Independents
|
|
|
The Eight-Figure Independents: Luxury on hold
By Victoria Gomelsky
May 18, 2009
Back in the spring of 2008, when the world still felt flush with wealth, most luxury providers would have scoffed at the notion that they were witnessing the final moments of a lavish party that would become infamous for its recklessness and lack of oversight, not to mention its all-too-abrupt end.
On Sept. 15, however, Lehman Brothers filed for Chapter 11 bankruptcy protection--setting a record for the largest company ever to do so--and just like that, the festivities were over and the hangover began to set in.
In retrospect, it should have been obvious that the luxury market was headed for a tumble: plummeting real estate prices, pangs of distress from an overleveraged banking system and the near-collapse of Iceland's entire economy would have been the first clues. By the time news of Bernie Madoff's $50 billion Ponzi scheme came to light in December, it was just the final nail in a coffin that had already closed.
For this year's Eight-Figure Independents, an elite club of American jewelers doing $10 million or more in a single store (provided they don't own more than seven stores, with one or two exceptions), the post-9/15 realities are inescapable.
"I've been in this business for 30-plus years and have seen recessions, maybe four of them, and this is different," says Michael Pollak, chief executive officer of Hyde Park Jewelers in Denver. "Luxury customers have been impacted in a way we haven't seen in our careers."
Jim Rosenheim, CEO of Tiny Jewel Box in Washington, D.C., echoed his sentiments.
"I've seen ups and downs but certainly no downs as bad as this," Rosenheim says. "People have stopped buying. They're afraid; they're uncomfortable."
Even the brand-name titans of the luxury world are reeling. Harry Winston's fourth-quarter retail sales in the United States slipped by a jaw-dropping 60 percent to $18.8 million. By that yardstick, Tiffany and Co.'s 33 percent fourth-quarter decline seems almost commendable.
"What we're seeing this time is the exact reversal of what we've seen in the past: The higher-end you are, the worse your sales have been since the fourth quarter of last year," says Ken Gassman, president and founder of the Jewelry Industry Research Institute. "The old adage that the high-end jeweler did better in recession because wealthy customers continued to spend? That's out the window."
What makes the current downturn so profound for high-end jewelers is a consequence of the same troubles affecting the mass market--rising unemployment, vanishing profits, the specter of uncertainty clouding the economy--compounded by one significant caveat: The bigger they are, the harder they fall.
After almost a decade of meteoric growth fueled by the swelling ranks of the super-rich, many of whom earned their wealth on paper through soaring stock portfolios or sure-thing real estate investments, the high-end jewelry trade has been forced to confront a very inconvenient truth: The modern-day Gilded Age is over, and another one isn't expected anytime soon.
"Jewelers need to face the reality that the luxury market is never going to come back the way it was," says Pam Danziger, president of Unity Marketing, a Stevens, Pa.-based consulting firm specializing in consumer behavior. "If we look at what's gone on in the last five to 10 years, the affluent, the top 20 percent of U.S. households, with incomes starting at $100,000, were spending their perceived versus actual income. Now that their wealth has disappeared, they're back to reality."
In this brave new world, Danziger reckons that "if business isn't down 20 percent, they're doing pretty good."
Running a tighter ship
Eight-Figure Independent jewelers have responded to these calamitous conditions by putting the kibosh on all but the most necessary purchases and discontinuing lines that don't perform. They are restocking proven revenue drivers, but discretionary merchandise buying remains at a virtual standstill.
"You're not going to outsmart the American consumer," Pollak says. "You have to do a good job of managing your balance sheet, making sure you have liquidity in your business and maintaining your vendor relationships. I know some jewelers are so scared that even if they have money in the bank, they're not paying vendors. That's the dumbest thing you can do because when this thing is over, you're going to need those vendors."
The underlying assumption is that when the economy improves, those vendors will still be around. But many industry veterans are concerned that not all suppliers will withstand the liquidity crisis, and are convinced that some will buckle under the strain of balancing so many memo goods against so few paying customers. The concerns are particularly acute for companies with a predominantly U.S. business because they can't rely on overseas clients in less affected markets as a hedge.
"A healthy industry, from miners to manufacturers and retailers, is good for everyone," says John Green, president and CEO of Lux Bond and Green in West Hartford, Conn. "Understanding that many players on each and every level are facing serious credit and business issues and how it is ultimately affecting the marketplace from manufacturer to retailer to customer is very important in any long-range planning."
How will the Darwinian struggle to survive play out six or 12 months from now, when the weakest members of the industry invariably fall by the wayside? What contours will the jewelry landscape take on as a result? Although no one has the answers to these questions, it's clear that among Eight-Figure Independent jewelers, keeping vendors afloat necessarily comes second. First and foremost, they are focusing on their own bottom lines.
This was implicit at BaselWorld, where scores of American retailers who typically attended the fair went missing. Citing a need to control expenses, many of those interviewed by National Jeweler said that the upcoming shows in Las Vegas would be the only buying events they would attend this season, perhaps even this year. If, however, that implies that a buying frenzy of epic proportions will take place in the desert, it's important to note that going to a show and placing orders are two very different things.
"We have a store full of beautiful inventory and we don't need any more," says Robin Levinson, co-owner of Levinson Jewelers in Ft. Lauderdale, Fla. "We're going to go [to Las Vegas] and look for things that are totally unusual. I have a few companies earmarked because they have one-of-a-kind things."
"We'll have to invest in new product and design but in a more circumscribed kind of a way," Rosenheim of Tiny Jewel Box says. "We can't be as loosey goosey as we may have been in the past."
Under the new regime, every piece of merchandise counts, which is why many jewelers are striking trade agreements with vendors that allow them to return sluggish merchandise.
"We are buying with companies that have exchange programs to update merchandise that will sell," says Peter Ahee, president of Edmund T. Ahee Jewelers in Gross Pointe Woods, Mich. "In the short-term, it will help with sell-through and in the long-term, with viability."
Engagement rings and the economy
Bridal is one category that has, by all accounts, fulfilled its sales promise. According to Danziger, that's because "there's some perceived value."
"Our engagement ring sales have spiked," says David Lampert, president of Lester Lampert in Chicago. "Maybe as people choose to get engaged in these goofy times, they want to go where reputations are better."
Left unsaid is that stores like Lampert's are probably the only ones consumers trust to stick around.
While the bridal business is a lifeline for many jewelers at the moment, it's also a double-edged sword. Strong bridal sales tie up dollars that could otherwise be directed to other types of merchandise.
"Everything we're selling we have to order: the diamond, the mounting," Rosenheim says. "So you're not selling what you've already invested in and it becomes an issue of cash flow. There's not enough left over to buy."
A dearth of cash is one reason why fashion and watch lines are feeling the brunt of the recession on both the wholesale and retail levels. Patek Philippe and Rolex remain resilient, but the same can't be said of more "everyday" brands, nor of the fashion jewelry lines that have sprouted in recent years like mushrooms after a rain. Retailers not apt to mince words describe the two categories as unmitigated disasters.
Some Eight-Figure Independents are countering the declines by expanding their estate jewelry and gold-buying programs. And most are fielding more repairs. Lampert, for one, says custom design and remodeling orders seem to be "coming out of the woodwork."
In the end, many Eight-Figure jewelers concede that the continued health of their businesses depends less on the decisions they make today and more on those they made a year or two ago, when less prudent jewelers, drunk on the smell of fresh money pouring in from their nouveau riche clientele, simply threw all caution to the wind.
"To say we're not affected, you'd have to be living in la-la land," Helene Zadok, vice president of Zadok Jewelers in Houston, says. "But one blessing is that we chose to stay in one store in one location with all the overhead in one place."
For his part, Rosenheim is glad that Tiny Jewel Box bought much more cautiously last year and worked out some agreements with vendors.
"That's a million dollars I didn't spend," he says. "I was able to freshen merchandise by trading with vendors who were able to accommodate me. But I did it earlier in the year before things really turned [lousy]."
Millennial marketing
The amount Eight-Figure Independent jewelers are willing to spend on marketing in this economy has declined, of course, but not as drastically as you might expect. Like just about every other advertiser in the country, jewelry retailers are scaling back on their magazine advertising and are instead placing a greater emphasis on direct mail and the Web. Those who are continuing with a full suite of media are finding it easier to get better rates.
"We're not giving up on advertising by any means," Ahee says. "But we're negotiating very tough."
One successful tactic for boosting traffic and sales requires nothing but a brief investment of time.
"Those [retailers] who've done better than average, whether they're mass, luxury or uber-luxury, invariably telephoned their best customers and said, 'I have a necklace that's perfect for your wife. When can you come in and look at it?'" Gassman says. "They really had to be specific."
The same can be said of the handful of retailers actively exploiting the marketing possibilities of Web 2.0, where specificity often boils down to providing incredibly personal accounts of your life to a network of like-minded citizens.
Take the following "tweet," or microblog, posted through the social networking site Twitter, for example: "Taking wife 2 lunch, any good suggestions? (wwatchers) point friendly #eatlocal."
Posted by Daniel Gordon, president of Samuel Gordon Jewelers in Oklahoma City, the tweet is typical of his shout-outs, which communicate in 140 characters or less both the banal and unusual details of his day. For those not on Twitter (yet), Gordon, a Gen Xer, maintains an active blog and is a frequent Facebook updater.
"I'll put up a picture of a 10-carat diamond and people make tons of comments," he says of his activities on Facebook. "I'm not trying to sell it, I just want people to comment."
It's about being transparent, he adds.
"I'm branding myself under the Samuel Gordon umbrella so it becomes more of a personal connection," he says.
As of mid April, Gordon counted 1,248 Facebook friends and 787 Twitter followers. For a jeweler, that might well be a record. Although his peers have come around to believing in the importance and effectiveness of maintaining a good Web site, most of them consider the social networking phenomenon frivolous, adolescent and a waste of time.
"We're not going there, at least not today," Levinson says. "We're going to socialize and social network by face."
Regardless of how jewelers choose to market themselves, they acknowledge that a fair amount of their success will be determined by factors beyond their control. The stimulus package, the stock market, the strength of the U.S. dollar--the forces shaping the high-end jewelry business are as macro as they get, leaving little hope for a quick and easy fix.
Still, not everyone feels discouraged.
"The first week of April was the best first week of April we've had in our history," Rosenheim says. "We're starting to feel a change."
Rosenheim isn't alone in his optimism. As the months pass, the events of 2008 will recede even further from memory, until one day they're nothing more than anecdotes to enliven the historical narrative--which isn't to say the industry will go back to its old familiar ways. Conspicuous consumption may in fact be dead, but no one ever said a more discrete approach to the great American pastime has gone to the grave with it.
"I think luxury's temporarily become the poster child for over-indulgence," Pollak says. "But I think the American consumer, by nature, likes to consume; the American consumer, by nature, likes to make themselves feel good and the way they do that is by shopping. When we get through to the other side, they will do that. My feeling is that luxury is not dead--it's temporarily on hold."
Which jewelers made it to the Eight-Figure Independent list this year? To find out, download the 2009 report.
|
|
More Independents
Paso Robles, Calif.--Eleven percent of Jewelry Consumer Opinion Council (JCOC) panel members plan to purchase fine jewelry or watches as a gift this holiday season, with 82 percent of this group believing they are either somewhat or extremely likely to do so, according to the JCOC's Pre Holiday study. Read More
|
Small multi video player located on right rail of NJN site
|
Save
E-mail
Print
Most Popular
RSS
Reprints
