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Can U.S. Jewelry Manufacturers Survive?

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By William George Shuster, Senior Editor
This story appears in the February 2009 issue of JCK magazine
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Since 2000, it has shrunk from 4,065 companies to 3,290 at the end of 2007, says Jewelers Board of Trade. The average finished-jewelry manufacturer employs fewer than 50 workers, does $5 million to $8 million annually, and is confronting a serious recession, foreign competition, fewer skilled workers, and fewer purchases by jewelers. Meanwhile, new technology, tighter credit, and loss of support services traditionally provided by trade groups are changing how jewelers do business with manufacturers.

JCK brought together several leaders of the U.S. jewelry trade for their insights and opinions. This month, they tackle why—and how—the U.S.-based industry is shrinking, what that means for jewelers, the impact of the Internet, and whether the U.S. manufacturing industry will disappear. Senior editor William George Shuster moderated.

The industry has lost companies since 2000. What increases, decreases, or geographic shifts do you expect in the next three years?

Dan Kirchner: We’re in the middle of a serious transformation of the U.S.-based jewelry manufacturing industry. The number of manufacturers has been dropping, as have people employed by remaining ones. With this challenging retail environment and tight credit markets, I expect this will continue.

Curtis Ley: It will keep getting smaller, given our economic situation. More companies are being bought, because they can’t afford to continue. There’ll be more consolidations and combinations in strategic alliances driven by economic considerations, not strategic ones. As for geographic shifts, most have already occurred. There was a shift of manufacturers to overseas, starting in the ’80s. Precious-metal jewelry and gem-accented manufacturing are now concentrated in New York City. What’s left of the industry in New England is strong, but mainly commodity businesses. And 20 to 30 percent of U.S. jewelry manufacturers are now on the West Coast, mainly Los Angeles, though the jewelry business remains driven by New York City, in style and quality.

Frank W. Fiasconaro: The dollar’s weakness in recent years did nothing to bolster export business. Now that it’s strengthening, more manufacturing will go overseas, due to the competitive nature of our industry.

Bruce Pucciarello: This is an economy of change, and American jewelry manufacturers will significantly lessen. Those left will be vastly improved and in excellent shape to rebuild in a bottomed-out retail market. Smart ones will find ways to compete against imports.

Torry Hoover: Unfortunately, the industry has been greatly affected by off-shoring, because jewelry is usually made in lower volumes than most products, making it difficult to automate and perfect for overseas lower-cost labor. So, jewelry manufacturing, for the most part, is gone from the United States for good.

Matt Stuller: Without question, jewelry manufacturing in the United States since 2000 has been decimated by chasing cheap labor overseas, but I believe now we’re seeing a reverse of outsourcing.

What do you mean?

Stuller: Manufacturing is slowly returning here. With increased demand for unique alloys, colors, and karats, and quick delivery, more manufacturers are bringing back some manufacturing to meet customers’ needs.

Mel Anda: Many jewelry manufacturers who left the United States—especially in bridal but others, too—will definitely try to come back and do business. I would guess 70 percent went offshore, and 50 to 60 percent of those will return. If they can’t completely leave there, for whatever reason, they’ll put another factory here to service U.S. customers quickly. Mom-and-pop jewelers can’t order just one or two rings or get quick service from U.S. companies in China, who want big orders. You must be here to service U.S. customers.

Pat Javaheri: U.S.-based manufacturers went down very fast, mostly due to offshore manufacturers and economic factors here. But some issues overseas will, hopefully, bring back U.S. manufacturing. Rising costs and new laws there are changing very fast, so people are looking to produce here rather than offshore.

Ley: Outsourcing drove manufacturers in past years, especially finished goods manufacturers, but now I expect a lot will come back. There’s disenchantment with China because of lead and kids’ jewelry, lack of access to their market, the quality issue, and difficult relationships with some Chinese partner-manufacturers.

Do you think U.S.-based jewelry manufacturing will eventually disappear? If not, where do you see growth?

Phyllis Bergman: I see larger U.S.-based jewelry manufacturers disappearing, but there will always be a market for young designers, special-order manufacturing, and niche players.

Matt Runci: We see growth in the rise of smaller, custom manufacturing and designer jewelry operations, as consumers seek unique product and retailers differentiate themselves.

Stuller: Though difficult now, we’ll see more U.S.-based jewelry manufacturers in years ahead. They’ll be smaller, more agile, and meet the needs of a smaller number of retailers. I also believe consumers will purchase from U.S. manufacturers if given a choice. So, we must work together. It’s up to retailers to support domestic manufacturers, or be completely dependent on overseas suppliers.

Kirchner: I don’t see the jewelry industry as a growth industry for at least three years. Companies that weather the economic storm will emerge stronger, but we may lose a number of companies among manufacturers and retailers that served our industry well.

Anda: Bridal jewelry production will never disappear here, because everyone needs it. It’s 80 percent of jewelry store business. Companies that grow will be those giving great service to customers.

Ley: Domestic finished jewelry manufacturers are diminishing in number, due to consolidation and outsourcing. That will continue. But will the industry disappear? No, I don’t think so. We’ve always had small entrepreneurs; they won’t die away. But we’re changing, and perhaps moving away from big brick-and-mortar manufacturers who mass produce to smaller ones who design and make limited numbers of jewelry product.

What part of domestic U.S. jewelry manufacturing is most affected by foreign jewelry makers?

Pucciarello: Diamond setting. It’s more cost-effective abroad, so the more stones in a piece, the better the imported product’s advantage.

Bergman: Fashion jewelry and affordable jewelry, especially for major retailers. Bridal is less so, because it’s a more expedient product and also lends itself to special orders.

Hoover: Lower labor costs overseas let jewelers produce diamond melee jewelry that wasn’t possible 10 years ago. You see much more jewelry with melee diamonds, especially bridal.

Ley: The most competitive impact is on diamond-accented jewelry coming from India, Thailand, and China. There’s little impact on commodity products like findings or beads.

CHANGING OPERATIONS

What will change in the next few years in how a typical U.S. jewelry manufacturer operates?

Pucciarello: That’s easy. Tomorrow’s best jewelry manufacturers will be higher-tech, more flexible in the ability to manufacture, and more professional about financial management.

Stuller: We’ll all be smaller and quicker to get product out. There’ll be more niche players promoting “U.S.-made” and turning orders into shipped pieces within days, not weeks or months.

Kirchner: More U.S. manufacturers will promote unique products not readily available from overseas manufacturers. If they have a brand giving retail partners a competitive advantage, they’ll work to promote it. I also expect more cooperation among U.S.-based companies to provide quicker service to the U.S market than that provided by overseas manufacturers, and more U.S. manufacturers working with overseas ones to produce some of their more labor-intensive pieces.

Runci: Sourcing materials and parts from overseas will continue, so U.S.-based manufacturers must be mindful of legal and regulatory obligations. For example, they must adhere to anti-money-laundering guidelines, U.S. Nuclear Regulatory Commission rules for importing irradiated gemstones, and new controls on importation of rubies and jadeite of Burmese origin.

Bergman: In the next few years, manufacturers must make greater profit margins. They’ll investigate all cost-cutting measures, especially in sales and trade show expenses, because U.S.-based manufacturers must become lean and mean. They’ll investigate outsourcing, both domestic and overseas. They’ll create strategic alliances. And they’ll use the Internet much more to reach customers and to market.

How are the Internet, cell phones and similar devices affecting the U.S jewelry manufacturing industry?

Bergman: The biggest change in support services will be electronic. Internet sites will link with retailers’ sites. Inventory access, sales reports, and order forms will be done electronically, and business-to-business Internet partnerships will develop. Traditional marketing support services will continue, but companies will create marketing materials in-house with all the new equipment available. But electronics’ advent is a double-edged sword. While providing quicker and better communication, it also creates a just-in-time expectation for both parties. We’ve become a very immediate world, dealing with a product that, in most cases, is still handmade.

Hoover: The Internet has dramatically changed the jewelry industry, diamond sales in particular. Both jewelers and consumers can now access and evaluate diamonds on the Internet from a large pool of sources and with much greater visibility of price.

Kirchner: Sending images quickly through e-mail is a great tool for the relationship between manufacturers and retail partners. With more demands on retailers’ time, they don’t want to be called from the sales floor to listen to a manufacturer. But they’ll answer his e-mail when not busy.

Ley: The Internet has dropped manufacturers’ costs. In the old days, it cost up to $12 per order in manual labor—to take an order by phone, write it down, send it to the shop, produce it, pack and ship it, and write the invoice. Now, it’s about $1.50 to take, transfer, and ship an order and do the invoice, all electronically. There’s some question if all retailers are comfortable with the Internet, but manufacturers are offering incentives to encourage use by older retailers.

Anda: They make it extremely easy to do business. I think within three years, 65 to 70 percent of orders will be by Internet and cell phones. My customers already can call my salespeople 24 hours a day by cell phone, and they can go on the Internet day or night to place orders, which are processed the same day. It’s what retail customers want. If you’re not keeping up with the times, you can’t service them.

Is Internet use affecting jewelry trade shows?

Hoover: The Internet is changing the way many companies search for new products and business, and that’s causing the demise of trade shows as we know them today.

Ley: There’s a big debate in the industry about trade shows. Some manufacturers think they’re antiquated. Others say the business requires you see jewelry, touch it, and assess its quality in person. We know it’s very expensive to travel to major shows. It may be better to go to regional shows or simply visit customers. But a commitment has to be made in person. I think it’ll come down in the middle, and morph into something taking advantage of technology, while providing buyers the opportunity to see and touch jewelry.

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