JCK Special Report: Which Way to Brand?

This article originally appeared in the Winter 2009 issue of JCK Luxury magazine.

In mid-November 2008, retail jeweler and JCKonline blogger Shanu Guliani shocked the online jewelry community by posting “Brand Disaster: Hearts On Fire.” The chief financial officer of Guliani’s Fine Jewelry, Charlotte, N.C., stated not only that Hearts On Fire was not selling but also that the company was reneging on terms for returning goods. In a response, Hearts On Fire denied the claims, and a heated debate ensued. 

In the secretive jewelry industry, a jeweler complaining about a brand it sells is as likely as a 70-percent-off sale at Cartier. Yet Guliani stunned readers further when she broke what most brands consider a cardinal rule. “I decided to do what was best … and discount the merchandise 25–30%,” she announced on her blog. 

Guliani’s protest may serve as the battle cry for other disgruntled merchants. Some jewelers have already ditched high-profile brands because of steep buying minimums and low returns on investment. Others have cancelled orders with brands that have opened their own stores nearby or broken promises of exclusivity. Some retailers voice concerns about inventory levels and stock-balancing issues. Others avoid selling big names altogether, favoring private-label items with supposedly better margins. 

Retailers also complain about no-discount mandates that discourage unloading old merchandise; pressure to buy large amounts of inventory; paid-for product exclusives that aren’t honored; not fulfilling small-ticket special orders for longtime accounts; and, sometimes, a generally imperious attitude.

It’s also unclear if jewelry brands—despite massive marketing efforts—pack much of a punch. Recent consumer research from JCK reinforces the notion that the retail store—not the jewelry manufacturer—is the brand in consumers’ eyes. In the JCK-Harrison Group Consumer Jewelry Study released in 2008, consumers cited primarily retailer names when asked an unaided recall question about jewelry brands (See sidebar, “Top Jewelry Brands Recognized by Consumers”). 

Abe Sherman is the chief executive officer of Buyers International Group for merchandise sales and business consulting, as well as the creator of Balance to Buy, a proprietary software program that tracks and analyzes jewelry sales. Recent data from the Lake Tahoe, Calif., company show that prominent brands don’t always sell as well as many might expect. “A good brand certainly has a place in many markets, and there are lots of very successful jewelers who have built their businesses around a number of key brands,” said Sherman in a recently published newsletter. “However, what was at one time a very effective strategy is rapidly becoming a millstone around the necks and wallets of many retailers.” 

Some say it’s a question of balance. Frank Dallahan, JCK columnist and president and CEO of the American Gem Society Laboratories, Las Vegas, has long preached the idea of the store as brand. But in a recent JCK column, he said a store can use the power of branded jewelry without compromising its own reputation. “Good retailers can effectively utilize a trade brand like Hearts On Fire to demonstrate to consumers that they are an upper-tier store,” he explained. 

But Phil Nulman, CEO of Nulman Group, a consulting firm in Somerset, N.J., half of whose clients are jewelry companies, compares retailers to prisoners of war. “What’s happening is that the retailer is heavily invested in associative branding, which is largely based on the leverage that the brands give them,” Nulman says. “Independent [retailers] are like captured warriors. It’s a very dangerous position to be in.” 

Some retailers agree with that sentiment and have ended their relationships with brands, but the specific reasons vary. Sometimes a brand isn’t a good fit for a store. Hearts On Fire merchandise didn’t sell well in either of J.R. Dunn Jeweler’s stores in Lighthouse Point or Fort Lauderdale, Fla. Sean Dunn, vice president, carried the line for slightly less than a year. “[Hearts On Fire] was just priced too far outside of what my customers were willing to pay,” he says. Still, he has nothing but praise for the brand. “[Hearts On Fire] seems to have everything together in terms of running their organization—advertising, sales training, great product—[the line] just didn’t go for us,” he says. (Hearts On Fire declined to speak to JCK Luxury for this story.) 

Brad Campbell is senior vice president of operations and vice president of merchandise for Morgan Jewelers, Salt Lake City, Utah, with 17 stores. He says he recently dropped a bridal jewelry designer because a promise of exclusivity was false. Campbell also didn’t appreciate the brand’s lack of customer support. “When our customer purchases designer items which are mainly special orders, we can’t afford for [a designer] to not come through as promised,” he says.

Bill Sustacheck, president and CEO of Rasmussen Diamonds, Racine, Wis., dropped Rolex because it wasn’t profitable enough. He considered landing the tony watch brand a coup—“a real feather in your cap”—but when only 20 of 70 styles were turning, Sustacheck lowered the boom. “I made a business decision that I wanted my business to be profitable, and I call the shots in my business,” he says. 

“I love Rolex, I think it’s a great brand,” Sustacheck adds. “It was just not performing at the level that I wanted a brand to.”

Ellen Lacy, owner, Lacy & Co., El Paso, Texas, periodically “closes” brands if prices get too high or pieces stop selling. But in prosperous times, brands usually get their way. “I understand why the 5,000-pound gorilla in the room wants more space—because he makes the money,” she says. “I may not fully agree to [a brand decision] and may have to say something, but if [a brand] is my second biggest vendor, then just how bad could [their request] be?”

Brands also initiate divorces, sometimes even when lines are selling—but not selling enough. Tony Prater, who oversees 15 stores as CEO of 52-year-old Jensen Jewelers in Twin Falls, Idaho, remembers a breakup with Rolex 15 years ago, when the brand decided the store did not “fit their image.” 

Starr Bristol Bragg, co-owner, Bristol & Bragg Jewelers, Maryville, Tenn., sells TAG Heuer watches and John Hardy jewelry. Until last July, she also sold Hearts On Fire. In 2003, when HOF approached her, Bragg’s 17-year-old business didn’t carry brands but was considering it. With HOF’s reasonable buy-in, she took on the line and recommended it to friends. The brand became a best seller, accounting for 15 percent of business for the $2 million store. But the marriage was short-lived.

“[Hearts On Fire] wanted us to double our inventory investment from the previous year,” recalls Bragg. “[The demand] was just unrealistic.” 

Bragg says she negotiated a compromise and placed her order, only to have it cancelled a month later. She mailed the line back and received the balance of her investment four months later. “It was very disappointing,” she says. “They courted us, and then they divorced us.”

One big retailer complaint is brands that open their own boutiques, some seemingly in direct competition with accounts. According to research by JCK Luxury, the number of David Yurman stores total 13 since the first one opened in 2000 (Yurman did not respond to requests for an interview). Roberto Coin confirms that it operates eight stores worldwide, half in the United States; its first opened two years ago. 

Brands say they have good reasons for going retail. David Heston, owner of Heston Designs in San Rafael, Calif., has 70 U.S. accounts and no storefront, but he’s considering online sales. “Consumers find my Web site and ask where they can see my line,” he explains. “If one of my retail accounts isn’t nearby, they have no option to buy.” 

Some vendors are frustrated by retailers who refuse to showcase the uncommon. Designer boutiques can counter such lack of imagination and serve as laboratories where firms can follow trends, gauge consumer interest, and respond to requests in real time.

“If a retailer is reluctant to try something new or a variation, I can afford to make something different for my store,” says Corina Limon-Madilian, co-owner, Single Stone, San Marino, Calif. Limon-Madilian opened a namesake store in 2006 after wholesaling jewelry for a dozen years.

Some retailers aren’t prepared for the work involved in selling a brand. Early on, J.R. Dunn carried David Yurman, but eventually lost it. “I didn’t understand how to reorder it, how to identify fast-movers, and I waited too long to reorder,” Dunn concedes. “Now, we would fly with it because we would understand how to handle it.” Dunn hopes to regain Yurman. 

Rob Simon, president and CEO of Windsor Jewelers in Winston-Salem, N.C., believes he knows how to succeed with brands. “You need to be [in brands] in a major way or they’re almost not worth messing with,” he says. Windsor Jewelers carries 38 brands.

Ellen Lacy recalls how her commitment to David Yurman jewelry evolved. Over a span of 20 years, Sybil Yurman, wife of designer David, coaxed her into stocking more and more pieces: six bracelets at a time instead of three, then three feet of case space, and finally 50 feet. “And that’s not unreasonable,” explains Lacy, who confirms that Yurman is one of her best-selling lines. 

Scott Brown, vice president of operations for Benari Jewelers, with stores in Exton and Media, Pa., says Hearts On Fire is one of his best-selling lines (vying for the No. 2 spot with David Yurman). He also likes its stock-balancing efforts. “It’s a one-for-one stock balancing—they are the best in my opinion,” Brown says. In fact, Hearts On Fire is a favorite vendor of many retailers, not only for its styles but also because of its marketing and training.

Bill Sustacheck’s secret to a successful brand marriage is a kind of prenuptial agreement—a five-item list of questions: Does the brand sell on the Internet? (Sustacheck doesn’t work with these brands.) Can he have exclusives on items in his area? What are the stock-balancing and return policies? What training does the brand offer? If the brand or designer has its own stores, where are they in relation to Rasmussen? 

“There is no brand out there today that can be nonflexible and not work with retail partners,” Sustacheck says. 

Even the issue of brands’ opening their own stores has a positive angle for jewelers—at least according to the brands. They reason that their retail outlets will increase consumer exposure and create new buyers for everyone, including independents. 

Cliff Miller, president and CEO of Las Vegas–based M.J. Christensen Diamonds, welcomed the Kwiat store in The Shoppes At The Palazzo when it opened more than a year ago. With it came more advertising on billboards and in local magazines. Ditto for Mikimoto in The Grande Canal Shoppes at the Venetian. “When consumers are exposed to that level of quality and then see it inside of the M.J. brand, it’s a positive influence and makes our store seem more special,” Miller explains. 

Miller also says he wouldn’t mind if one of those stores took a sale from him. “If someone is better and more service-oriented than me, he should get the business,” he says. “[The vendor stores] make us all a little sharper.”
Another potential benefit of a designer’s opening a store is the walk-a-mile-in-my-shoes phenomenon. Michael B., Studio City, Calif., opened its store, Matthews, in 1972. Vice president Matthew Bogosian says one result is that the company “has become more sensitive to retailers’ needs.” 

But many accounts see brands’ stores as competition, not cooperation. Some stores are franchises (like Pandora, Xen, and Rolex) operated by independent retailers, but other outfits, like Kwiat, run their own retail locations, and retailers worry that the competition will hurt their own sales of the same merchandise. An article on the topic on a JCKonline blog in 2007 elicited heated responses.

“The one thing that is certain to improve is the gross margin that the wholesaler or mining company (De Beers) is able to make,” stated one anonymous post. “Ask a retailer who used to sell Tiffany what the impact was on their business when Tiffany pulled the line and later opened up in a market [that the retailer] helped to build.” 

Any good marriage takes work, and retailers say manufacturers—both brands and non-brands—have some work to do to improve relationships. Many retailers would begin with stock balancing. Every merchant has leftovers, and many designers instruct retailers not to discount, even for dated merchandise. “When you tell some vendors that you have aged merchandise, they turn their heads and act like you did not say anything,” says Simon.

Retailers prefer one-for-one exchanges. “If they won’t trade it, I won’t buy [new items],” says Lacy.

Better personal relationships would enhance professional relationships, retailers say. Offering quick turnarounds and spending time in stores to familiarize salespeople with merchandise go a long way toward increasing sales. “Great [designer brands] become a part of your business—they don’t just tell you what you have to do,” says Campbell. 

Other retailers would appreciate some lower price points. They’ve noticed price increases in the past year and say consumers are resisting and looking more at private-label merchandise. “Customers are coming in and shying away from designer lines and opting for generic jewelry that is more value oriented,” notes Jay Golde, owner of Jay Roberts Jewelers in Marlton, N.J. “[Designers] need to hit some lower price points across the board. People are very price resistant and would like to see more pieces for less than $5,000.” 

Retailers say simple appreciation also would aid relationships, and they want the right to decline what they consider outrageous demands and question objectionable practices. These include insisting on depth of merchandise in cases; refusing to help loyal accounts with service, repairs, or special orders; pushing too many collections or pieces on uninterested or temporarily struggling accounts; issuing threats to pull lines if terms aren’t met; and opening multiple accounts in the same market before consumers embrace the look. 

“Everyone wants to feel appreciated,” says Simon. “Can you imagine [retailers] speaking to their clients the way some designers sometimes speak to retailers? ‘Mrs. Jones, [our store] expects you to buy 10 to 12 percent more this year than last or else we can’t do business with you.’ ”

Some jewelry-industry veterans advise retailers to take back some control, especially in light of today’s economy. For example, when considering a new line, a retailer could ask to halve the initial
buy-in to see how the market reacts. “Like an engagement period before the wedding,” suggests Nulman.

If a partnership has become difficult to sustain and needs to be more equitable, retailers should consider talking to their rep. Brand rules may be unreasonable in a down economy when retailers need help to reduce inventory, filling in later as needed. “What’s reasonable is half [of normal terms] until [the market] gets better,” says Nulman.

Additionally, retailers might consider beefing up private-label lines with potentially better margins. This is a strategy employed by Joseph’s Jewelers, with three stores in the Des Moines, Iowa, area, which has branded its store for 137 years. “When we attend shows in Hong Kong and Thailand, we see many of the brands buying at the same places and from the same [suppliers] as Joseph’s Jewelers,” says vice president John Joseph. Offering loose stones and custom mountings “gives customers more choices to be unique, and at a price that is reasonable,” he adds.

Prater also invests heavily in private-label goods, like its Love Story Diamonds—the national brand of buying group Leading Jewelers Guild. Reasons include better product guarantees and warranties for the customer (since the merchandise is made exclusively for the buying group), a consistent store identity, and better gross profit margins (up to five times keystone). “We control our own destiny by branding our own merchandise,” Prater says. 

It may be that new designers, struggling to launch careers, will be hurt by the increase in troubled brand marriages, although some retailers spurned by big names say they’ll cautiously work with up-and-comers. 

Meanwhile, retailers dedicated to brand sales hope for more cooperative partners; some are more confident than others. Says Lacy: “There are a lot of vendors who are fair and a lot of vendors who aren’t fair, but they will all become a lot more fair this spring.”

Sidebar: Hanging a Brand’s Shingle Is Hard To Do
It’s been happening for a decade already, but more designers are opening their own retail stores—either on their own, like Kwiat, with stores in Las Vegas and New York, or under the direction of seasoned retailers, as is the case with a Hearts On Fire boutique in a Bernie Robbins Fine Jewelers in Atlantic City, N.J. Many do so to garner immediate payment and exercise more creativity in designs, but all know that hanging a shingle is anything but an effortless endeavor.

Downsides in the brick-and-mortar arena include long hours, a lower volume of sales compared with wholesaling, and large blocks of time spent with consumers who often don’t buy anything. “You need a lot of patience,” says Corina Limon-Madilian, co-owner, Single Stone, San Marino, Calif., about retailing. 

Some brands have stores in stores or franchises run by independents. Independent retailers that partner with a brand to run a franchise should be aware that the brand’s decisions are final. From flooring to lighting to cases and collection groupings, nearly every decision must correspond to the brand’s identity. 

Consider Xen boutiques, with franchises in Mexico City, Beijing, and Marina Arauco, Chile. They uniformly communicate the brand’s style (stainless steel designs) through sleek Bauhaus-esque glass and metal displays and storefronts. Strict oversight of merchandise assortment and amount also ensures that the brand is well-represented by outsiders. “Our CEO distributes licensing agreements so we can concentrate on manufacturing and design,” says national sales manager Hanspeter Kropf.

Sidebar: Top Jewelry Brands Recognized by Consumers*
Zales 33%
Kay 27%
Tiffany 23%
Jared 11%
De Beers 7%
Rolex 6%
Helzberg 6%
Cartier 4%
Seiko 4%
Gordon’s 3%
* Unaided recall
Source: The JCK-Harrison Group Consumer Jewelry Study released in 2008

Sidebar: Top Jewelry Brand Consumer Awareness*
Zales 98%
Tiffany 98%
Kay 98%
Cartier 90%
De Beers 78%
Keepsake 64%
Bulgari 60%
Van Cleef & Arpels 47%
Harry Winston 45%
Bailey, Banks & Biddle 42%
* Aided recall
Source: The JCK-Harrison Group Consumer Jewelry Study released in 2008
Roberto Coin operates eight stores worldwide, half in the United States.

Michael B., Studio City, Calif., opened Matthews in 1972, One result is that the company “has become more sensitive to retailers’ needs,” says vice president Matthew Bogosian.

Kwiat recently opened its second store on Madison Avenue in New York; its first is in The Shoppes At The Palazzo in Las Vegas.