INDUSTRY IN FLUX

The entire trade has, by now, become keenly aware of the increasing pace of change in our industry, and your excellent article (“Where will consumers buy their jewelry in 1999?” May JCK, p. 188) addressed the subject well. A full exposition of the subject would consume a book, but a few points bear some additional comment.

To a significant degree, the average independent jeweler is beset with problems that do not necessarily come from head-to-head competition with the chains, such as:

• The independent has always relied on his personal contacts with his community. In today’s megalopolis it is very difficult to maintain that identity, or to transfer it to the next generation. Some retailers report that fully 25% of their customer base turns over each year, partly a reflection of our society’s mobility.

• The toughest competition often comes from other better-marketed product lines that seek discretionary income – electronics, travel, clothes, restaurants. However, even some retailers who are not particularly good at business technologies love to be opposite a chain. They feel they can shine by comparison.

• Price is an issue on high volume generics (i.e., machine-made chain), but less so in the most important category, bridal goods. Chains need higher markups to carry their management structures, so even if an independent can’t buy as well, he can often compete at retail.

• A big killer for independents is retirements. A competent, long-established retailer with millions in inventory, and no family that wants to take over, has to liquidate. Nobody will invest that kind of money to buy inventory, never mind a location or a name. These old-timers built their businesses in a much more benign environment, and we will not see those conditions in the foreseeable future. If ever.

You state that nobody can make a good margin. In the middle and lower- end market, the difference between making money or not rests on low overhead, but that should not be seen as the only factor. Wal-Mart’s growth comes from swamping small, undercapitalized retailers, but it also comes from opening up markets that were poorly served, a customer base that was never courted by jewelers, and the simple math of rapid expansion. But it too will reach a point where the excessive number of total outlets in the market will flatten growth and profits. Never mind the monumental inventory issues the company may face.

I would emphasize the “value chain” analysis as the key strategy for everyone. In its simplest form, it means understanding one’s strengths as compared to others, and then concentrating on the market segment that recognizes or wants those assets. These might include service, quality, assortment, price, uniqueness, convenience, image, personality, or symbiotic combinations of aspects of such assets. Such analysis requires a hard-nosed objectivity that might be painful to traditionalists. Some dearly held views and policies will fail such a test.

A strong point you make relates to inadequate training, a factor that causes continuing pain for some mall operators. That is the worst of combinations – a high cost location, with poor service or incompetent help. But I disagree with Willis Cowlishaw. There isn’t going to be more downsizing of the big chains, except for Zales and Sterling who have different problems. Most chains are expanding, and some, like Helzberg’s and Friedman’s (Savannah), are looking to double and triple their size in a few years. The objective is the same as in the past, dominating the mall market (or rather, the mall customer), but the formats will be different. Friedman’s is already heavily into power strips, and Helzberg’s is expanding its base of superstores (see ” The Future of the Mall Store,” JCK December 1992). Add strong vendor partnerships and a corporate-wide focus on retailing rather than verticalization into manufacturing.

Manufacturers, for their part, will continue to merge, or go out of business, at least those that service the middle market. The important role that foreign suppliers will play is still evolving. They will have to be able to meet the capacity demands of the big chains, and that requires a combination of capacity and capital. Consolidation will intensify at every level serving the middle market.

When it comes to the high end, I am not as sanguine as you about the future for these retailers. While this is a good niche, it’s expensive. It still requires a healthy critical mass of business before these operations become profitable. A good number of these operations do spectacular sales volumes. Still, the recession put them into a very tight cash bind with a relatively modest decline in sales. Suppliers can relate many stories about collection problems over the last few years, and most of these problems have their roots in the core cost of operating these types of stores.

That isn’t to say that there aren’t going to be some eminent successes. But think of the number of high-end retailers and manufacturers that have closed in the last few years, and the quality manufacturers say that this end of the business has been really tough to grow.

Part of the problem is the dual effect of a mature market and an economy that is not growing across-the-board. Another, more insidious factor eroding jewelers’ business is the steady growth of alternate shopping channels for the high-end consumer. You touched on the “private” or upstairs market. Ask many retailers for their opinion about “privates” and they probably would admit that this competition makes some key products, especially large diamonds, a very tough sell for them.

In a market where “diamond wholesalers” are becoming ubiquitous, and where many consumers have become acquainted with the “Rap sheet,” margins on these goods have shrunk considerably. A recent visitor to one such operation found a well laid out office, with half a dozen rooms where loose diamonds are sold, mostly to young couples. This office sells more stones over a carat in a month then most jewelers sell in six. The jeweler is on the horns of a dilemma – damage his image or damage his profits. If he doesn’t meet the lower prices, the consumer will begin to view him as overpriced in other products. If he does meet the price, as many feel they must, then the contribution to bottom line is adversely affected.

The point is that there’s a good chance that we are going to see other retail formats that will seek to sell the big tickets, and on a lower cost base.

What are some prospects? You hit on some – TV shopping, catalogs, direct selling, manufacturers getting into retailing, outlet stores and computer shopping. It may actually be the hybrids that will prove most interesting. A case in point is a small-town, mid-sized mall jeweler. This company has digitized its stocks and has computers in its stores which permit styles to be “remerchandised” right in front of the customer. The system can be accessed by customers from home on their own computers. The chain has targeted the major diamond dealers in its area as the competition to beat, and is doing it with lower prices, non-mall locations and new technologies.

In another innovation, Ross-Simon has its catalog on a CD called Shopping2000 that is being distributed to homes. On the same CD are 40 other “catalogs” with some well-known brands. A user can browse and order merchandise, with great ease, from major stores regardless of where in the country they are located.

A point about manufacturer and retailer crossovers. A common view is that each will increasingly encroach on the other’s turf. This has happened in the past – lease operators in department stores came out of manufacturing backgrounds, and what better example of retailer cum manufacturer than Zale. Recently, Jan Bell became a retailer, taking over full responsibility for operating jewelry departments in Sam’s Wholesale Clubs. The relationship between retailers and suppliers resembles a web more than a vertical structure, and there is little reason to think that this will change in the midst of the present surge in all industries to delayer and decentralize.

If we can be assured of anything, it’s that we are in for much experimentation. The result will not be jewelers’ operations as we know them today.

Ben Janowski Janos Consultants New York, N.Y.

TIME FOR ACTION

I was amused recently to see that Jewelers of America is launching a new “image campaign” to alert the public to the professionalism of its members.

For a number of years, I have tried to go through the proper channels with regard to JA members who continually deep discount or advertise “wholesale to the public.” Finally I said, “Enough is enough,” and advised Alan Leopold at JA that due to JA’s weak response to my complaints, our store would not, and did not, renew our membership for 1995. It seemed so hypocritical to me that JA would launch a “truth in pricing” campaign when it wasn’t really interested in policing its own membership.

I would suggest that JA look at healing itself and kicking out the bad apples; there are quite a few. Mabe then it wouldn’t have to waste money on an “image campaign.”

Gary Youngblood Ames Silversmithing Inc. Ames, Iowa

VIDEO SEMINARS?

Ours is a small manufacturing jewelry company. For education purposes, our company would benefit greatly from videotapes of topics presented at the JCK Show in Las Vegas. We’ve been told, however, that as of yet no plans have been made to tape the sessions.

We are writing to suggest the idea to you. Our company is more than willing to pay for the tapes. Possibly this could be an added selling feature for the show, as there are probably lots of companies that would want videos or audios.

Please consider this idea for the June 1995 show or for future shows. Many thanks for all you can do.

H. Robert Sandler Desginer Jewels Inc. Houston, Tex.

We have received a number of similar requests but technical problems of creating videos of the various presentations make the project so costly that the price of the tapes would be unreasonably high. – The editors.

A WORD OF SUPPORT

I read with interest the letter from Daniel D. Herman of Jabel Inc. (December 1994 JCK, page 26), since I am familiar with the jeweler referred to in the lawsuit.

I have had many professional and personal interactions with the referenced individual and have found him to be one of the most ethical businessman I have ever had the pleasure of doing business.

Without arguing the relative merits of the case, suffice to say that the jeweler in question continues to enjoy unprecedented growth and the respect of his peers.

I hope this offers a different perspective on the issue.

Joseph S. Romano President & CEO Scull and Company Inc. Union City, N.J.