important.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">These retailers, over the years, mostly dispensed with giftware, tableware, silverware, even toasters, going way back, and turned heavily to the one category that was not easily invaded by the booming new retail formats, diamonds. But as most independents did that, the competition between them grew. And then came other factors - the quick rise in the price of gold; the standardizing in the price of diamonds and then their commoditization via broad acceptance of grading reports. The result was the loss of important price points, and the resulting need to turn to non-precious materials. Some held out against moving away from true precious jewelry. Those in prime locations grew, especially with the great increase in the number of millionaires in the US. They also benefitted from the closing of other independents who were not in prime locations, and could not successfully upgrade their merchandising.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">One other important point here. Many truly successful and profitable independent retailers have simply closed their doors. On reaching retirement age, or other personal reasons (like not having a next generation interested in coming in) about the only thing and independent can do is run a GOB (going-out-of-business sale) and maybe plan to spend more time on the Riviera!</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">On the other hand, opening a new store is very difficult today. It is expensive to build and stock, and very few people see that as a reasonable risk today. So the total number of stores declines.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The real question is whether on-going bankruptcies, mergers and closings are just a sign of the country being overstored — the result of the construction booms of the 60s, 70s and 80s — or a reflection of a fundamental change in public sentiment. Or both. Clearly, there had to be a correction in the excess of stores - and malls that had lost their attraction as a place to hang out. Consolidation eliminated some of the excess, and presumably reduced overhead and management costs. Still, there are other factors at work. Are we truly facing a sea change in the jewelry business as we have known it? And if so, what are the implications? Here are just a few thoughts to consider:</span><br />
<ul style="text-align: left;">
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The jump in costs for precious materials drove many suppliers and retailers into alternative materials. In itself, a logical move. But lower prices on precious materials are very unlikely to return, and in the meantime the public has learned that it is perfectly OK to wear fine jewelry together with costume. “High/low”, I think it is called.</span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">For many retailers that means trading, say, a $1,000 sale for a $500 sale. Not great if you can’t also drive up volume and margin. In the mid-market that has been a particularly tough thing to accomplish.</span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Upscale retailers have benefitted from the rapid growth in the number of millionaires. One $100,000 sale equals a hundred $1,000 sales. Big dollar sales helps the overall growth of the market, in dollars, but creates an unhealthy imbalance in units. There is plenty of evidence, however, that the rich starting to hold back these days - Sales at guild jewelers have declined this year, even with an economy that is reportedly doing well.</span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Moreover, the rich consumers are now looking at countless new ways to spend money. Exotic cruises are booming. And middle class consumers are opting to join a few thousand people on huge liners, spending the kind of money jewelers would love to capture. Luxury cars, like Tesla, are pre-sold by the thousands before one is even manufactured. Wouldn’t jewelers love that kind of response!</span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The day of collectors in many categories is largely over. A magnificent piece of jewelry executed sometime in the past by a jeweler with great provenance (Tiffany, Cartier, Van Cleef, Webb, JAR, etc.) still readily sells at auction. But auctioneers say that even well-made pieces without a name are getting tougher to sell for much more than their scrap value. This issue is not unique to jewelry. “Brown” furniture (wooden antiques of all sorts) have lost much of their value. Art sales have shifted from fine artists of the distant past, to more recent edgy artists whose works may present much bigger opportunities for value accrual. </span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">There has been a rise in social activism on issues that impact our thinking, and especially the thinking of millennials and Gen-Z. They are pro-active on environmental issues, especially with the steady rise in media coverage of worsening weather conditions. This group is also carrying the burden of educational debt, which is approaching $2 trillion. They see value in "sharing" over "owning." They are clearly creating an altered retail reality that seeks authentic brands that satisfy a range of new social, economic and environmental standards.</span></li>
<li><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">There are systemic aspects to jewelry retailing that impede joining the digital world. Store environments are unfriendly simply because of the valuable nature of the products. This has always been off-putting to many people in the past, but is even more so in our times. You just can't easily make a jewelry store look and feel and work like an Apple store, no matter how hard you try. There isn't the traffic - how often I see jewelry stores that have not a single customer - and there isn't the excitement. How can there be when nobody in the jewelry business has the R&D or marketing budget that Apple possesses. We see the effect of these problems more clearly as time goes by.</span></li>
</ul>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I could add more, but all this suffices to point to the fundamental inability of most companies up and down the entire value chain to respond to a steadily evolving market condition. In many ways, it is not our fault directly. There has always been far more supply than there is demand in our industry, primarily due to the fact that barriers of entry are so low. Too many people think they have the magic formula for making a killing. But the end result, unfortunately, is that too few companies have the profit margins and the skills needed to build, test, and implement a new direction. And, they </span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">contribute to the erosion of margins across the whole market.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">It will be a painful period coming in which the industry will be right-sized in order to serve various communities profitably and satisfactorily. Who knows how long that will take. People do resist just giving up and finding other work. One thing is certain, as I have said before, is that people love jewelry, and will continue to buy. Who inherits that business, and what it take to climb the wall - that is the question. As this is a very varied and fragmented business, there will probably be a lot of good answers.</span></div>
Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com4tag:blogger.com,1999:blog-8038406348219751696.post-36406110323748653192019-08-21T14:06:00.000-04:002019-12-19T18:22:25.652-05:00The Future of Jewelry, Part 3: Climate Change.<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Last time, we wrote about the Millennials, and how we might need to plan for the social environment they might be building. Well, they and GenZ, the super-techies that follow hot on their heels, will be dealing full bore with that other environment, the Earth, that is about to throw another wrench into life as we know it.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">___________________________________</span></div>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Here is the list of issues we have been covering — we are up to number 3.</span><br />
<ol>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="font-size: 12pt;">Millennials</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><b><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></span></b></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></span></li>
<li style="color: #222222; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><span style="font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></span></li>
</ol>
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><b><br /></b>
<b>Climate Change. </b>The subject is the undercurrent for everything we do today. We do not know how to handle it personally, as it represents a huge looming threat to life as we know it, and that in itself leaves us feeling unmoored and anxious. There is international agreement that the threats may be existential. This is not a cyclic occurrence, unless we are dealing in eons. The solutions, if attainable, may well be epic in scale. It appears that there will not be any aspect of human activity and life that will not be impacted, no matter what actions the nations of the world take.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">As it is, recent United Nations reports already show nearly a billion people in the world dangerously exposed to water and food shortages. Unlike the "green revolution" that averted great famines in the last century, we are not possessed at present of powerful new approaches that will adequately avert these rising catastrophes. Many countries are having difficulty meeting the targets agreed to in the Paris Accords on environmental remediation, only demonstrating the magnitude of the issue. In the US, quite aside of the current administration's rejection of the accord, many states and cities have started their own programs on minimizing the effects of fires, droughts, storms and rising seas. At least that.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">We have already seen the passion with which young people have come out in public to demand vigorous action to protect their future. Is there any doubt that young people are fully aware of what the world is facing? Is there any question that their actions are tempered by this awesome undercurrent in their lives? No, certainly not. It is their thinking and outlook that we need to understand and react to.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I believe that one aspect of people's psychological reaction to the potential for severe environmental degradation is to go and see as much of it as possible before it disappears or becomes unaccessible. (Another might be to hide and look away.) So there is an increase in travel, including expensive visits to Antartica, Easter Island, the jungles of Indonesia and Amazonia - Eco-tours. Cruise travel is booming. Not that such travel is not seriously polluting! </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">One investigator recently calculated that the energy consumed by a single person flying round trip between London and Cape Town is enough to heat an average home for a year. We may be staggered by such factoids, but we are not modifying our behavior....yet. Will the time come when we have to, or will be forced to? Probably, but we do not know when, or how, or with what cumulative impact on our lives and our futures.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Still, it strikes one that people will spend many thousands on travel, but not consider that kind of expenditure for jewelry. Could that be a telling valuation of what jewelry might mean under this clouded outlook? We could make a similar comparison with other luxuries, and weigh whether it is the climate outlook that is a cause, or a simpler change in preferences, in views on categories, brands and images.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">We can look back a hundred years or so, to a time when possessions were a mark of wealth and success. In the intervening years we have found ways to expand that "privilege" to the greater public — thank you American Express for inventing the credit card. Enjoy today by mortgaging the future. Enjoy today, because tomorrow may never arrive. We are, after all, a country with an economy that is about 70% driven by consumerism. Wealth today is measured in money. Possessions may be a hinderance when one has to move. Welcome to the age of sharing and renting. Who needs to buy an evening dress when you can go to Rent the Runway, a booming business; or maybe Rent a Riviera? Some of that is already with us.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In itself, all of that is not bad if it indicates a strong economy that has allowed many people to enjoy the fruits of hard labor, and are serving a consuming public. We are witnessing that phenomenon in China over the last year especially, where average income has risen about twenty times (admittedly over a low base) in the last two decades or so, while US wages have barely gone up by 3%. The Chinese, in some ways have replicated the US boom in personal acquisition that we saw after WWII. They may not have the good fortune of having as long a run.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">By now, we are painfully discovering that our consumption of the Earth's output cannot go on much longer without paying a heavy price. If we are lucky, we will turn the need to preserve, conserve and recycle into the big new businesses of the future, where repairing the Earth will make us heroes. We can only hope.</span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">That presents the possibility that the jewelry business will return with a vengeance as people reward themselves for escaping extinction. Again, we can only hope. In the meantime, we do face a transition of unknown scale, as I noted, that will include restraints on the business we have known. </span><br />
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<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-size: 12pt;">In the short run, everyone will look to sustain the business we know. We will all try to adapt to changing realities while also trying to apply evolving technologies wherever possible. The availability of raw materials — most of which are mined — may be curtailed by governmental restraint, demographic changes, political upheaval, and the availability of resources such as fuel, food, and manufactured products. This may seem obvious, but even minor changes in each could combine to have serious effect on a particular business.</span><br />
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<span style="font-size: 12pt;">In sum, we are facing a threat we cannot fully comprehend. But that uncertainty is bound to have an effect on our thinking and spending.</span></span><br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com3tag:blogger.com,1999:blog-8038406348219751696.post-34321036693368473072019-07-23T15:00:00.001-04:002019-12-19T18:16:01.782-05:00The Future of Jewelry, Part 2: Millennials<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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. </span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">I restate the list issues covered in the series of posts:</span></div>
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<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">The Gig Economy</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-family: TimesNewRomanPS-BoldMT; font-size: 12pt; font-weight: bold;">Millennials</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Climate Change</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Consolidation and/or Decline</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Natural Diamonds vs Lab-Grown</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Banking</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Image </span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Demographics</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Retail Evolution</span></li>
<li style="color: #222222; font-family: "Times New Roman"; font-size: 12px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: "verdana"; font-size: 12pt;"></span><span style="-webkit-font-kerning: none; font-size: 12pt;">Industry Structure</span></li>
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<span style="-webkit-font-kerning: none; font-family: TimesNewRomanPS-BoldMT; font-size: 12pt; font-weight: bold;">Millennials.</span><span style="-webkit-font-kerning: none; font-size: 12pt;"> 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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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. </span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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?</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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).</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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. </span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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?</span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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. </span></div>
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<span style="-webkit-font-kerning: none; font-size: 12pt;">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.</span></div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com4tag:blogger.com,1999:blog-8038406348219751696.post-78083713763328526902019-07-12T18:39:00.003-04:002019-12-19T18:16:52.477-05:00The Future of Jewelry, Part 1: The Gig Economy<div dir="ltr" style="text-align: left;" trbidi="on">
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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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<li>The Gig Economy</li>
<li>Millennials</li>
<li>Climate change</li>
<li>Consolidation and/or decline</li>
<li>Natural diamonds vs lab grown</li>
<li>Banking</li>
<li>Image </li>
<li>Demographics</li>
<li>Retail evolution</li>
<li>Industry structure</li>
<li>etc, etc, etc...</li>
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* <b>The Gig economy</b>. 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.<br />
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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. <br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com2tag:blogger.com,1999:blog-8038406348219751696.post-4802709387117357492018-07-31T14:22:00.000-04:002018-08-13T10:26:06.150-04:00De Beers, Lightbox and the Impact on the Diamond Industry<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-kerning: none;">De Beers has announced the formation of a new company, Lightbox, that will be selling man-made diamonds (MMDs), mounted in earrings, pendants and bracelets - no rings.</span></div>
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<span style="font-kerning: none;">I will assume everyone has read the details, and heard their rationale for claiming that this move will have little or no impact in the natural diamond industry. Briefly, they will be selling MMDs in finished jewelry with total weights up to one carat, mounted in silver or gold, and with simple pricing - $800 per carat. There is no grading of the stones, which are white, yellow, blue or pink; the jewelry is meant for “moments” not “milestones” (like weddings).</span></div>
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<span style="font-kerning: none;">De Beers has arrived at <i>this</i> moment after a few decades of seeing their business transformed from a monopoly into a commercial venture facing all the pressures of a competitive market. </span></div>
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<span style="font-kerning: none;">At the turn of the century, Rio Tinto, with their major mine at Argyle in Western Australia, went their own way, sensing that they would do much better by selling directly to cutters, especially Indian companies, than by contracting to sell productions through De Beers. Then came the EU, forcing Russia to cease selling their productions through De Beers. Then Botswana started to take a larger and larger share of the profits in their major mines. De Beers, in what seemed like an appropriate response, liquidated most of their $5 billion stockpile, as its function as a market buffer was coming to an end.</span></div>
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<span style="font-kerning: none;">De Beers initiated or supported a variety of actions aimed at maintaining their market position. That included Supplier of Choice; CSR; the Kimberley Process; beacon programs; the co-venture with LVMH to open De Beers stores (now fully owned by De Beers); and developing a brand, Forevermark. Beneficiation became the new word in Africa, as De Beers was induced to yield more profits and control in Botswana, South Africa and Namibia. It would be fair to say that all these efforts, aimed at maintaining industry leadership, have met with mixed success.</span></div>
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<span style="font-kerning: none;">All of this occurred during a period in which diamond prices became more volatile and many mines began to approach end of life. Major productions of diamonds are in decline, not only for De Beers but for all producing nations, and it will continue that way in the future. Some mines have already closed, others will be closing almost annually.</span></div>
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<span style="font-kerning: none;">None of this was lost on anyone in the industry, and De Beers, having always planned well ahead, must have gone through continuing reevaluations of their position and what their future might be, or could be.</span></div>
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<span style="font-kerning: none;">De Beers had been very successful over many years in nurturing their sightholders, with three main objectives in mind, aside from maintaining their monopoly. See to it that sightholders made money, but not too much. Get diamonds downstream with the lowest possible intermediate markups, partially by generating competition between the sightholders. See to it that diamond supply stayed close to demand so that prices could rise, achieved most of the time by controlling stock levels and mine productions. And, of course, all that would work as long as De Beers was a monopoly.</span></div>
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<span style="font-kerning: none;">Now, all of that is essentially out the window. </span></div>
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<span style="font-kerning: none;">So the thinking had to turn to imagining the company’s business in the future. For one thing, very early on, start producing MMDs if mining did not have long term viability and profitability. GE and Sumitomo had already been doing it for decades, and supplying industrial grades would keep De Beers in that business. And, unlike GE and Sumitomo, De Beers would also have the additional objective of acquiring the skills to produce gem quality diamonds. Selling diamonds for $800 a carat is a lot better than $1 a carat for industrial bort. It must have been clear that the historical core business, mining gem quality diamonds, would hit a wall some day. That wall is now in view.</span></div>
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<span style="font-kerning: none;">This led De Beers into a new four-part structure: produce MMDs, own retail stores, develop an international brand, and manufacture jewelry. And, of course, work the mines as long as they remain viable.</span></div>
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<span style="font-kerning: none;">Those internal discussions must be continuing daily, as none of this comes easily. But the tilt is clear. The miners at De Beers are steadily being edged out by the marketers. What better evidence is there of the evolution from the old De Beers than the Oppenheimer family selling their interests and stepping away?</span></div>
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<span style="font-kerning: none;">The decision to develop Lightbox is, by far, the most momentous move the company has made since the creation of the cartel, one that many observers in the industry have long been expecting. De Beers has the skills in the Element Six division to mass produce gem quality MMDs. So here is how I guess the decision process might have gone in developing a 10-point program.</span></div>
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;"> OK, we have a decade or two to convert the business from mining naturals to producing MMDs and essentially becoming once again the major producer of “diamonds.” <br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">We have advanced the technology to the point where we have an edge, but if we wait too long, other producers will catch up.<br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">We need to protect our sightholders because they need to be there for at least another ten to 20 years. And we need to sell mine productions as fast as possible, and at the highest prices bearable.<br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">Some sightholders are already developing MMD capability, wholesalers and retailers are not hesitating selling MMDs, so that wave has started. We need to act to try and kill that kind of competition.<br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">We need to make a dramatic start, but in such a way as to damage the competition but keep our sightholders from screaming.<br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">This will not be easy. To minimize the damage, let’s keep the price points down; do no grading, as that is done only for “real” diamonds; do not make rings, as that is the big driver of the natural diamond business.<br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">We cannot say that Lightbox will impact sales of naturals, which of course it will. No, that’s no good. <br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">We cannot say that we do not know what impact it will have, because that will really drive the market nuts. No, that’s no good. <br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">Let’s conduct a survey on how this range of jewelry will sell. It should be fairly direct to show that we are addressing a big piece of the market, under $1,000 retail, with a sort of upgraded costume jewelry. State that this market sector that has been poorly serviced, and that the new lines will only act to enhance "real" jewelry sales. <br />
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<li style="-webkit-text-stroke-color: rgb(0, 0, 0); -webkit-text-stroke-width: initial; font-family: "Helvetica Neue"; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-kerning: none;">Moreover, to demonstrate that this is a “new” business, lets disintermediate our entire established distribution and go directly to the consumer (DTC).</span></li>
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This survey, which I have not seen, gave them what they wanted - an indication that the major impact will be on costume and Moissonite. Given a choice, will a consumer not pick MMDs over wannabe simulants like Moissonite or CZs? That’s an easy one. <span style="font-kerning: none;"></span></div>
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<span style="font-kerning: none;">The reality is that retail price points up to $1,000 are critical to all jewelry retailers. It represents the bulk of the traffic for all mass and mid-market retailers. The range is important for establishing relationships with consumers. This is not an underdeveloped range in the market, but a good deal of it has been taken over by silver, lower karat gold, and non-precious materials, especially with gold prices staying high. And diamonds have very much been in this range. So I do not buy the claims by De Beers based on their survey at all.</span></div>
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<span style="font-kerning: none;">So far, De Beers cannot be faulted in what they have done. This is straightforward business planning for a company that is feeling the obsolescence of its business model.</span></div>
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<span style="font-kerning: none;">The question remains, what else are they planning, and what will be the real impact on the industry?</span></div>
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<span style="font-kerning: none;">It seems very unlikely that De Beers would be taking this direction, plunging into a product that has been attacked by many diamond people, just to pursue this very limited range of fashion jewelry. That would leave them a <i>minor</i> player in the future diamond business. Also, spending about $100 million to build a new factory in Oregon could not be justified to sell “moments” jewelry. Nobody can reasonably think that is their short or long term objective.</span></div>
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<span style="font-kerning: none;">I have long thought of MMDs as the logical product to fill what will be a growing hole in the supply of diamonds as mines expire, the earnings gap grows, and a large, new middle class rises in Asia. We already see retailers hastening to add MMDs to their selections, a trend that will accelerate and force competitors to feel obligated to follow suit. The timing of such a trend really booming is hard to predict, but it is approaching quickly. If De Beers wants to position itself to be the key supplier when that trend matures, it cannot wait until it happens and then try to plunge into the market with MMDs. It needs to start now with this innocuous effort and work to establish its position well in advance. And clearly, it is willing to do so knowing that it will potentially create chaos and disrupt the natural diamond business. This is a calculated risk, but one that De Beers almost has to take if it will remain a major factor in the business over the long term. And long term is what De Beers has always focused on.</span></div>
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<span style="font-kerning: none;">No one should underestimate the effects that Lightbox will have. It is going to disrupt the natural business to a far greater degree than has already occurred. Lightbox has made MMDs a totally acceptable product. It will incentivize those already producing MMDs to ride this new coattail and to increase production and pursue technological advancement. It will force many retailers to seriously consider carrying MMDs from Lightbox, and undoubtedly from many other companies.</span></div>
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<span style="font-kerning: none;">It may also accelerate the decline in natural productions because MMDs, in the most popular sizes, will be of far better quality than naturals and available at far lower prices. Exploration and development of new diamond mines may slow considerably as companies will seek near assurance that the productions will have high value. Existing mines may become unprofitable, and some may alter their extraction processes in order to avoid the costs involved in producing low quality diamonds. The recycling of existing diamond stocks will boom further. Most importantly, there will be little reason for naturals and MMDs not to be mixed in the manufacture of popular jewelry, and be fully disclosed as such.</span></div>
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<span style="font-kerning: none;">There are many other aspects of this evolutionary and revolutionary moment that occur to me, perhaps a subject for future posts. To believe that De Beers will not expand the range of this line to include rings and more expensive products is foolish. The same is already true for many other manufacturers using MMDs - and De Beers will have to be there eventually if they are in fact going to be the big dog.</span></div>
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<span style="font-kerning: none;">The attempts by various institutions in the industry to fight the expansion of MMDs, even punish dealers who would dare to carry MMDs, is not only counterproductive, but will also guarantee that the disruption to come will be even more painful than it needs to be.</span></div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-21113166922371788502018-06-08T12:45:00.002-04:002018-06-14T22:27:57.279-04:00The New De Beers<div dir="ltr" style="text-align: left;" trbidi="on">
This past week we saw De Beers introduce Lightbox Jewelry, a full-bore, direct to consumer (DTC) retailer that will exclusively use man-made diamonds (MMDs) produced by their Element 6 division. The concept is neatly packaged to offer a basic selection of body jewelry at moderate prices. The DTC approach is intended to circumvent the entire traditional channels of distribution established by De Beers over the last century, in an effort to demonstrate that this is just a low-end, low-value product aimed at an under-served public. De Beers claims that it will only benefit its existing clients by demonstrating how much more valuable "real" diamonds are.<br />
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This move cam as no surprise at all to me.<br />
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There are many gaps and holes in this plan, and I will try to outline them in future blog posts.<br />
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To begin with, I posted three times in 2015 with my views on the subject. Here are the links to those blog posts, as it would save me time repeating the points I made back then!<br />
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http://janosconsultants.blogspot.com/2015/05/the-top-10-issues-for-2015-1-three.html<br />
http://janosconsultants.blogspot.com/2015/06/the-top-10-issues-for-2015-2-second-of.html<br />
http://janosconsultants.blogspot.com/2015/06/the-top-10-issues-for-2015-3-third-of.html<br />
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Though I did not say it directly, my contention at the time, when I noted that we were facing a "paradigm shift" in the very nature of the diamond business, was that it was inevitable, logical and unavoidable. De Beers, among all the diamond mining companies, was the only one with a developed marketing division, and an apparent wish to survive the end of large scale diamond mining. Rio Tinto, currently the third largest source, will step out of the business within 10 years. Alrosa, Botswana and Namibia are a bit further away from exhausting their resources. None of them apparently seek to have a position in the diamond business once their mines are played out.<br />
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In that regard, De Beers stands alone. At the better end of the diamond market, it has wholly owned stores under its name; a brand in Forevermark; an effort to capture diamonds being recycled; and now a first entry into the mass market with the only product that could replace declining supplies of natural diamonds with something that is close. No, Moissonite and CZs will not do. In sum, we could look at all of this as a three-pronged offensive aimed at becoming the dominant power, once again, in the diamond business.<br />
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Anyone who thinks that De Beers' objective in using MMDs starts and stops at fun body jewelry is, in my opinion, very mistaken. Barring disastrous geo-political catastrophes, the world's population will grow and will continue the expansion of newly affluent and rich publics. As demand for jewelry grows along with stronger demographics, the need for greater supplies of "diamonds", however we define them, will mean that well-established suppliers and manufacturers of MMDs and MMD jewelry will have the biggest market opportunities. De Beers wants to be number one in that situation, and if that requires expanding it selection into larger diamonds, even into engagement rings, it will do so in a timely manner - and with little hesitation.<br />
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De Beers is building for the future - its own future. We cannot blame them for that. It is the very nature of commerce. For those in the industry that still believe that De Beers should be protecting its traditional clients, I say it is time to realize that that position is untenable and completely unrealistic. Yes, De Beers will, of course, continue to do whatever it can to sustain the natural diamond business as it still has huge investments and interests to protect. DPA is a good example of that. And it will continue to seek the highest prices it can get, with sights or not, and at the fastest rate possible.<br />
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But this is a new day, one in which the legitimacy of MMDs as a viable product is here. However it turns out, the New De Beers will be, in time, very much unlike the old one. <br />
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I have many observations on the impact of Lightbox, and on the possible repercussions. I'll save those for next time, as there are too many to cover here. Feel free to contact me if you want to see early drafts.<br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com10tag:blogger.com,1999:blog-8038406348219751696.post-881261058605664342018-05-18T13:48:00.002-04:002018-05-20T10:47:46.215-04:00Fine Jewelry in 2018 - Suppliers in Transition<div dir="ltr" style="text-align: left;" trbidi="on">
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. <br />
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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:<br />
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<li>The number of retail operations is shrinking, and so are the number of outlets. That means fewer retailers as customers available.</li>
<li>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. </li>
<li>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.</li>
<li>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.</li>
<li>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. </li>
<li>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.</li>
<li>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.</li>
<li>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. </li>
<li>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.</li>
</ul>
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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.</div>
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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.</div>
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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. </div>
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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. </div>
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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. </div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com4tag:blogger.com,1999:blog-8038406348219751696.post-33880735584897140012018-03-15T17:07:00.001-04:002018-04-02T13:06:56.497-04:00Fine Jewelry in 2018 - In Trouble and Drifting<div dir="ltr" style="text-align: left;" trbidi="on">
This year has been, if anything, disorienting. We keep thinking that things should happen in the same way that they have happened in the past, even given the business cycles. But somehow, they have not, even though the US economy, and the low unemployment figures, keep telling us that things are all moving in the right direction. GDP is up, the stock market has hit record highs almost every day until recently, consumers are spending and credit card debt is rising (though that may not be that good!), and so forth. And yet, the diamond and jewelry business seems stuck in a rut.<br />
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If we are to develop progressive business policies, we need to look closely at market realities, especially those that we should accept as fundamental, not cyclical, trends. So here are some thoughts.<br />
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<ul style="text-align: left;">
<li><b>Retail as we have known it is rapidly disappearing. </b>We have lived through countless revolutions and evolutions in retailing over the last decades. This one is different in scale and impact. Large chains are closing stores at a rapid rate, and some are disappearing altogether. In jewelry, the pressure is across the board; independents are closing, chains are hitting walls, and global brands are no longer growing significantly. <br />We can blame it on the Internet, but that is too simple. Yes, we will probably see overall retail sales that shift even more heavily to Internet sites - some expect that sales via the Internet will go over 50% this season, though that may not be the case in jewelry. But many people search on line and then come into stores educated and price aware.<br />But it is more than that. All stores now compete with all stores. The Internet has allowed everyone to reach into everyone else's pocket. In total, we have far too much retail space (including cyberspace) for the business that is done, huge as that is. The pie slices are getting to be too small for many firms to survive. What we are seeing in the way of closings is an effort to scale back enough on brick and mortar stores to restore reasonable profitability. We just don't know how much cutting will be needed. It may be a lot more than we can imagine.<br /> </li>
<li><b>Retail formats have gone stale.</b> Closing unprofitable stores is an obvious thing. Sears keeps closing them but that does not seem to make a difference. They are not cutting fat, they are cutting muscle at this point, and we can probably guess that they will be gone relatively soon. The essential problem is that the format - big stores, very low service and assistance, and abysmal merchandising and stocking processes - is boring beyond belief. As everyone now knows, the store is not needed for the bulk of the merchandise. The public has gotten totally used to ordering on line and having it delivered. It isn't as if we need to go to a mall to pick it up. <br />Speaking of malls, what better indication of massive changes in retailing do we need to see than hundreds of malls failing or being converted to a wide range service establishments. It used to be accepted by some that consolidation brings the benefits of scale. Signet went on that track, absorbing dozens of smaller store chains over the years. But now Signet is planning many changes, including far greater emphasis on Internet sales, personnel changes, etc. Being the Big Gorilla, as we have seen elsewhere (e.g., the apparent total closing of all Toys-R-Us stores), may not be salvation, but more like a millstone. </li>
<li><b>Retailing will focus on four important skills. </b>Those would be service, speed, well-informed salesmanship and innovative customization. Retail will rely on sharply priced staples (think food, soap, apparel, stud earrings, etc) with a range of choices not possible in a brick and mortar store. And a seamless operation blending the Internet and physical stores. Store sizes will shrink, carrying selections that need personal involvement or produce high turnover. We will see chains close stores that overcrowd a market area, or are too large to fit these schemes. We already know that many retailers are ill-suited to convert to this new world, and, as in the past, whole ranges of them will disappear. <br />I think of department stores (again, they consolidated and now struggle), who have huge spaces that carry anything one might want. But turnover stinks, and merchandise imbalances are eating them up. The real estate is worth more than the business. <br />I was in an Orvis store here in New York, looking for a particular item that was in their catalog. Sorry, not in the store. Orvis sends catalogs frequently, sometimes a few a week. The selection in print is far greater than the store can carry, and I asked about that. I got a good response. The sales person opined that in the future in-store people will assist in making purchases by knowing a great deal more about the products, and their applicability to one's needs and desires. The store format will become smaller. He then went online for me and ordered the item I wanted, sent directly to me at home. These are not minor changes to how retail will work.<br />I also saw a column about a new movie theater in New York. Imagine that! But they show only older classics; they have actors, directors and producers come in to talk about the films they made. They have a library, a bar and restaurant, a place for people to sit and chat. I'm ready for that.</li>
<li><b>The question is - can we do something similar to that in jewelry?</b> That's a head scratcher. We can all quickly line up lots of issues that limit what we might be able to do. Negativity is easy. <br />I recently attended a panel discussion that included, besides the moderator, an estate buyer, a designer and a social media expert. Not one of them could articulate a cogent rationale for what they do, or what the future means to them. The estate dealer loves classic pieces with great provenance (he showed some and they were wonderful!). He believed strongly in buying pieces with proven longevity. Very sensible, I think. The designer also showed beautifully executed pieces (all high end, great for big events) but then went on to say that the future will contain far more non-precious materials than are used now. That suggests concern about price points, but that was not mentioned. The social media expert, essentially, said that Instagram is great, and it is so much fun to find and shoot wonderful jewelry.<br />So that session, for me, was a flop. This actually could have been an exciting occasion to dig hard, ask good questions, and make sure that the panelists prepared well. A Blue Sky moment. But, as I have seen so many times, people in the jewelry business are anchored in the past. We have lots of creativity in design. What we lack is creativity in business.</li>
</ul>
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Next time, some thoughts on the supply side.</div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com7tag:blogger.com,1999:blog-8038406348219751696.post-35692206093934967742017-09-12T16:47:00.004-04:002017-09-12T16:47:50.014-04:00All you need is Love<div dir="ltr" style="text-align: left;" trbidi="on">
It is fair to say that the last year or so has left us at a loss trying to understand where the business is headed. There are the obvious changes, which I have noted in the past - a steady stream of store closings, the continuing growth of on-line sales, and a real weakness in diamond prices. We know that some retailers are doing well, but many are struggling, trying to figure out just what to do to stimulate sales.<br />
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By now, nobody thinks we are simply going through a slow period, and sales will rise as the economy continues to grow, even though it is at a slow pace. <br />
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For starters, jewelry will continue to be an important expression of love, status, and achievement for many years to come. But is not alone in satisfying those psychic needs, and the competition is growing.<br />
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We read a great deal of commentary on what needs to be done, most of it focused on much better marketing, creating experiential environments, wooing millennials, and becoming far more innovative and creative in merchandising. I think that those thoughts are not new, but seem so because the tools for implementing all of that have changed and expanded so radically. These are, after all, the basic aspects for all successful retailing. <br />
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I think it takes a macro view to begin to grasp the size of this storm. For a change, a look at the forest instead of individual trees. <br />
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Society and economics are not just different from where we were a decade ago. It is profoundly changing and the old formats are dying, never to come back. We recall wholesalers, catalog showrooms, cataloguers (think Wards, and now Sears and Penney as they fade), discounters (too many to count), department stores (the entire format has collapsed into a few operations), and discounters (two or three now beyond Walmart and Target). And, of course, mall jewelers, who disappeared by the dozens. <br />
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Was this a healthy consolidation? Maybe for some retail categories, but in jewelry it resulted in a homogenization of most of the market, one that runs counter to the very heart of what jewelry is really all about. And that is wonderful, innovative variety and personalization.<br />
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How did this happen? And what does it say about where we are today?<br />
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Without going into an economic treatise (not my specialty anyway), here are some mile markers:<br />
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<ul style="text-align: left;">
<li>After World War II, the US owned the world. Not only was it the biggest economy, but the rest of the world was a shambles. Business boomed for us, and the middle class rose with a vengeance - something we believed would never end. A chicken in every pot, two cars in every garage.</li>
<li>With that came rapid development of infrastructure. The interstate highway system, air conditioning, and an acquisitive, newly moneyed public led to 25 years of rapid growth. Main Street yielded to the mall. Sleepy parts of the country boomed.</li>
<li>By the early 90s, it started to dawn on people that we were stalling, though the Y2K phenomenon masked what was happening. Wages stalled as the rest of the world fully rebuilt and began to compete with our domestic manufacturing. Big business built factories overseas, the only way they could compete in the world market, and that led to satisfying our domestic demands as well.</li>
<li>The American middle class started to collapse. Millions of jobs disappeared as automation and foreign manufacturing became the major solutions for lowering costs and raising productivity. (Jewelry is the best example for us. It only took a few years for American jewelry manufacturing to largely evaporate. Today, most American based manufacturing is at the high end, or in commoditized products.)</li>
<li>By 2006, the last of the malls was built in the US. Now, over 50% of those built during the boom are closed or converted to other uses. The only truly viable ones are the top luxury malls.</li>
<li>The US had way overdone retail expansion, but added to the woes was sharply increased competition fostered by the Internet and social media, student debt that went from practically nothing to a trillion dollars in barely a decade, and, maybe most damning, a public that has turned to disposable or shared products (e.g., costume jewelry and Uber), a sense that they own enough "stuff", and a realization that relationships and experiences are more important anyway.</li>
</ul>
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We are now at a moment in which the country's very spirit is being challenged. The two benchmark moments of our day are the near catastrophic collapse of the economy in 2008, which shocked and frightened all of us, and the election of Donald Trump. The economy has recovered, but it now seems a very good bet that growth will be slow and fragile. And the fears of many people that the future is shaky has led in part to Trump's election.</div>
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In all industries, and certainly in the jewelry business, companies are heavily invested in established modus operandi. They are fearful of restructuring and rethinking their businesses, and so many will sink. We are already seeing the devastation in retail, but it is occurring throughout the value chain.</div>
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Two hurricanes have just shown that we still react well and together when facing major disasters. The spirit of innovation and improving our lives is very much alive. But the middle class will never be what it was, wage gaps will get bigger, and the costs of renewal and modernization will be huge. Still, the transformation will occur whether we like it or not, and we could very well have a new boom in the US.</div>
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With such a New Age will come the need for people to seek reward, recognition and, as I started out saying, expressions of love. We will still be here, but the landscape will be very different.</div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com4tag:blogger.com,1999:blog-8038406348219751696.post-91830648871463126002017-06-21T11:21:00.000-04:002017-06-21T11:21:23.613-04:00Where is retail headed?<div dir="ltr" style="text-align: left;" trbidi="on">
Nobody knows for sure. Present trends show that retailers of all sorts are working hard to adapt to a marketplace that is shifting dramatically. Jewelry retailers are not exempt from this paradigm shift, but their issues are not quite the same as for other retailers, and that holds true for most of their suppliers. <br />
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Stated quickly, what are the specific issues confronting traditional jewelry retailers? <br />
<ul style="text-align: left;">
<li>The low end of the market continues to move steadily towards Internet retailers.</li>
<li>The low end of any store's business is the traffic builder, and important opportunities to build long term relationships.</li>
<li>The low end of the market, now significantly composed of non-precious materials, is appearing in many non-jewelry environments, further diluting the business.</li>
<li>The mid-market has been suffering for decades now, but will still serve a substantial part of the public. It is increasingly owned by larger chains, but faces daunting prospects due to buyer burnout, a very mature market, high priced materials, and effective promotion of alternative luxury products who have the scale to spend heavily on marketing.</li>
<li>People are now far less inclined to "own" and collect; regardless of age, they are far more into sharing, borrowing, experiencing; that leads the mid-market consumers to either step up (if they can!) into the upper market, or step down into the fashion area. Again, that is a trend we have all observed for years.</li>
<li>The top end of the market is alive and kicking. The rapid growth in the number or rich and super-rich households has produced extravagant luxuries and flamboyant products. Even so, the luxury market seems to be stalling. The rich will only buy so much.</li>
<li>Location means everything. It used to be that neighborhoods evolved and changed slowly and maintained their character. Now we read about a luxury boom on one street coming and going in barely five years. Jewelry retailers have a hard time reacting to demographic changes. Their brand and merchandising have distinct targets, and such changes can bankrupt the business quickly and easily. So move, change or die.</li>
<li>For all channels, not having an effective web site is now becoming a sure path to failure. Shoppers are checking the web before shopping, and checking it after shopping. </li>
</ul>
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OK, one can say that there is actually nothing new in all that, except that the pace and pressure keeps building, and that many of the traditional modes of selling jewelry are fading further and further. And we know that in many cases, retailers selling discretionary products have a hard time recasting their brand image. <br />
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Most impressive lately has been how major luxury brands (mostly in apparel) have closed hundreds of stores, maybe thousands by now. Some have shifted to Internet only sales. These are not easy moves, as each location involved high setup costs, so these closing essentially acknowledge that these chains do not view current conditions as temporary. We have entered a period of profound adjustment to new retail rules. Clearly, the country was, and still is, over-stored, a leftover in many cases from the period of exuberant mall construction and urban renewal.</div>
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Add to that the double-digit growth rate of Internet-based retailers. The Internet has, it seems, countless ways of seeking and reaching potential customers, and that means invading everybody's back yard. Think you have geographic exclusivity from a brand? Forget it. "Local" retailers are now nationwide, if not worldwide. That means that even in a time when there is a steady decline in the number of jewelry retailers, which we would assume benefits those still in business, we find that everyone is competing with everyone - more competition, not less.</div>
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It might not seem so, but I am not trying to be negative! I only point out what we all should be seeing, and dealing with. The jewelry business will not disappear. Nor will brick and mortar stores, which will continue to be the primary means for moving merchandise. There are a good number of retailers who have reacted to all these issues (and there are many more I did not list) and are doing well. Some are doing very well. </div>
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What is unfortunate is the loss we see in diversity and experience. When we see so many high quality independent jewelers closing, usually for perfectly good reasons, we lose some of the industry's reach into local communities, and we lose their years of knowing just how to merchandise and sell better jewelry. The reality is that starting and building that kind of store these days is really tough. </div>
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Can the industry find its way through all this without us ending up with a few mass market super chains, a few global brands, on-line and multi-channel retailers, and a handful of fortunate independents sitting in great locations? I sure hope there are ways to re-energize the creativity and personality of the business. A very good independent retailer recently complained that there is nowhere near enough creativity and fresh styling ideas. Too many companies rushing to copy whatever seems to be trending, hunkering down in this difficult time. We don't want boring, do we?</div>
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Central to a re-thinking of what we do should be an oft-repeated but poorly promoted aspect of jewelry. Buying jewelry, regardless of price or content, is always an emotional act. It inevitably involves a judgment on the part of the buyer about personal statement, psychic satisfaction, reward, a gift of love to another person, and pure pleasure. All of these aspects are far more important than the claim that a consumer "needs t try it on." That is a mechanical or technical aspect, the piece's fit and feel, that can contribute to all the aspects just noted, but isn't itself the driver of a sale. On-line retailers, for all their efficiency and reach, will be striving to take on that emotional element. We saw such an effort recently with one site that has a very attractive and knowledgable person walk through a decision making process with a potential buyer, all done face-to-face on Face Time. A good start, I think, towards bringing real diversity back into jewelry.</div>
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com7tag:blogger.com,1999:blog-8038406348219751696.post-42861918073693678872017-04-26T10:12:00.000-04:002017-04-26T16:43:01.644-04:00Protecting the Image of Diamonds<div dir="ltr" style="text-align: left;" trbidi="on">
Late last year there were two events in New York about the
diamond business. I'd call them bookends to the business, in that they
address two real concerns - the image of diamonds, and the growing presence of man-made diamonds (MMDs). <br />
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The
first was the presentation by DPA (Diamond Producers Association) on
the new advertising and promotional program for natural diamonds, "Rare
is Real." This was, finally, an attempt by the leading mining companies
to rebuild the natural diamond image in the minds of consumers. Two
ads were shown (you have probably seen them by now) and I liked them
both, if that means anything, while other people were very dubious. Both were appeals to the millennials,
with different approaches, though both skated around the classic themes of commitment and happiness. As I think further about it, both
reflect lifestyles that most Trump supporters, and even many Clinton
supporters, probably disapprove of. In introducing "real life" stories, filled with doubt and adventure, the DPA seems to be trying to equate real life with real diamonds. <br />
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One question here is whether the DPA at this point is deliberately not reaching for
Boomers and Trumpers, and plain old-fashioned thinkers. It seems so, though I was told a whole range of
ads have been prepared targeting other demographics. Another question is money. The DPA reportedly has put
in some $15 million, to get this rolling, but getting money from the
trade over an extended period is a real question. It will take a lot more than that to reinvigorate the image of diamonds, I'd say at least ten times as much. In the New America, I
suspect, people will be keeping their wallets closed. Money goes
further in these days of social networking, but will this new message
carry?<br />
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Here we are, months later, and I sense no impact from the DPA initiative. And when the subject is raised at various industry get-togethers, I see eyes glaze over. People involved in the program made a point of saying this is not a short term blast, and that it will take time, maybe a couple of years, before the effort is full-blown and showing results. OK, we are patient, and we will wait and see. But frankly, I can't seem get very energized by this program.<br />
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For one thing, the message is so subtle as to beg explanation. Rarity in diamonds starts at stones of a few carats. But jewelry is composed overwhelmingly of small stones, of which there is tonnage. Of course that factoid will not be publicized. So is the message that rarity is the important aspect, or that "real" is the important aspect? (I needn't add that an MMD of eight or ten carats is also rare, at least for now, and some say it is real.) I guess DPA is pitching both, not an easy chore. <br />
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I do not watch much TV, or dabble much in social media, but I have not seen anything from DPA so far. Nor have I heard of any retailers, wholesalers, manufacturers, diamond dealers, cutters or traders getting on the bandwagon and putting money into the program, though I imagine there are some. Could it be that everyone is already working on very thin margins, and image programs have no budget lines for them? Or is everyone taking a wait and see attitude?<br />
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Diamond producers fully understand the importance of protecting the diamond image, as does everyone else involved in the business, even those now expanding production of MMDs. Mines will still be producing for a decade or two, and anything resembling a decline in public interest will be damaging, if not destructive. We do need to remember that diamonds are still a huge draw, with spectacular prices still being paid for unusual stones and beautifully made jewelry. But, again, is "real" and "rare" the message, or is beauty, excitement, love and life events the message? Real and rare no doubt applies in the auctioning of multi-million dollar stones, but can the same motivation be applied in the local store?<br />
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The other "bookend" was a special session held in New York to discuss MMDs. The speakers concentrated on the dangers MMDs present, and the need for all parties to expend every effort possible to assure themselves that they are dealing only in natural stones. This was followed by presentations on a range of equipment that will make it possible to check all diamonds, loose or mounted for MMDs. An important sponsor of the event, Sterling Jewelers, has more recently offered to pre-check all diamonds to be used by their vendors. A good move, as it makes vendors responsible if any MMDs slip through.<br />
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I noted to an attendee here that the whole session is a tribute to the creativity, dedication and genius of the criminal mind! For all our efforts and pleas that everyone up and down the value chain should abide by best practices, the fact remains that the opportunities for fraud are everywhere. It's a game of whack-a-mole! Right at the session, some importers noted privately that the problem is out of control in Asia, and becoming almost laughingly so. One technology company told me that a simple test run at a few stores of an important retailer promptly turned up MMDs mixed in with naturals in low-priced jewelry. <br />
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So, yes, we have major retailers like Sterling and others that have the scale and dedication to strictly enforce proper protocols. But that does not account for the significant portion of the worldwide market.<br />
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We can all agree that the efforts being made by the major laboratories and marketers of diamond jewelry are important contributions to the maintenance of an ethical business. But what I had expected at the conference was an open discussion about the impact of MMDs on diamond retailing, and how to handle it, quite aside of detection. I wrote at length, in three blogs in May and June of 2015, about the potential impact of large scale introduction of MMDs in the market. The consequences, even if all of it is done above board, can be severe. So thorough presentations and discussions on the subject are the least that should be done. We see none of that, only attempts to suppress the use of MMDs, to keep them out of the bourses, and to claim that they are worthless. This is ostrichism of the worst sort. MMDs are a reality that will be a solid part of the jewelry business.<br />
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On balance, both these sessions were appropriate and worthwhile. But both fell far short of leading the industry into the future that is coming at us full speed.<br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com3tag:blogger.com,1999:blog-8038406348219751696.post-61997650687153548172017-04-11T14:07:00.000-04:002017-04-11T14:07:25.681-04:00Kimberley Process, aka Swiss Cheese<div dir="ltr" style="text-align: left;" trbidi="on">
A little dust up lately about the Kimberley Process. A noted market observer called it BS, and others responded by saying it has value. We have been hearing this give and take since the KP was instituted a couple of decades ago, so it comes as no surprise.<br />
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Does it have a future, and does it serve a purpose? Yes and no on both points. Perhaps it is time to look at it again.<br />
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The KP was developed with significant De Beers encouragement and participation when the "conflict/blood diamond" scare first came up. There was good reason to be concerned, as the association of diamonds with the financing of brutal human abuses and chaotic warfare in Africa. Conceptually, there was no argument about its objectives - stop or intercept conflict diamonds from reaching the markets. The carefully built image of diamonds could be destroyed if the public took on this association.<br />
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No intent here to be cynical, but the industry was looking to protect itself. Gem quality diamonds (or, at least, those diamonds that end up being used in jewelry) are a discretionary purchase, enough so to be called a whimsical purchase. Industrial applications, which have real life uses, can be satisfied with lab grown diamonds that have been around for 60-70 years. This is quite different from essential natural assets, such as oil, that have produced far worse abuses than diamonds, but the world shades its eyes in order to avoid that problem. But diamonds are an easy target, with some of its associations - cartel, luxury, ostentation, wealth, capitalism - working against it.<br />
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Right from the outset, it was clear that it is way too easy to get around the KP standards. Anyone having even passing knowledge in the acquisition and distribution of diamonds could see that the KP was more like Swiss cheese - full of holes. Some countries refused to sign on to KP, a condition that still exists today. Even among signors, there are cases of human abuse. Diamonds are passed across borders, and mixed into legitimate extractions. Illegal goods are transported to countries that issue KP certificates, and then export to other countries. Counterfeit certificates can be purchased in some places. A couple of years ago, I received a call from someone who would fly me into Sierra Leone on a private plane, arrange a purchase, then fly me back home. Some NGOs, badly frustrated, have bailed out of any involvement in the process. <br />
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Should we be surprised by all this? Of course not. Any time there is an opportunity to make big money by circumventing controls, there are people happy to do it. Just think of arms sales and African ivory as two of many examples. And in the diamond business, in addition to the KP issues, we have been dealing with lab grown diamonds being mixed into natural productions, something that has been going on since long before the conflict diamond issue came up.<br />
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Enough said. But how about the future? Due diligence is the newest thing, asking for proof of custody all the way from the mine to the store counter. OK, that can work, but my contention is that all that serves to make honest people even more "pure." We should not delude ourselves, however, into thinking this will solve the problem. <br />
<br />
It is, after all, an issue that, in the end of the chain, primarily confronts retailers and consumers. How diligent are they going to be, or <i>able to be, </i>in unequivocally verifying that a KP certificate or chain of custody is correct. Add that to getting total assurance that the grading certificate is accurate, or that no man-made diamonds are not mixed in. Frankly, I'm glad I do not have to face that issue.<br />
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Still, KP should not be abandoned. The industry must continue to do whatever it can to offer and provide a clean path, in spite of the fact that there are crooks out there. The least we can do is to make it as difficult as possible for them. Yes, in time, maybe not more than a decade or so, the issue will fade anyway as diamonds mining fades away. In the meantime, trudge on.<br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-35027144159919210072016-11-10T08:09:00.004-05:002016-11-10T08:09:41.834-05:00The New America!<div dir="ltr" style="text-align: left;" trbidi="on">
I'll say the obvious to start. This has been a disorienting, and at times ugly, presidential campaign. The outcome for almost everyone is a totally unexpected result. We now face months of uncertainty as we watch to see what Mr. Trump actually formulates as policy. He has a Congress that is fully Republican, so unknowable change is a certainty (is any change a certainty anymore?). And uncertainty of that kind is destructive to business. Or even to a sense of balance and normalcy in our daily lives.<br />
<br />
The election has taken some acknowledged problems in our country - notably the decline of the middle class, the deep-rooted disaffection with Washington, the widening income gap, and an angry working class that feels ignored and exploited - and made them the main direction of the country. In the process, business interests here and abroad are now at a loss of how to measure anything, as both political parties have been left in a shambles. Enough said.<br />
<br />
So, if anyone has been wondering why business has been so rocky over the last year or so, we could, erroneously in my opinion, simply attribute it to the bizarre primaries and election. I have presumed for a while that the changes in the nature of business are not temporary, but based on fundamental changes in the population and in our common priorities going forward. Despite the pledges we have heard from President-elect Trump, we are not bringing back high paying, high employment manufacturing jobs, and we are not going back to those halcyon days, if there ever were any. Nor is there any way of reversing the deepening chasm between the highly skilled and educated tech-oriented classes and the rest of the country. Jobs will continue to be extinguished by automation, not just here but all over the world, China included. <br />
<br />
What can we (possibly) say at this point about the jewelry business, which is like going from macro problems to micro problems. I'll take a shot at it, but please remember that we are only one day into the New America!<br />
<br />
- The commitments of marital engagement will continue, and might even increase. In a time of stress, two people being mutually supportive is a plus.<br />
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- The diamond business as a whole, and especially in non-bridal, will become tougher.<br />
<br />
- The public has been taught that costume is OK, that alternative materials are OK, that spending a lot less money to accessorize is OK. Unit sales may still not go up, but dollars and bottom line will go down. Retailer profits will be under increasing pressure. Suppliers will feel even more pressure.<br />
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- As a result, consolidation and business discontinuation will continue, especially among independents. Chains will reduce store count, and push the use of their web sites to drive customers to stores. That will be true at all levels of business, including the high-end luxury chains.<br />
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- Merchandising will narrow. SKU's will be cut. Retailers will further limit the number of vendors they use.<br />
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- Diamond prices may decline, and the legitimate use of MMDs (man-made diamonds) will accelerate. Gold may become more expensive if currency exchange rates become more volatile.<br />
<br />
- Christmas 2016 may just have been dealt a serious blow. Any economic prognostications for 2017 are out the window for now.<br />
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This may all sound like relatively mild changes, and it does presume that Donald Trump will temper his proposed actions. We hear reconciliation in the first speeches after the election, but the rancor runs deep, and we may see a level of governmental malfunction unseen in our history. The undoing of open world trade will be a disaster matching the Great Depression. Imagine for a moment the effect we will see from high tariffs on all the jewelry we import from Asia and elsewhere. Should such things actually happen, all bets are off. All our retail, not just jewelry, is mostly built on imports. The prospect is truly frightening. <br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com0tag:blogger.com,1999:blog-8038406348219751696.post-31827393016291888732016-08-31T21:28:00.001-04:002016-08-31T21:28:45.227-04:00Diamond Dreams and Diamond Daydreams<div dir="ltr" style="text-align: left;" trbidi="on">
Diamonds have been around for a long time, but it has only been in recent decades that the public's feelings about diamonds have become greatly enhanced. We have had, for example, Marilyn Monroe and Elizabeth Taylor to thank for raising our aspirations and encouraging women to become diamond lovers. We have had De Beers and Tiffany and Winston and Graff and Hollywood to help us along to diamond heaven.<br />
<br />
But now, it seems, our angels have mostly disappeared. Hollywood stars rarely buy diamonds - they mostly borrow them for the Oscars. I could not name a modern Taylor. De Beers gave up diamond promotions years ago, and now only spends money when tied to Forevermark. (Would anyone even suggest that Forevermark is a respectable replacement for Taylor?) Winston, now owned by Swatch, is not even a ghost of old Harry. Graff focuses on the 1/2%, not even on the 1%, so that's not much help for us there. Tiffany stands out among the global brands as a strong diamond merchant, but does not see itself as carrying the diamond torch. <br />
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For the last forty years, the middle class has slowly seen its buying power fade away as wages have stagnated while inflation slowly had its effect. In jewelry, the problem has been exacerbated by rising prices for diamonds, colored stones and precious metals. Unlike t-shirts, we can't just import a cheaper product from Bangladesh. Clearly, retailers of all stripes recognize all this as a long term problem, not one that we can see reverse anytime soon, and they are starting to close stores - or go out of business. We were, in any case, way over-stored, and the adjustment was past due. <br />
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In spite of all this, the diamond dream stays alive. The engagement ring still symbolizes love and commitment, something men willingly pay a high price for. It publicly acknowledges all that for everyone to see. It is unlikely, barring totally bizarre events, for that to change in the coming years. Yes, the technology to produce man-made diamonds could suddenly burgeon to the point where diamonds would become dirt cheap, but that possibility is, for now, as remote as the earth being hit by a massive meteorite. <br />
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That is not to say that we should go blithely on as if nothing has really changed. The Dream is not impervious to all downturns in the economy or the mindset of the public. I think it was Georgio Armani who once said, in a perfect pun, that his "brand hangs by a thread." One bad mistake and it is gone. De Beers did an historic job of creating the Diamond Dream, but that is not to say it can't be undone.<br />
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We are in the midst of a distinct decline in jewelry sales, including diamonds. And how has the trade reacted? With diamond daydreams. One blogger says that the industry needs to step up and spend the money to build (or rebuild) the diamond image. This is a pure fantasy. De Beers was able to do that when it was a true monopoly, but even they had to step back because the cost is prohibitive unless all sources are on board. That is not possible, not just because some major sources (Alrosa, Rio Tinto) will be reticent; not just because diamond prices are now too volatile; and not just because the major sources can already begin to count the years before their mines will become uneconomic. It is also because there are huge stocks held by the public that will be an ever growing, uncontrolled source of diamonds. It is also because profit margins for diamond cutters and dealers are razor thin, essentially making contributions to an image campaign a non-starter. It is also because no one wants to pitch in unless every one of the other thousands of diamond companies also pitch in. <br />
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Another daydream is that the development and marketing of man-made diamonds (MMD's) needs to be stopped or discredited. That's like opening Pandora's box, as it invites a counteraction that will point out all the well-known depredations and frauds that exist in the natural diamond business. Need I list them? Martin Rapaport wants MMD's stopped because it endangers the livelihood of diamond miners. That's a bit like saying that we should reverse all the technologies and robotics that have cost tens of millions of workers all over the world their jobs. Somehow, Rapaport thinks that the diamond business should be exempt from the forces of commerce, bad as many of them are. Child labor, as an important example, exists in too many places in Asia and Africa. We need to fight to stop the abuses, to level the playing field, but also to give all legitimate businesses a chance to flourish. <br />
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In the diamond and jewelry business, protecting the future will take an open and inclusive effort to coordinate the very diverse interests of large and small companies. Major financial institutions (like Morgan Stanley) are issuing reports warning of the dangers ahead in the diamond business. Important publications, like The New York Times, The Guardian, the Wall Street Journal and the New Yorker have covered the subject. They all sense a parameter shift, and think a major story is brewing. It is already the case that major banks will no longer finance the business. And if fair-weather friends are no longer with us, then maybe the weather is not so good.<br />
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It is incumbent on the broad-based industry organizations all over the world to set aside defending their fiefdoms and reorient the industry towards a workable future.</div>
Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com6tag:blogger.com,1999:blog-8038406348219751696.post-84994081296673461142016-03-28T13:53:00.000-04:002016-04-05T10:19:44.799-04:00Diamonds and Robots<div dir="ltr" style="text-align: left;" trbidi="on">
I have not written in a while, so please forgive that. I have been occupied with some real work, thankfully, and fitfully absorbed by a political process that is telling us there are some profound changes occurring in America. We are seeing the tip of the iceberg, but it is that mass below the waterline that is causing the real damage.<br />
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Rather than mention everyone's shoot-from-the-hip reactions to the race for the presidency, is there a way we can suss out what it means for the jewelry industry. How is this insanity we are watching related to our business, or even more generally, to the economy as a whole.<br />
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On the surface, the likely economic scenario is not that troubling. Regardless of who wins the election, Washington will no doubt continue to be a battleground that will preclude Congress causing real harm. Some people view a divided Washington as a benefit, even as the public is giving Congress historic low marks.<br />
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But that is not the underlying case. It is not considering the the danger out of view underwater. For all our voiced concerns about the income gap, terrorism, faltering economies all over the world, the state of our educational standards and infrastructure, we see the US economy continue to recover, albeit slowly, from the battering it took during the Great Recession. The President considers climate change our greatest challenge, one that might cause us, and the whole world, disruptions of immense proportions.<br />
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OK, I guess I should not try to be too down about the future. I am often surprised and impressed by the young. They show real awareness of the problems, and, at times, unbounded optimism that we will confront and overcome them all.<br />
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Well, getting back to our subject, what about jewelry. We already know that an important base of the business in the US is the middle class. Historically, that has been the support of the mass market jewelry business that blossomed in the mid-twentieth century. The substantial decline of the middle class, abetted by the economy's shift from manufacturing to services, has stalled the US jewelry business. For some 20 years or so, US jewelry business has stayed at about $30 billion a year, in spite of steadily rising material costs. So we sell fewer units, year by year, even as we struggle to create product at affordable prices.<br />
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Meanwhile, technology is advancing, and is now accelerating its impact on how we live. There are the obvious impacts. Swiss watch exports last year dropped by 8%, at the same time that Apple sold millions of Smart Watches. Jewelry design is increasingly computer designed and produced. Maybe good, maybe not. But how about robots? What impact will they have? <br />
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I recently watched Bill Gates being interviewed by Charlie Rose. Gates is a very thoughtful man, and we all know about his, and his wife Melinda's, remarkable devotion to solving human problems. The conversation turned to AI, artificial intelligence, and what that might mean to us. We already know that technology in all its manifestations has already wiped out many jobs. At every turn, we see where the interaction with people is no longer needed to get something done. Just think secretaries, assembly line workers, and meter maids, and countless other jobs.<br />
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Yes, we know those jobs are not coming back, and many more are fading away. Even China is automating, thereby creating unemployment is some industries. Rose asked Gates where does it go from here, as machines get smarter. Gates responded by saying that in the short term, maybe five to ten years at most, machines will be developed that are as smart as us in many ways. The range of jobs they will be able to assume will grow exponentially. <br />
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But beyond that, he said, in the next 40 to 100 years, machine will become three or four times smarter than us. He did not mean, I would think, in a creative sense, but rather in their ability to solve problems by cranking masses of data, by figuring out how to improve on processes and even redesign themselves. Think of IBM's Watson, which beats the world's best chess players and wins at Jeopardy, and extend that into every aspect of our lives. Self-driving cars, coming soon to your neighborhood, will eliminate cab drivers, will park themselves and come to your front door when you call them. Call your robot about dinner, and it will be ready when you get home in that car. You like that suit you just saw on TV? Robbie knows your exact measurements, suggests colors, fabrics and design tweaks, and you have it delivered in two days, maybe the next day.<br />
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But Gates in not sanguine about all this. He knows that every step forward in automation is a step away from needing people to get something done. When Rose asked him if it worries him, he said yes, that he is very concerned about automated production and massive unemployment. He says that the social upheavals are unimaginable. And he worries about who will control those machines. (Note: if you want to watch this interview go to https://www.youtube.com/watch?v=L52dgChT3uk. It a a version that was broadcast on Bloomberg, so ignore the market data. The part I refer to starts at about 26:50 minutes into to interview, though it is interesting to watch it all.)<br />
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I think we are already seeing the first signs, as reflected in a worried youth championing Bernie Sanders' call for universal health and free education, two basic needs that seem to be slipping out of our grasp. And we see it in Donald Trump's boastful, arrogant, bullying call to rip up political correctness. His supporters are losing hope, are sinking economically in a world composed more and more of have's and have-nots. The more they feel they have nothing to lose, the more revolutionary they will become, to everyone's peril.<br />
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So, to come back to my point, how will this affect our tiny piece of this huge economy, this huge problem? These are complex issues, requiring far more study and discussion than I have done, but here are my bullet points:<br />
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<ul style="text-align: left;">
<li>People already sense that they need to become savers (witness the decline in outstanding credit card debt).</li>
<li>The return of high paying jobs for the masses, say $25/hour or better, has no chance of occurring. It's a pipe dream, with politicians offering false hope to struggling people.</li>
<li>Robots, or robotics, will be the only way the US economy stays well ahead of most of the world. We may not like that it kills jobs, and we may even fear it, but it is coming fast.</li>
<li>Jewelry will not fade as a desirable product. How it is manufactured, what it is made of, and where it is sold will rapidly change. More robotics, more non-precious stones and metals, and far more multi-channel marketing - a mix of stores and Internet.</li>
<li>Engagement rings will remain a staple, for both married and unmarried couples. But jewelry will not live by the solitaire alone.</li>
<li>The number of retail stores in the country will continue to decline. But destination stores will become much bigger and stronger.</li>
<li>Customization will become king. Think fast design, 3-D printing, automated setting and finishing, fast service, and large service providers backing up retailers of all sorts - not just jewelers but many fashion oriented retailers, on-line and not.</li>
<li>Serving the rich and super-rich will be dominated by brands and global retailers who will essentially own the category. </li>
</ul>
I am sure that I underestimate the changes to come. <br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com6tag:blogger.com,1999:blog-8038406348219751696.post-12451799004711704242015-12-24T18:24:00.001-05:002015-12-25T00:32:28.412-05:00Diamond marketing - fantasy and self-delusion<div dir="ltr" style="text-align: left;" trbidi="on">
On this day before Christmas 2015, I am cogitating over the seeming mountains of flyers that have arrived in the mail, the paper kind, in the last few weeks. I do not recall it ever having been that intense, and I can only attribute it to a soft season that pushed so many retailers to offer big discounts so early in December, even in November. I recall that years ago, no discounts showed up until January. Long gone, those days.<br />
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In all of it, jewelry was almost entirely missing. Yes, I received flyers from Macy's that included jewelry, but they do that all year round. Signet had plenty of ads on TV for Jared and Kay Jewelers. And there were a few promos via e-mail. After that, zip, at least as I can recall. Worse yet, as I have noted before, the big fashion magazine issues were nearly devoid of jewelry. The apparel ads were great, but almost none showed a model wearing jewelry.<br />
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Oh yes, and Forevermark showed up in some magazines and newspapers with
full page ads. But those, as was the pattern in the past, did not
promote a particular retailer of even a new product. It was De Beers'
effort to do image advertising, as they said they would, using their
classic line, 'A Diamond is Forever.' More on that shortly.<br />
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Within the trade, by contrast, I read in many posts about how important it is for everyone to join an industry-wide diamond image building effort; how essential it is for diamonds to be front of mind among consumers; how we need to compete aggressively for the luxury dollar, etc, etc. Apparently not this year. At the same time, there is nearly endless hand-wringing, not unfounded, over a constant run of publicized abuses within the trade. Fake and doctored grading reports, continued mixing in of man-made diamonds with naturals, evading KP requirements, tax evasion, human abuse, environmental depredation, manipulated transfer prices, and straight out fraudulent business dealings, all seem to be daily occurrences. People are looking around, talking about how we can stop all of it (not easy at all), and wondering who they can comfortably do business with. Then add in that profits have become razor thin, or have disappeared.<br />
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So we are attacked from three sides. Poor marketing is being blamed for tough sales, which in turn means that competition has badly eroded profits, which in turn leaves everyone reluctant, or unable, to spend on image marketing. And hanging overhead is the prospect of the whole business getting a serious black eye.<br />
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All of these issues are addressable. What is lacking is an open and realistic discussion of conditions and what industry associations can and cannot do, and what individual companies can do, or are even capable of doing. There are complaints everywhere, with great descriptions of the problems. I am not privy to what is said privately, but I almost do not need to be. Publicly, the proposals I see are flat as pancakes, or latkes in this season.<br />
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But let's talk frankly about 'diamond marketing.' A real plan to promote diamonds in the leading markets would take hundreds of millions of dollars to execute. And it would have to be pressed all year long, and year in and year out. A flurry in the last month or so of the year is truly a waste of money. It will need a dedicated paid staff to run it, and first class brand building consultants to create the program.<br />
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The chances of this happening are nearly nil, at least in the way it is being pursued. Why? Because those with the money upstream, primarily the producers and the handful of large diamond companies are not unified in their objectives and never will be. The producers are already acknowledging that their futures are limited because their assets will be played out over the next decade or two. They are concentrating on maximizing profits and thinking about their next life, if there is one. The large diamond companies primarily deal with majors, and have to deal with extremely thin margins. Why would they contribute to marketing that benefits other channels? One cannot expect a good plan to be developed at that level. <br />
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As for the retailers, they already know what they have to do, and the good ones, the successful ones, do it well. They market to their targets, be it local, national or global; be it Graff or Tiffany or a local guild jeweler. They would have to be shown how a plan would benefit them, and that would mean actually putting the horse before the cart - somebody expending the time and effort to develop a plan that would be compelling enough for those people to join in.<br />
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As for jewelry manufacturers, designers, wholesalers, dealers, contractors, etc, we have handfuls again that are capable of it, and they would need to be convinced by a great program.<br />
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I have probably only stated here what everyone knows anyway. Maybe it's a waste of my time. But so are the calls to arms by various entities and people who then go home and essentially, I imagine, forget about it, because they do not take the time to think it through creatively.<br />
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So is there hope? I believe that leaning on the producers to lead the way and put up much of the money is the wrong way to go. A plan must come from those without an ax to grind, and that means the institutions that have (or should have) broad membership, even those that have seen declining membership. If all the bourses, retailer groups, diamond groups, manufacturing groups, got together - and there are lots of them - and put up the money to develop a plan, we would have a great starting point. It would, in total, cost each member of all those organizations a tiny amount of money, as this would be to see what kind of a plan could be developed. And even just to see if a reasonable one <i>could</i> be developed. It makes sense to spend very little, relatively speaking, to assess feasibility. Much better that then mindless, pointless, ineffective, shortsighted and short-lived advertising.<br />
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To close, a thought about Forevermark ads. When I saw them, my immediate thought was how out of date they were. (Never mind the video, which I found to be bizarre. These frantic people racing across some desolate rain-swept landscape, desperate, it seemed, to escape some tsunami or other disaster. All of it transformed into a dream diamond in a man's hand. Desperation leading to romance. Really?) When De Beers ran those successful product programs decades ago, which everyone coat-tailed, the format was effective. But now, with only a season's greeting from Forevermark included, and no call to action of any kind, it seems very out of tune with today's focus on offering people immediate means for action. Has ADIF seen its day? Perhaps, and it makes me a bit nostalgic. <br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com3tag:blogger.com,1999:blog-8038406348219751696.post-44930705567768855952015-09-18T17:50:00.000-04:002015-09-21T10:55:45.242-04:00Top 10 Issues for 2015 - #5. The New Consumer<div dir="ltr" style="text-align: left;" trbidi="on">
Well, the summer break is over, and we are facing a Fall season that does not seem to have much momentum. Last time, I wrote about retailers' issues, though there is much more one can say on that subject. Now, let's think about the consumers. Where are they? Who are they? And will they show up this season?<br />
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There is plenty of evidence that the public we have grown so accustomed to in the Consumer Age has evolved, or is evolving, into a very different public, one that has reset some values and taken a hard look what it takes to earn a dollar, and just how to spend that dollar.<br />
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Maybe the best way to begin to describe this transforming mindset of the public is to make a list of what we see.<br />
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<ol style="text-align: left;">
<li>Keeping up with the Jones's is dead. Acquisition for its own sake, and to show off what we own is no more, though personal satisfaction is still there. So that means that what you own means less than what you've done and where you've been. (I exclude the super-rich, who still buy 100-foot yachts.)</li>
<li>In turn, that means, for many affluent families, that experientialism is in, big time. Cruise ships are getting bigger and bigger (ugh!). Rafting on the Amazon River, climbing Mt. Kilimanjaro, and hiking the entire Appalachian Trail is in. </li>
<li>Casual dress is now universal. Gourmet restaurants have trouble getting men to wear jackets, never mind ties. Getting dressed up is now for weddings and opening night at the Metropolitan Opera. And, I should add, at weddings, where the diamond still plays a big role.</li>
<li>Casual attire translates into accessories being cheap and essentially disposable - or, at least, convertible. Rings and earrings can be hung on a neck chain. And necklaces can be worn as bracelets. A woman can use that when the outfit for the day is heels, tights and a t-shirt. The recent growth of the costume jewelry business, and a decline in what is being spent on the average jewelry purchase, bears this out. </li>
<li>That, naturally, translates into lower average tickets for retailers. Even with higher margins on lower-priced pieces, getting to an operating break even is harder than ever.</li>
<li>Only about 60% of working age Americans now have jobs, and many of those are either part time or well below historic hourly wages for many people. Moreover, average wages have actually declined in the last five years, adjusted for inflation, after stagnating for about 30 years. And, of course, among the working population many have had to move to lower paying jobs.</li>
<li>As has been going on for decades, the middle class (where the jewelry industry really lives) has been in steady decline. Either people have managed to climb up, or have seen their standard of living decline substantially, which is the predominant case. These are not free-spending buyers of luxury products. $15 minimum wages are a great idea, long past due, but those kinds of wages mean people can survive, not splurge.</li>
<li>This change is not necessarily the result of greed, or of ridiculously high executive salaries, in spite of the political issue that has become. It is the result of booming technology that has steadily extinguished jobs, and the need for people. Companies constantly look for ways to reduce "head count." Robotics is how the US will remain a high tech, low labor manufacturing society, while high tech startups hire handfuls of people as compared to assembly line factories. Expect this issue to only get bigger.</li>
<li>As for those people that have jobs, many have learned a bitter lesson living through the Great Recession, which still lurks about everywhere. They have seen families crushed by job losses, or experienced unemployment themselves. The financial and legal industries, two instances where people earned big wages in the past, have seen steep drops in employment. In both examples, technology and outsourcing have had a hand. What better sign is there of a basic restructuring of labor and productivity than the Fed's reluctance to raise interest rates in spite of years of economic stimulus? </li>
<li>If anything, those still earning good wages now consider money in the bank and avoiding debt as priorities. Jewelry or a weekend house in the country are further down the list. A fascinating study conducted by MasterCard, which has access to deep knowledge of how people spend money, revealed that spending habits have radically changed, even as banks continue to believe that consumers continue to shop as they have before. <br />This study, to give one example, showed that the number of credit cards carried by a consumer or family, has declined since the advent of the recession, from seven to four. Those four are typically a loyalty card (like a department store), a cash-back or points card, and a cash management card. Consumer debt has fallen a great deal as people have deleveraged, and now use cards to extend payments for short periods. MasterCard calls these buyers "Transactors" who manage their cash flow, rather than becoming long term borrowers. There are far fewer long term, high interest, maxed out cards. That is where banks really made their money in the past. The credit card business is about to undergo big changes and far more competition.<br />The public is thinking save first, then spend. So what might have been a $5,000 sale in jewelry some years ago, might now be $2,000. It would be foolish to think that these changes in consumer mindset are going to revert to what it used to be.</li>
<li>Millennials (and now the upcoming Gen Z!) are the customers of the future, and already have an important impact on our economy. But they carry a burden that was practically non-existent in the Boomer years, educational debt. It now comes to over $1 trillion. What the Millennials are learning is that paying interest can be managed, as persistent as it may be, but paying off principal is really tough. And even though most of the debt keeps being paid off, everyone - including friends and family - sees how a debt burden can hurt.</li>
<li>Finally, we have to add that the cost of materials needed for fine jewelry puts too much of it out of reach for too large a percentage of the public, hence the rise of costume or near-costume jewelry. This is educating the public that alternatives are OK, that we can accessorize perfectly well without breaking the bank. It will, in my opinion, lead to a greater shift to man-made materials in the coming years, as I wrote about earlier this year. </li>
</ol>
When we consider all these factors (and more) we inevitably come to the conclusion that we are undergoing a societal change that has begun to alter how the economy works. In jewelry we saw an explosive expansion during the Age of Acquisition, roughly from the early '60s to the mid-'80s. There was a rapid expansion of malls and strip centers, and the supply side expanded accordingly. That expansion halted and reversed starting a dozen years ago, and continues today. The US is a fully mature market and as retailing continues to evolve in response to the demographic changes just described, we will see new winners emerge at the same time that many traditional retail formats fade away.<br />
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As I have often said, jewelry isn't going away. The signature transaction, the engagement ring, is still there and strong, though it needs to be nurtured as more and more affordable "alternatives" rise.<br />
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This coming season, maybe next year's as well, will be pivotal for many people. <br />
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Ben Janowski, Janos Consultantshttp://www.blogger.com/profile/17303747263751240923noreply@blogger.com6