The postmortems on the Las Vegas shows agree that most of the industry is in a slowdown. We do hear that there has been a boom at the top of the market, especially in large diamonds and fine precious color. There also has been an outbreak of innovative jewelry produced by relatively new companies that concentrate on alternative materials. And companies such as Gemesis, which manufactures colored diamonds, add new machines every week and sell every stone they produce.
Even so, most of the industry—retailers and suppliers—are too heavily invested in traditional modes to dive into new technologies and businesses. Many companies stagger onward as they suffer declines in volume.
It's too early to judge if we're undergoing a fundamental realignment of the gem and jewelry business. Some say we're going through a recession and business will rise again once we're past it. They say the public will adjust to higher metal and stone prices, especially as wages adjust to compensate for higher commodity prices. They add that the desire for fine jewelry and gems will not fade.
Others say the fundamentals may be changing so radically that we will see a very different business in a few years, especially in the United States. The number of U.S. retail operations has been declining steadily for many years (20 percent in the last 12 years alone, according to Jewelers Board of Trade), and that decline will probably accelerate in the next few years. Mining of stones and precious metals trails demand, and every projection indicates that this shortage will continue or get worse. Unlike the speculative spike in diamond and metals prices of 30 years ago, the current increases will generally hold, driving many out of the fine-jewelry market. The cost of fuel, food, and housing will exacerbate the situation. The growth of emerging markets, with the attendant boom in demand for consumer products, and the weakness of the dollar have diminished the United States as the market of choice—we're seeing high-value diamonds going first to foreign markets. And never mind the still unknown effect of the nascent “green” movement.
I took a close look at the major issues affecting the diamond business in preparation for a presentation at The JCK Show. At every turn I found incontrovertible evidence that the industry is restructuring in ways that will make a return to “the good old days” a pipe dream. While I don't agree with some of the predictions of radical change, we already see the broad outlines of a new world. Here are some thoughts:
Both suppliers and retailers will need to specialize. “Me too” companies that essentially copy what others do are dead ends. Specialization will mean excelling at defined products and services that have identifiable target markets. In both sectors we will see a needed concentration of power that can attain appropriate levels of critical mass, sufficient to elevate the identity and image of the company in the market.
For example, retailers will need to become destinations for consumers seeking some range of product. That translates into higher turn and better profits, even at lowered margins. In the lower end of the market, that won't mean a 1,500-square-foot store in a mall or strip. It might mean a 10,000-square-foot store that offers fully merchandised sections in every type of jewelry, from beads and silver to engagement rings, pearls, and watches—a Home Depot for the mass jewelry market.
At the high end, a retailer will need deep assortments of diamonds and colored stones, a range of classic and fashion brands, in-house custom design, and expert sales associates. Again, the store will need to be of sufficient size and comfort and provide personal services.
Suppliers will need to play a role in building and consolidating the concentrations of power in various markets and in becoming destinations for retailers. This will mean alliances and maybe mergers, to assure there is enough capital. All operations will need aggressive development of Internet sites and strong commitments to e-commerce.
We know the power of destination shopping. We know Blue Nile and its impact on sales and margins. But there are unoccupied and poorly exploited spaces in other products. Will you be there?