DPS Retail Landscape Study: It's Rough Terrain for Jewelers

The first comprehensive study of the jewelry shopping experience—as viewed by consumers—turns up some sobering realities. According to consumers, the jewelry retail environment barely rates a C, not the A that many store owners would give themselves.

By Hedda T. Schupak, Editor-in-Chief -- JCK-Jewelers Circular Keystone, 9/1/2006

The year 2000 is one that many diamantaires remember as a year of infamy. That's when De Beers took a critical look at how diamond jewelry was performing in the market, relative to other luxury categories. While diamond sales were growing every year—and continue to do so—the rate of growth lags behind that of other luxury goods. That discovery spawned the re-evaluation of De Beers' business model, which led to using the Diamond Trading Company name for its rough diamond operations and implementing the Supplier of Choice initiative.

Supplier of Choice was meant to ensure that every member of the diamond distribution chain either added value to the product or got out of the chain. The ultimate goal was both to increase profitability and raise diamond sales growth in line with other luxury categories.

How successful the plan has been is still a matter of debate, but diamond jewelry sales growth hasn't kept pace with other retail categories—including luxury watches—and De Beers' initial study didn't address a critical part of the equation: what was happening at the retail counter.

In 2005, the Diamond Promotion Service decided to find out. Consulting with one of the nation's foremost retail experts, Paco Underhill, DPS commissioned the first comprehensive investigation of fine-jewelry retailing in the United States from the consumer perspective. The study included a quantitative survey of 1,200 consumers; visits to more than 50 retail establishments; and interviews with consumers in three formats: focus groups, individually, and in-store. Of the 1,200 consumers polled, 450 were married men, 450 were married women, and 300 were single women.

The study also included in-depth interviews with 100 brick-and-mortar retailers who sell jewelry. (Internet and TV retailers were excluded as the focus was strictly on in-store shopping.) The retailers included a geographically balanced mix of every kind of storefront sales channel, including carriage-trade and mom-and-pop independent jewelers, department stores, warehouse clubs, and discounters.

A.C. Nielsen Research conducted the survey and allowed DPS to tap into its database of studies from other retail categories to see how jewelry shopping compared.

The results were sobering. And the disconnect between jewelry retailers' attitudes and customer expectations was alarming.

THE INDUSTRY GETS A 'C'

Consumers rated the jewelry shopping experience “average”—a C performance. Underhill was far more critical. He felt the rating reflected low buyer expectations. As part of the study, Underhill's firm, Envirosell, sent teams to mystery-shop for diamond jewelry in various kinds of stores around the country.

The key finding, says Claudia Rose, DPS senior partner and industry planning director, was that the typical jewelry shopping experience isn't fun. And an “average” experience isn't good enough to compete with luxuries like designer handbags, plasma TV sets, and home furnishings. Today's consumers have increasingly high expectations for retail-tainment, she added. “Other categories are sophisticated and fun to shop,” says Rose. “Crate & Barrel is fun. It's weekend entertainment. The Gap is fun. Zales isn't fun.”

About 30 percent of consumers who visited a specific jewelry store said they would never go back. “That means one out of three customers had a bad experience,” says Rose. The retailers didn't seem overly interested in customer retention—they wanted new customers. Rose says that's the wrong approach. It's been proven that with each successive visit by a repeat customer, the time between visits grows shorter and the average purchase goes up. Jewelers are losing 30 percent of their business off the top—although she stresses this is an average figure; some stores are doing much better, some far worse.

One question on the survey was, “Instead of shopping for fine jewelry, I'd rather go to … ” (Respondents could choose more than one category.) Among female respondents, 83 percent said they'd rather shop for books than fine jewelry, 79 percent preferred clothing, and 73 percent each preferred furniture and department stores over jewelry stores. And diamonds are supposed to be a girl's best friend?

Clearly, this industry has work to do.

IS 'GOOD' GOOD ENOUGH?

Diamond jewelry sales have grown steadily since 1998—on average, about $1.5 billion per year, which translates to a compound annual growth rate of 5 percent. Such growth would appear to fly in the face of the study's findings, but Rose says it's driven by consumers' love of diamond jewelry, not the shopping experience. Moreover, if the retail experience had matched consumer expectations, growth likely would have been higher. Then, too, nonstore channels of distribution such as the Internet and television shopping are also counted in the total diamond jewelry sales figures—and it's important to note that online sales of jewelry in general rose from close to zero to $1 billion annually between 1996 and 2003, and doubled to $2 billion annually from 2003 to 2006.

To date, no major retailer has “changed the game” for jewelry sales, but the game is ripe for transformation. Jewelry stores look numbingly alike, said survey respondents. The merchandise seems too similar from store to store. In a mall, especially, consumers could barely remember where they bought their jewelry.

“It's the Marriott, not the W,” says Emmy Kondo, senior industry planner at JWT, the advertising agency that oversees the Diamond Trading Company account, which includes DPS.

To the DPS team's point, business guru Tom Peters says it's important to recognize the difference between a mature category and an undistinguished one. “Who here really craves a new Chevy?” he asked an audience of jewelers during the American Gem Society Conclave in April.

While there's nothing inherently wrong with a Marriott or a Chevy, and both perform their required functions adequately, neither brand is known for generating transformative excitement.

Business gurus frequently compare Starbucks with Maxwell House coffee as an example of successful brand building based on experiential retailing and attention to detail. Coincidentally, Claudia Rose formerly worked for the advertising agency that handled General Foods and was part of the team working on the Maxwell House account. In 1991, she expressed concern that a young, growing chain of coffee shops, called Starbucks, might have serious implications for Maxwell House coffee. Maxwell House executives told her, “It's a very European model; it's not about us. We're a supermarket brand.” Rose believed that eventually Starbucks coffee would show up on grocery shelves. Time has proved her right.

Traditionalism can be boring, especially in light of innovative newcomers such as L'Occitane, the French soap and body-care retailer; Apple, with its sleek, minimalist stores and passionate staff; or Restoration Hardware, which infuses modern home furnishings with a hefty dose of nostalgia and warmth. Upscale shoppers enjoy the decor of their favorite specialty stores as much as they enjoy the product. They seek pampering environments that feel inspiring, elegant, or exotic or that offer a respite from daily pressures. Mass shoppers, on the other hand, expressed a preference for big stores that offer convenience, speed, selection, and low prices.

Business expert Rick Barrera, author of Overpromise and Overdeliver, says once customers have experienced a taste of something better, they're spoiled for life and don't want to return to the ordinary. Once they've slept in a Westin Heavenly Bed or eaten a Dove bar, they don't want to go back to Econo Lodge or eat an ice cream sandwich.

Jewelers need a paradigm shift, says David Sisson, director of market intelligence for JWT. For a start, many don't even consider themselves retailers! “Jewelers told us, 'I'm not a retailer. I'm a professional jeweler,' as though being a retailer is beneath them,” says Rose. It's clear they consider their business to be that of providing fine jewelry product, rather than offering a distinctive and interesting retail experience. “But they need to face themselves in the mirror and admit, 'I'm a retailer,'” she says.

Many jewelry retailers and sales associates also told DPS interviewers they don't like to shop, and pay scant attention to retail trends. Kondo says many respondents don't even want a store. “They said, 'Unfortunately, I have to have a storefront,' when they would prefer to have only private clients,” she explains.

Sisson says you can't be a successful retailer if you don't like to shop—and the grudging attitude shows. “We asked [retailers] how often they change their windows or their catalog. We got answers like 'Whenever' or 'Christmas.'” Retailers who allow that much time to pass before changing a display or catalog are thinking about how often they go shopping, not how often customers walk past their store, he said.

WHAT CUSTOMERS WANT

Using the quantitative data, DPS identified the four top in-store factors that determine whether a customer will continue to shop for diamond jewelry at a particular retailer and whether he or she will recommend that store to others. These are: merchandise factors (important to 76 percent of shoppers), store reputation (73 percent), staff quality (67 percent), and after-sales service (57 percent). (Respondents chose multiple answers.)

What a consumer expects from a retailer varies with the kind of store. Not surprisingly, consumers have lower expectations of staff in a discount store than they do in an independent jewelry store.

Merchandise factors include:

Price-to-value equation. This doesn't necessarily mean cheap, just prices in line with product quality. This is the top factor consumers cited.
Good selection. This isn't the same as a huge selection. In fact, many times consumers have too many choices and resent having to wade through lots of generic, unappealing merchandise to find something they like. They want a well-edited but sufficient selection of good merchandise.
Unique, out-of-the-ordinary designs. This, says Rose, is deceiving—customers' idea of “unique and different” really translates to “a little different from what everybody else has, but not too over-the-top.” She uses ice cream as an example: “They don't want plain vanilla, but they don't want pistachio almond fudge, either. They want vanilla with sprinkles.” But it also means offering at least a few designs that are pistachio almond fudge.
Interesting brands. Again, “interesting” is relative, but Sisson says the presence of interesting brands in the store makes generic merchandise seem better. If a store is perceived as having good brands, it's perceived as having better-quality goods overall.

Store reputation factors: These include trustworthiness, reputation, and tradition and heritage. These should not be confused with stodginess or outdated image).

Staff quality factors include:

Knowledge/expertise. Many consumers in the study didn't believe the salespeople in the stores were diamond experts or even knowledgeable about jewelry in general, like styles, trends, or quality. Respondents perceived that most jewelry salespeople were there temporarily and weren't well trained.
Nonagressive salespeople. Respon- dents complained frequently of high-pressure selling. Kondo says some respondents reported being told point-blank by salespeople that they weren't allowed to let a customer leave without closing the sale. They'd hand them over, call the district office (presumably for price-adjustment approval), or try some other trick. This is wrong, says Rose; 27 percent of customers browse or window-shop at least once a month and may “visit” their piece regularly until they're ready to buy it. A diamond jewelry zealot may repurchase within 13 to 14 months, but most return purchases are every two to three years. “I tell jewelers 'Love your browsers!'” she says.
Attitude. Consumers complained of salespeople having “snooty” attitudes—and not just at elite shops. Rose says there were lots of comments from consumers about feeling “judged,” in terms of their clothes, their race or color, or their lifestyle if a gay couple entered the store.
Ratio of staff to customers. Customers don't like to wait.
Staff retention. Customers want to go back and deal with the same people.

After-sales and service: Factors include warranty, cleaning, and repair; a rea- sonable policy on returns and exchanges; and the option of trading in diamond jewelry for an upgrade.

“You never hear of jewelry stores being mentioned in an unprompted survey of retailers with great service, yet some independents do amazing things,” says Sisson.

WHAT'S NEXT?

Over the next year, DPS will continue to analyze the raw data—more than 1,000 charts' worth—and dig into the implications of their findings. The group will present information on all aspects of the marketing mix, including the need to train salespeople to delight customers, improving decor and atmosphere, increasing distinctiveness of product, and changing pricing approaches to be less alienating. DPS also will go back to the well for more data; its quantitative study was designed to be repeated every four to five years to gauge the industry's performance—and whether it's any closer to earning that coveted A.

America's Top Shopper talks Jewelry

When it comes to shopping, most men would rather not. But Paco Underhill, chief executive officer and president of Envirosell, studies shopping for a living. Underhill, who served as consultant on the Diamond Promotion Service's Retail Landscape Study, talked to JCK about jewelry retailing.

“Most of the major innovations in jewelry shopping aren't happening here,” he says. He cites two stores abroad that he thinks have a leg up on jewelry selling: Damas, a jeweler based in the United Arab Emirates with stores throughout the Middle East (and two in the New York metropolitan area), and Daslu, a department store in São Paulo, Brazil.

At Damas, parties are the order of the day. The stores have party rooms that women rent to hold birthday parties, bridal showers, and other events. The object is to get women together in the room with lots of jewelry they can try on.

“The key to jewelry sales is trial,” says Underhill. It's a victorious circle, too—allowing customers to play with and try on whatever they want has resulted in strong sales for the company, and, of course, great word-of-mouth advertising.

At Daslu, Underhill identifies a better integration of jewelry and clothing than he's seen here. A salesperson assembles the outfit, the shoes, the bag, and the jewelry all at once in the dressing room for the customer to try on.

“It's a challenge for independent jewelers [in the United States] because they want their jewelry to be the accessory, but they're usually far away from the outfit,” he says.

Some quick remedial fixes Underhill suggests include full-length mirrors, providing a place for the customer to see herself at a distance wearing the jewelry, and a place where she can either change into a robe or a black velvet drape (similar to those used for graduation photos) to get a better idea of how the jewelry might look with other outfits.

“Women don't dress for men. They dress for other women,” says Underhill. And that, he thinks, is where the industry needs to shift its paradigm—rather than its traditional focus on men buying jewelry as the key to the front door, the back door, or out of the doghouse, he says, focus on the jewelry as the woman actually wears it.

“What Sephora did for cosmetics is what someone should do for jewelry,” he says, referring to the cosmetics superstore that changed makeup sales from a serious, salesperson-behind-the-counter experience (much like jewelry) to a fun, experimental, try-it-on-and-play environment.

Underhill also says the industry needs to shift to more integrative selling—the sales staff shouldn't be hiding behind the counter—and on bringing more softness into the experience.

“Jewelry stores are hard. The casements are hard, there's hard glass everywhere, and the product is hard—but it's sold to the romantic side of the customer. Romance is soft, and there needs to be a way to soften up the store environment.”

Underhill also favors visible pricing. Bulgari, he says, is a perfect example of how it can be done tastefully. By showing a range of prices, the upscale jeweler lets customers know that there's something to be had for under $1,000, or $10,000, or even $100,000.

“There is always something in the window that is priced,” he says. “Part of that derives from Italian law, which says everything in the window must have a price. But if Bulgari can price elegantly, a[n independent] jeweler can, too.”

Barriers to Return

Why won't customers shop in or return to a particular store? This chart lists the most-often cited reasons. The reasons were industrywide, although some individual stores did have a glaring standout issue. “It isn't one issue so plaguing consumers that if we fix it, 70 percent of the industry's problems will be fixed,” says David Sisson, director of market intelligence, JWT. “The industry is equally failing on all these measures.”

“If you'd ask retailers to look at the list and point out the biggest barriers, an educated guess is that they'd choose price. But that's fourth from the bottom.”

(Respondents were allowed to choose multiple answers.)