A Tale of Two Dinosaurs
By Frank Dallahan, Publisher -- JCK-Jewelers Circular Keystone, 6/1/2004
With apologies to Charles Dickens, I borrow the famous first line from A Tale of Two Cities to begin this month's Counterpoint: "It was the best of times, it was the worst of times." I refer to the state of the jewelry business and its gradual economic recovery from the slowdown that began in 2000.
However, more than at any time previously, the industry faces unique and unprecedented challenges, including one that's getting increasing attention from Main Street to Wall Street: the phoenix rising from the ashes of the dot-com bomb. (See "Jewelry Dot-Bombs," JCK, April 2001.)
What do the Internet, the retail jewelry business, and the title of this column have in common? They're linked by a story told to me recently about the jewelry business and the Internet:
Two dinosaurs are having a chat as they look into the sky. One dinosaur says to the other, "Asteroid? That's no asteroid. That's the moon!" Shortly after, the asteroid hits planet Earth … and our two dinosaurs are history.
To put this story into context, my position has been and continues to be that the jewelry business at retail does not easily lend itself to doing business over the Internet for a variety of reasons, the most significant being the relative absence of consumer brands.
Two recent news items might change that thinking. Amazon announced it has formed alliances with jewelry suppliers to sell jewelry through Amazon.com at dramatically lower gross profit margins (18%), undercutting Blue Nile's 23% gross profit margins. Both margins are dramatically lower than those of typical jewelry stores. The buzz surrounding these developments will further exacerbate the consumer's perception that jewelry is being sold at high margins.
The inventory turns projected by Blue Nile make clear the profitability implications as well as the threat to U.S. retail jewelers if the consumer moves from the real counter to the virtual counter.
In many ways, the threat is not new. Over the past 10 to 15 years, the industry has seen substantial growth in jewelry sales from TV direct marketing, Wal-Mart, Sterling, and Zale. During this same period, we've seen the demise of the catalog showroom and the first efforts of the Internet to take the retail jewelry business away from America's jewelry stores.
The retail jewelry business is unlike most other retail businesses. It's value lies in the technical knowledge and skill sets the retail jeweler offers shoppers, along with two other key factors: style and selection—not images on a computer screen, but the real thing for the consumer to try on and compare.
Students of consumer behavior know how tough it is to change consumers' perceptions. A trusted jeweler's reputation—above all the other aspects of the business—will be next to impossible to dislodge. When a consumer is spending serious money on serious jewelry, my money is still on the serious jeweler who has created his own brand name and image in the local marketplace—asteroids notwithstanding!
