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Be prepared for the economic upturn
By Jan Brassem
May 11, 2009
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| Jan Brassem is managing director of Brassem Global Consulting, a global sourcing and mergers and acquisitions firm. |
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I was probably sleeping during my college macroeconomics class. How else is it possible that I never heard of the Laffer curve, John Maynard Keynes or even supply-side economics? But wait! When I heard these words for the first time a few weeks ago, I felt like sleeping too.
It seems to me that economists, no matter how sophisticated or how flawed, can affect the future of the jewelry industry--and maybe the entire country. After all, economists, by Mark Twain's definition, are the same folks who forecasted nine out of the last five recessions.
One thing is sure: Very few of the billions of dollars (or is it trillions?) that are part of the White House stimulus package, bank/auto/mortgage bailout program, federal budget proposal and who knows what else (jointly called "Spendapalooza") will trickle down to jewelers.
As Gene Marks, a business author who owns business consultancy firm Marks Group, wrote recently in BusinessWeek, the tax cuts for individuals, estimated at about $500 per person, won't do much.
"Like the rebate checks mailed out earlier in 2008, an extra ten bucks a week in people's pockets isn't going to have much of an impact on our businesses," he wrote.
Calling the tax incentives "Band-Aids," Marks goes on to write that "Letting [businesses] 'carry back' losses five years instead of two is nice for those of us who had losses. But here's a shock: Many of us don't lose money."
That's true for jewelers too. So, as far as the jeweler is concerned, when the Spendapalooza is all said and done, there will be more said than done.
Let's look at a bigger picture. All the legislation coming out of Washington is not as critical to the jeweler as some might think. Jewelers are not going crazy about the stock market, and they're smart enough to understand that Microsoft, even with a 5,000-employee layoff last month, still earned a cool $4 billion last quarter. Jewelers understand the drive-by media's drivel and know where to find accurate reporting.
As Marks aptly observes, businesses will figure out how to adapt and make money again, "no matter what the government does."
Now is a good time for jewelers to start thinking about the future--how to recover from this depressing recession as quickly as possible and how to adapt to the changes that are sure to alter the economic landscape. Jewelers are well aware that as some things get better, other things get worse.
To come up with a forecast of sorts, I surveyed university professors (I lecture at a leading university), read business school monographs (Indiana University's John Pearce and Steven Michael's paper, "Strategies to prevent economic recessions from causing business failure" is a must-read) and plowed through government forecasts. Adding to this research is my experience in running a jewelry firm during the "Carter-Reagan recession." Here are four basic conclusions:
--Inflation will re-emerge: With all the money the government is spending (or perhaps flooding) on the economy, it is only a matter of time before inflation appears. I assume the White House will start worrying about that when it arrives--probably in early 2010.
--Watch for the upturn: No one has any definitive idea of when the recession will end, but it is possible to detect early signs that the tide might already be changing. Smart jewelers position themselves to come out of the downturn with "guns blazing." With all the downsizing and cutbacks, it will take jewelers four to six months to return to business as usual.
Here are a few "anticipation" clues to watch for:
--An increase in the number of job ads in the classified section of your local newspaper.
--Improvement in the Dow Jones Industrial Average and the S and P 500 index. (The stock market usually anticipates an upturn by three to six months.)
--A business travel increase.
--A rise in overtime pay to hourly workers.
Before these signs surface, make sure your marketing channels are healthy. When my company emerged from the Carter-Reagan recession, several of our important distribution channels had disappeared. For any number of reasons, catalog showrooms and jewelry distributors, for instance, were no longer viable. We hadn't anticipated that change.
Today, and to no one's surprise, at least one--maybe more--sales channels are stronger than ever. Others might be emerging.
The 2,000-pound gorilla--the Internet--seems to be flourishing and expanding. Marketing your store through a Web site, blogs and the like is necessary.
Other tips:
--Mind your product price points: The price of gold seems to be hovering around the $1,000-per-ounce mark. Some hedge fund managers predict a $1,500 per ounce or higher price, since gold is considered a perfect hedge against inflation. No one has a handle on the stability of diamond prices.
If the price of gold goes up, or stays at around $1,000, jewelers will have to take a hard look at keeping the price of their rings and pendants appealing. Consumers are not about to purchase expensive styles during this recession--not to mention the current trend against conspicuous consumption. I am assuming the same in the next two years when the gold price, which is linked to inflation, escalates.
What are some solutions?
--Find lower cost, perhaps foreign, sources of supply.
--Diversify product categories. There has been a recent growth in demand for silver jewelry and watches.
--Lower your margins (this, though, is a weak solution).
What will happen when the economic downturn is over?
--When the Carter-Reagan recession thankfully ended in 1982, the jewelry industry had changed. Well-known firms had disappeared while others had become household names. The industry "shakeout" had ended.
--Eight uninterrupted years of vibrant growth and prosperity followed. Be ready.
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