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ELECTRONIC PURSE: NEW PAYMENT OPTION?

As if consumers didn’t already have enough ways to pay for purchases, a new option may be on the way: the electronic purse.

The electronic purse is a multipurpose prepaid credit-card-sized card that has the potential to alter the way we spend money the same way that automated teller machines altered the way we do business with banks, according to a report in Current Issues in Economics and Finance, a publication of the Federal Reserve Bank of New York.

Such cards are already in use in some countries, and now some major financial institutions in the U.S. have announced plans to develop their own.

Essentially, a bank would issue an electronic purse – or stored-value card – to customers, say John Wenninger and David Laster, authors of the report. The customers then could transfer value from their bank accounts to the card at an ATM, a personal computer or a specially equipped telephone. When making a purchase, the customer would pass the card through the store’s point-of-sale terminal and the amount would be transferred to the store’s terminal (this would be done off-line, not on-line as with credit cards). The store would then transfer the amount of accumulated transactions to its bank account by telephone.

The electronic purse resembles the prepaid cards offered by some colleges, many regional telephone companies and mass transit systems in New York City, San Francisco and Washington, D.C. But cards in these “closed systems” can be used at only one or a few locations. By contrast, an “open system” electronic purse can be used in a variety of locations for a broad range of purchases.

Customers would pay a fee of 2- er transaction. It’s uncertain whether banks also would charge retailers a fee for transactions or for a card reader; such costs might discourage use by retailers unless electronic purses generated enough new business to cover them.

Some advantages over other forms of payment:

*Customers get greater privacy about where they spend because electronic purses aren’t tied directly to a bank account once money is transferred to the card; freedom from recording expenditures in a checkbook; and freedom from making credit card payments.

*Retailers find no need to conduct credit checks; easy validation by personal identification number; no wait for reimbursements from credit card companies; time-savings in not having to handle cash; and (unlike checks) assured payment.

*Banks have lower cash handling costs; lower on-line network charges; new sources of fee income from retailers and consumers; and the right to invest and earn interest on the balances their customers hold on electronic purses.

Drawbacks include the potential for malfunction (as with any electronic device); the likelihood that some customers will balk at paying a transaction fee to spend their own money; the risk of fraud (it would be difficult to detect use of stolen cards because they are used off-line rather than on-line); and the chance the market could fragment, creating a hodgepodge of incompatible systems and requiring consumers to carry several cards.

PEARLS: STOCKED BUT UNDERPROMOTED

Almost all jewelers carry cultured pearl jewelry – indeed 95% of them, according to a recent JCK poll of jewelers across the U.S. That’s no surprise.

But a surprising 43% say they don’t actively promote pearls. Reasons range from the positive (“They sell themselves”) to the negative (“We’re unable to generate enough pearl sales to cover the advertising cost”).

A number of jewelers say pearls are difficult to promote because discounting has left consumers with the perception that all pearls should be inexpensive. “Promoters and con artists in our area have beat pearl business to a pulp,” says Ray Mincemoyer of Mincemoyer Jewelers, Rockford, Ill.

Of course, higher pearl prices also play a role. In the past two years, prices have risen about 10% for the finest quality akoya pearls and more than twice that for fine South Seas pearls. “They’re getting too expensive for the best qualities,” says William Levine of VanCott Jewelers Ltd., Vestal, N.Y.

Price is a concern of consumers as well. In fact, of the jewelers who said consumers had complained about pearls in the past 12 months, price was the subject in nearly every instance.

But for the jeweler who promotes high-quality pearls and knows how to teach consumers the difference, there are rewards. “Customers tell us we have the prettiest pearls in the city,” says Pat Gilmore of Dunbar Jewelers, Yakima, Wash. “We stock only better qualities, and it leads to other sales.”

Eve Alfille, a designer and retailer in Evanston, Ill., who specializes in pearls, captures consumer interest with a sea-theme pearl salon. She even launched a local Pearl Society that meets in her store bimonthly to hear pearl experts. (See “Eve J. Alfille: Prolific, Passionate and Practical, JCK, May 1995, page 88.)

For the record, the jewelers polled for this story say akoyas account for 90% or more of their pearl inventory, with freshwater, South Seas and other types of pearls comprising the rest. See the chart for how jewelers changed their pearl inventory in the past 12 months and how they plan to change it in the next 12.

JEWELERS’ PEARL INVENTORIES CHANGE LITTLE

Changes in past 12 mos. Plans for next 12 mos.
AKOYA PEARL INVENTORY
Increase 15% 25%
Decrease 25% 10%
No change 60% 65%
FRESHWATER PEARL INVENTORY
Increase 23% 17%
Decrease 20% 15%
No change 57% 68%
SOUTH SEAS PEARL INVENTORY
Increase 26% 14%
Decrease 10% 6%
No change 64% 80%

Note: The chart shows the percent of respondents in a JCK poll who increased, decreased or had no change in their pearl inventories in the previous 12 months and their plans for the next 12 months.

DOLLARS AND CENTS OF TEEN SPENDING

Do teenagers fit into your overall marketing plan? Last year, they spent, saved or influenced purchases totaling $240.9 billion. That’s an 8.7% increase over 1993, according to the latest Rand Youth Poll, called “Teen-Age Economic Power.”

The poll of nearly 2,500 teens from ages 13 to 19 examined buying habits in 29 categories, including jewelry. The average teen spends only $3.55 per week on jewelry, says Robert Williams of Rand Youth Poll. But two factors may be of interest to jewelers:

*Teens do save toward more expensive purchases. In fact, they saved $10.2 billion toward more expensive purchases in 1994, according to the poll.

*If you want to capture teen interest, recognize that you’ll compete with dealers who sell cars, televisions, videocassette recorders, CD players, computers and apparel, all of which teens bought more of last year than in 1993.

While the Rand Youth Poll doesn’t calculate how much each teen spends on each shopping trip, a separate study offers some insight. Teens spend an average $32.68 during each visit to a shopping mall, according to a study conducted for Chain Store Age Executive magazine by America’s Research Group, Charleston, S.C. The study divided teens into three age groups and found 13-14-year olds spend an average of less than $10 per visit, 15-16-year-olds spend $16-$40 and 17-18-year-olds spend $41-$50.

The total $240.9 billion cited in the Rand Youth Poll includes, in addition to the $10.2 billion in savings, $64.1 billion in daily spending, $28.5 billion received from parents for family grocery shopping and $138.1 billion in parental purchases in which teens have a significant influence.

And teens want to spend even more this year, according to the poll. Six in 10 plan to spend more than in 1994, two in 10 plan to spend about the same and the rest think they’ll spend less.

DEMAND BOOSTS MANUFACTURING WAGES

The wages of many skilled workers in the jewelry manufacturing industry increased last year, according to the “1994 Wage and Benefit Study,” conducted by the Manufacturing Jewelers and Silversmiths of America, Providence, R.I.

“The results confirm what we have been hearing from many of our members regarding the availability of skilled workers,” says Matthew Runci, president and chief executive officer of MJSA. “The demand [for skilled laborers] has driven up wages.” The study itself doesn’t list percentage changes, but Runci offers the example of a model maker, whose median hourly pay rate rose 13% over the past two years to $16.25.

The study also found that more employers now offer flexible work schedules, allow job-sharing and make more use of temporary workers. This flexibility is designed to increase productivity, and apparently it’s working. As measured by sales per employee, productivity grew 6.5% in the precious metal industry and more than 10% in the costume jewelry industry, according to the survey. Sales per employee (full- and part-time) totaled a median $117,386 among precious jewelry manufacturers and $68,000 among costume jewelry manufacturers. (This compares with $110,558 for retail jewelry store employees, according to the Jewelers of America “1994 Cost of Doing Business Survey.”)

Regarding employee benefits, cost-sharing of health insurance premiums with employees continues to be the most significant trend, according to the survey. At the same time, more companies than ever (36% of those surveyed) are paying the full cost of employee group life insurance. “It appears that companies may be offering less expensive benefits, like group life insurance, as a way to soften the impact of requiring a health insurance contribution from employees,” says Runci.

Looking to the future, the study says the outlook for the jewelry industry is promising. The reasons include low interest rates, passage of the North American Free Trade Agreement, expanding economies in the U.S. and globally, increasing real disposable income and favorable demographics (namely, the baby boom generation entering the 45-54 age group, which is the leading purchaser of jewelry).

Data for the study were collected from 236 MJSA member companies by Industry Insights, an independent research company in Columbus, Ohio. The annual study provides an in-depth look at salaries and other personnel practices in the jewelry industry; copies are available for $75 by calling MJSA at (800) 444-MJSA or (401)274-3840.

PRECIOUS METALS GAIN STRENGTH Precious metal prices have been rising quickly on world markets this year as the declining U.S. dollar hits new lows in Japan and Germany.

Because the metals are traded in U.S. dollars, they are an attractive investment for anyone who buys them with a stronger currency. So the bull market should continue as long as the dollar remains depressed.

Platinum, in particular, has attracted attention. It reached a five-year high of $458 per ounce in mid-April (up 10% from early in the year). At the same time, prices for silver ($5.50, up 17%) and gold ($397 per ounce, up 6%) reached their highest levels since the mini speculative boom of mid-1994.

Analysts believe that precious metals are being driven by more than the traditional investors’ trade-off: when things are uncertain, dump dollars and buy metals. Jeff Christian, an analyst writing in the newsletter This Week in Platinum, says industrial demand for platinum and palladium (another of the platinum-group of metals) has been very strong. Palladium, which peaked at $176 in April (up 11%), is used in cellular telephones and other electronics. Platinum is used primarily in jewelry, pollution control devices, pe troleum refining and industrial applications that require heat resistance.

Silver has been rising largely on the strength of increased industrial demand in Europe. Gold rode on the coattails of the other metals, say analysts.

JEWELERS PLAN AD SPENDING

Jewelers plan to spend a median $16,666 in advertising this year. That’s the midpoint in estimates that ranged from a modest $40 to a generous $1.6 million among members of the JCK Retail Jewelers Panel.

For the largest share of the jewelers (46%), advertising expenditures will represent 5%-9% of total sales. The next largest share (43%) represents 1%-4% of total sales. Overall, the ad-budget-as-percent-of-sales will increase for 28% of the jewelers compared with 1993, decrease for 10% and remain the same for 62%.

The most-often-used advertising media will be newspapers (mentioned by 78% of the jewelers) and direct mail (76%). Other advertising media include radio (64%), cable television (41%), inserts (39%), commercial television (30%), billboards (18%), marriage mail (where several retailers send ads in the same envelope, 8%) and videotapes/CD-ROMs (5%).

TOP-SELLERS FOR JCK PANELISTS

*Loose diamonds accounted for the largest share of sales by dollar value in January, according to the JCK Retail Jewelers Panel. They comprised 29% of total sales. Next were rings of all types at 21% and diamond jewelry of all types at 16%.

*By unit, rings came out on top with 29% of the total (fairly evenly divided among engagement, wedding and other diamond rings). Loose diamonds came next with 17% of all unit sales and neck chains were third with 12%.

PRECIOUS JEWELRY MANUFACTURING WAGES

Note: Wages are for companies with 10+ employees and vary by region and type of manufacturer. The median wage means that half the respondents reported higher amounts and half reported lower. These jobs were selected from 96 included in the study.

Source: MJSA “1994 Wage and Benefit Study.”

FYI

Since the beginning of time, civilization has mined 3.7 million ounces of gold, based on an estimate by CPM Group, a precious metals and commodities research and consulting company in New York, N.Y.

Accounting for all gold mined since the beginning of time is easier than you might think, says CPM. First, most gold produced is never actually “consumed” and is always available for recycling. Second, governments and individuals have held a large percentage of the gold in financial reserve and thus can be estimated with some accuracy. And third, about 86% of all gold production has occurred in this century, so records have been kept.

The largest amount of mined gold has gone into jewelry: an estimated 1.3 million ounces. The chart from CPM shows the breakdown.

ESTIMATED DISPOSITION (in ounces)

Jewelry, decorative and religious items: 1,309,000

Central banks: 905,000

Private investors: 808,000

Industrial use, lost or undetermined: 424,000

International Monetary Fund, Bank for Internation-al Settlements, European Monetary Cooperation Fund: 198,000

Commonwealth of Independent States: 59,000

Total: 3,703,000

TITLE MEDIAN HOURLY WAGE
Senior financial manager $28.75
Designer $15.00
Gemologist $15.65
Senior marketing manager $36.30
Computer programmer $19.57
Jeweler $12.01
Assembler $7.27
Stone setter (precious) $12.30
Caster (precious) $10.48
Model maker $17.00
Wax maker $7.59
Electroplater $11.12
Engraver $8.49
Toolmaker $18.25