Ken Gassman, the industry’s chief prognosticator, takes stock of sales, staffing, and salaries.
These are turbulent times for jewelers, and though some glimmers of hopeful news have emerged, there’s still a pall of uncertainty over the industry. JCK turned to Ken Gassman, founder of Glen Allen, Va.’s Jewelry Industry Research Institute, for a big-picture view on the state of independent retail jewelers. The bottom line: While the data are mixed, by many measures, the outlook is brighter than it was a year ago. Read on to hear Gassman’s perspective and predictions.
JCK: Have inventories finally come down from the highs retailers experienced last year?
KEN GASSMAN: There’s no question that over the last two and a half years U.S. retailers have been destocking and reducing their inventory levels. We believe they bottomed probably in the third quarter of 2009; however, there’s been some choppiness to the restocking. Every now and then suppliers will get a nice big order, but then retailers will trim it or delay part of the order. Maybe we should call them false starts. We’re still bumping along with historically low inventory levels.
JCK: This seems like a classic Catch-22 for retailers.
KG: No one really knows when consumers are going to start spending, but if you don’t have the inventory you can’t make the sale. You don’t want to miss sales, but you also don’t want to end up loaded with inventory you can’t sell.
JCK: What impact do you expect the economy to have on retailers’ buying decisions for the next few years?
KG: There’s no question we’ll be back in a growth mode. Some economists are thinking economic growth this year could be north of 3 percent. On the other hand, it’s coming from behind. The numbers were so dismal last year that comparisons this year aren’t easy. But America still is a growth market. If you look long-term, the U.S. population will increase to maybe 400 million or more by 2050; that’s almost 30 percent. America is a growth market long-term.
Near-term is far more difficult to predict. Two years from now we’ll look back and things will be humming along okay. I think retail jewelers will watch for signs that the economy has stabilized: One is reduced unemployment, the second is a stable stock market, and the third is an improvement in the housing market. When they see those three signs, they can say things are improving and start restocking.
JCK: To what degree have consumers resumed buying?
KG: We’re looking at numbers now showing the bottom was last year. In a typical nonevent month [Ed. note: excluding February, May, November, and December], typically sales rock along at just over $4 billion per month. We saw the bottom last year in July, when this figure dropped to $3.8 billion. We also saw a repeat of that $3.8 billion in September, and they’ve come back since then. The end of the third quarter of 2009 is when we saw the bottom of jewelry sales.
JCK: What’s different about what customers are buying now versus during the boom years?
KG: In 2005 to 2007, which were the boom years, it was all about diamonds. That was the statement they were making, and now that’s the category that’s suffered more than most. We’re also seeing the average ticket for diamond engagement rings down about 10 percent.
JCK: What are today’s consumers buying in lieu of diamonds?
KG: Beads have grown in popularity due to the economy. For $100 you can come out with three beads and suddenly you have a new bracelet. We’re also seeing sales of colored gemstones.
JCK: To what degree have retailers relied on discounting or other price cuts to get them through the recession?
KG: Discounting helped but it wasn’t a be-all end-all. Clearly, consumers are looking for value because they’re shifting their buying habits from specialty jewelers to Kohl’s, Wal-Mart, JCPenney, and the like. I’m afraid that’s what happened this time. Some jewelers resorted to discounting as a way to offer value. It’s a fool’s game.
JCK: How has marketing changed since the recession began?
KG: There are two major changes. One, a lot of [retailers] have cut back significantly on their budgets. That’s probably okay, because if consumers have their purses zipped, no amount of marketing will cause them to unzip. Jewelers are having to target and focus their marketing promotions using direct mail, the Internet, and highly focused radio spots rather than TV and newspapers. Those changes were under way before the recession, but the recession has exacerbated the trends. The strongest direct marketing tactic in this recession has been a personal telephone call from a jeweler.
JCK: What can you say about new media as a marketing tool?
KG: It apparently is an excellent way to reach consumers in the 25-to-34 age range. I’m not sure retailers are able to measure their success, but we’re moving toward a more electronically connected world. There’s certainly going to be a contingent of 65 and overs who may not be as plugged in but they’ll age out.
JCK: In general, are store owners hiring or firing?
KG: I think the firing is done. Most owners waited too late to reduce staffing levels, but in the face of rising sales, the pressure seems to be off a bit to reduce expenses. I don’t see them laying off any further.
JCK: Are owners still cutting pay or cutting hours of staffers?
KG: That bottomed as well, although we haven’t seen a resumption. I haven’t heard of any jeweler who has restored salary levels.
JCK: Will staffing levels recover? If so, how long will it take?
KG: I think—I hope—jewelers will look at their staff mix and say to themselves, “I need salespeople, but I will not rehire non-revenue, back-office types.” It depends how soon the economy comes back. Certainly, over the next couple of years, but over the next couple of quarters? Doubtful. It’ll probably be 2011 before we see an increase.
JCK: How does the recession continue to impact salaries?
KG: I just got some salary data from the Bureau of Labor Statistics. Believe it or not, salaries have begun to move back up with the fourth quarter of 2009. Weekly and annual salaries began to edge back up after stabilizing in the third quarter.
JCK: To what degree are owners cutting benefits, and will any of those return in the future?
KG: Obviously, every owner is looking at how they can contain costs. I know one big jewelry chain adjusted its vacation policy. Health care costs are continuing to rise, and owners are passing them along to employees. That’s going to continue. Once a benefit has been cut, it’s difficult for an owner to put it back. Once gone, always gone. We’re not flush; we’re not going to be back to boom times until 2013 or 2014.