Paradigm Shifts

By Ben Janowski -- JCK Online, 9/1/2006 2:00:00 AM

Even casual observers note that the jewelry industry is undergoing fundamental and global changes that already have undone long-standing structures. The current changes promise (or threaten, in the view of some) to bring more upheavals.

Jewelry is coming to grips with reality. Jewelry manufacturing, driven by the demands of the public, has tapped out the established routes to maintaining perceived value and important price points. Years ago, it was not uncommon to see mass-market pieces composed of healthy shanks and diamonds of some size. I recall the age of the “waterfall” ring and the seven-stone cluster, where melees were consumed in large—no, huge—numbers. Today, the mass market sees these sizes used in a few products—most notably the tennis bracelet and wedding bands—but fashion jewelry has been reduced to using stars in relatively flimsy mountings.

Now we confront rising prices in metals, and diamond prices that will continue to rise, especially in small goods and stones over 0.50 cts., as demand exceeds supply. Asia will become the biggest consumer over the next 10 years or so, and new diamond mines will become far more difficult to find and more costly to exploit. Major dealers and retailers have started to position themselves for assured supply or are thinking about how to do that. It won't be easy. Thousand-dollar gold and thousand-dollar-per-carat one-pointers might not be such remote possibilities.

Such pressures will speed retail consolidation, and spur the rise of alternate materials. Some independent retailers are shifting entirely to 18k inventories and upscale merchandising, primarily because they see the middle market becoming an abyss. They also want to distance themselves from mass-market stores. We've seen a steady decline in the number of independent stores as dominant players sweep up more of the prime business in their communities. Some will strengthen as others fail. Mall retailers are fighting for that midmarket business, and we're bound to see that sector reduced to a few big operators.

As for alternate materials, new markets like China may lead the way out of hidebound thinking. China has quickly shifted from platinum to palladium to keep finished goods prices down. Silver use in the United States has spread in the last few years but will now boom as an alternative. So will steel and titanium. The public has tasted the pleasure of owning jewelry, and it will adjust its expectations and its parameters to continue to do so.

That includes accepting man-made diamonds, which will be spurred by the expected shortages. Any company not considering the effect of large-scale production of man-made diamonds on the global market is playing ostrich.

The industry has been a two-tier affair for some years, catering to both the luxury and mass markets. Despite anomalous efforts by Wal-Mart and others to tap the luxury arena, these two markets will drift further apart. Big brands are opening their own stores, for example, to the detriment of department stores. The affluent will be unperturbed by higher prices, while the rest of the market will experiment as best it can to keep its footing.

On a macro level, the diamond industry is being transformed. De Beers will shortly settle its antitrust issues in the United States and become more active here. New York has failed to assert itself as the leading diamond center it should be, as epitomized by squabbling over some long-overdue redevelopment of the 47th Street area. Internecine confrontations in every center, between those holding sights from the major producers and those struggling to stay in the game, presage the disappearance of many companies. Meanwhile, a new giant is growing in Dubai, United Arab Emirates, in the midst of a strong market and proximate to troubled Africa.

We are in a disorienting paradigm shift, but radical as some changes may be, the public remains oblivious. Jewelry is not going away, and people will continue to love it and buy it. But in our high-octane environment, only the adaptable and the innovative will truly own the business.

benjanow@gmail.com

Author Information

Ben Janowski has spent more than 34 years in the diamond and jewelry industry. For the last 14 years he has been a business consultant focusing on strategic planning for the U.S. market.