I am reluctant to be too topical because it takes about two months before this column gets printed. But there is little doubt that 2009 will be a tough year for everyone, even with the extraordinary efforts our new president will muster to avert economic and social disaster.
We know the government will throw money at everything in an effort to pull the country out of this nosedive. We don’t know if it will work.
We know the drop in sales affected everyone, even big global jewelry brands. They went on an expansion kick over the last years and suddenly see a smaller pie to share. We don’t know how long it will take before there’s a real recovery and whether the world will look remotely as it did even a year ago.
We know a modest drop in sales can produce a huge drop in net profits. We don’t know how many companies will fail as a result and how much damage it will cause our industry.
In such a time, each of us will seek to develop personal and economic solutions that will sustain us past the worst. We are ill-equipped to deal with the macro effects but there are things we know and things we don’t.
Most prominently, we know credit will be hard to come by. Trillions of dollars have been wiped out by declining home values, bad credit card accounts, and steep declines in portfolio values. Banks are reluctant to lend to companies and individuals without stiff requirements for collateral, even under government prodding and planned guarantees. We have just emerged from an extended period of self-indulgent excesses that saw zero or negative savings rates.
We don’t know how deep the problem is or how the public will react to this huge psychic shock, which has sunk consumer confidence to record lows. The consumer accounts for nearly 70 percent of GDP and a substantial percentage of global consumption. In the critical Christmas shopping period, the public held off spending on almost all non-essentials and across all income brackets.
A pre-election poll conducted by JCK showed that a majority of retailers favored John McCain. One manufacturer I spoke to said he had favored McCain because of his promise not to raise capital gains taxes. He added that those taxpayers “are his customers.” I can see that, but isn’t that focus also missing the point? We often hear about trickle-down economics—that prosperity at the top trickles down to the masses. But we have not seen that. The middle- and lower-income populations have fallen further behind just as the top tier has experienced a rapid rise in wealth. I think it works the other way—as the masses prosper, the rich do well. It’s a trickle-up economy. High-end jewelry buyers, regardless of profession, make their fortunes because everyone else is able to spend. The rich are beginning to realize this, which may account for their cutting back on luxury spending.
Perhaps government restraints on rampant corporate greed, exploitation, and the public’s cupidity might have helped—and may still help in the years to come—but mostly we are all, as a nation, responsible for where we are.
What can we do to move the needle?
De Beers recently moved to pump up year-end advertising that suggests the lasting value of diamonds and the buying of fewer but more important things. Whether that has significant impact or not, it does show their awareness of the problem and the desire to drive thinned-out discretionary spending toward diamonds.
While nobody else has that kind of budget, we do know that jewelry has been a favored purchase, even in the worst of times. I have heard anecdotes about that for many years. Even workers at the most menial jobs, we often see, wear jewelry.
We need to be particularly sensitive to these aspirational emotions in the coming months. Some large retailers have gone back to old techniques, like layaway, which is particularly valid these days. However you do it, help people buy what they can afford, and in a way that’s dignified and respects their motivation for buying from you, even if they’ve taken a financial hit.