What is the State of the Industry? Your Turn

The JCK 2007 State of the Industry Report

What is the most critical issue facing the jewelry industry in the next couple of years, and how can we deal with it?

That’s the question JCK posed for its 2007 State of the Industry report. To answer it, we went to experts and leaders, including retailers, manufacturers, suppliers, consultants, educators, and association executives, all seasoned observers of the jewelry business. The resulting opinions offer acute insights and practical solutions.

Most intriguing are the common themes that run through their responses. Though each offers his or her own perspective, they repeatedly touch on some of the same issues—integrity and trust, competing in a rapidly changing market, commoditization of diamonds, the Internet’s impact, and attracting and holding customers. You’ll find all 16 responses here and in the September and October issues of JCK magazine.

JCK would like readers’ responses to what these experts say, or what you see as the most critical issue facing the jewelry industry in the next few years. To comment, use the “Talkback” tab beside or at the end of the story. Or you can fax, or e-mail your opinion (in 300 words or less) and we’ll print your views in future issues of JCK magazine.

William George Shuster

Responding to Changing Buying Patterns
Joel Schechter, chief executive officer, Honora

The Internet, and how it affects traditional distribution channels, will have a growing impact in each coming year. Some high-end jewelry brands are partnering with larger, more visible retailers to make the buying experience as easy as possible for the consumer. That is what it’s all about, instead of frustrating consumers, who are quickly getting used to buying all sorts of products online and are enjoying wonderful delivery systems with premium packaging, generous return privileges, and high-end customer service.

Like global warming, the buying-pattern changes in our industry started slowly, but the cumulative effect can be devastating to the independent retailer. A small retailer can look big with a fully developed site, and the right bells and whistles. Most, however, can’t afford to stock a wide assortment of a brand. Most can’t afford partnership positions on AOL, Google, and many of the significant online portals that field traffic and ultimately attract consumer sales. Most don’t have world-class distribution systems at their disposal.

As a brand, how we handle our presence on the Web is one of our most important decisions. We need to be sure online discounting doesn’t “un-level” the playing field. We suppliers need to protect and embrace brick-and-mortar jewelers who year-round display, stock, and promote our lines. But we need to simultaneously cater to the consumer who demands a convenient online buying experience. In 1999, Honora, along with 20 or so retail and wholesale leaders, tried to create a joint distribution system to solve the problem. That entity, Enjewel, was ahead of its time and didn’t survive. But the industry needs an answer. Now that the realities and potential of the Web are better understood, a new group can create a system that will marry the local benefits of better independent jewelers with the technologies that make shopping more convenient. The next generation will demand it.

Ben Janowski, president, The Janos Group Ltd.

We all know that first-half 2007 sales have been slow. The government reported a paltry 0.5 percent growth over 2006. Considering that gold and diamond prices are up, we also know that means a real dip in unit sales.

It would be easy to blame the poor performance on a stressed economy, and the likely downturn we’ll see in the coming months. That may be true, but it avoids greater underlying problems for many U.S. jewelers, with survival at stake.

The diamond business has evolved over 30 years into the bedrock on which many retail businesses rest. A portion of that, from 0.25 ct. and up, has seen significant erosion in profit margins, in good part because of the rapid growth in Internet sales. With cut grading becoming common, price competition will become fiercer. Even if a sale ends up being made at the retail counter, the Internet has become the de facto price list for graded stones. If futures trading (as is now being proposed) becomes a reality, prices will become the equivalent of looking up a stock on the Nasdaq.

The loss of margin in this critical area has slimmed profits to the point where cash flow is used for operating costs instead of paying vendors. That means curtailing buying, which can begin an unstoppable downward spiral. Retailers may lean more on suppliers for terms and memo, but unless inventory turn is increased, that is a dead end, too.

Unit sales may be affected (as they are this year) by increasing prices on precious metals. The public will adapt to jewelry using silver, steel, palladium, and titanium. But will retailers do the same? Major gold miners are de-hedging lately (Newmont de-hedged entirely), which means they’re confident gold is going in only one direction: up. These companies see weakness in the dollar for the next few years, and with metals and diamonds dollar denominated, that means higher prices for everything. So, every retailer needs to develop scenarios to deal with gold going to $1,000 and higher and better-diamond prices holding their high levels or going higher.

The continuing 20-year decline in the number of U.S retailers doesn’t spell the end of jewelry retailing. Instead, it shows a process whereby the business is becoming more segmented. Mall chains and discounters have captured the low-end market and a good part of the mid-market. Specialty stores and wholesale clubs have captured a good part of the mid-market and the upper market. The Internet has captured a good part of the price-conscious buying public.

It is the independent retail channel that is most diverse in response to market trends. Stores located in very affluent neighborhoods continue to accrue business, as incomes for the rich have risen. They have become, in a sense, diamond destinations. Others stress fashion and designer lines.

But many independents are floundering. Few have accepted that the future means differentiation, a robust online presence, superior services, and close relationships with the right suppliers.

Do We Sell Diamonds or Carbon?
Joseph Schlussel, president, The Diamond Registry Inc.

The biggest threat to our industry is not synthetics manufacturers who turn carbon into diamonds. It’s commoditizers who want to turn diamonds back into carbon.

For centuries, diamonds were revered as the ultimate expression of love. Then, in the mid-1970s, the investment community began selling diamonds as a standardized commodity. Every Monday, price lists would appear in the Wall Street Journal showing prices heading to the sky. At the market’s peak, a 1.00 ct. D Flawless reached $65,000/ct. Shortly afterward, the bottom fell out, and the price plummeted to less than $10,000/ct. The investors went looking for the next fast buck. In the end, nobody gained, certainly not the industry the investors left in ruins.

WSJ stopped printing price lists, but the legacy of treating diamonds like pork bellies is still with us. Now there are new proposals to sell diamond futures and derivatives to the public.

People who have devoted their lives to diamonds know they can never be a true commodity. All VS diamonds aren’t equal. Inclusions can vary in size, color, and location. People don’t even agree on what the Ideal cut is. Would a narrow range of sizes and grades represent all diamonds?

We must get back to selling precious gems, not standardized sorted and graded pieces of coal. Let us educate the consumer about not only the steak but also the sizzle—the beauty, fire, brilliance, and scintillation of nature’s masterpiece. Some people say it’s OK if diamonds are commoditized; you can make money on the mounting. That’s like saying forget about the steak, the real action is in the ketchup! The carbon market is hot at the moment, but coals can turn into ashes. Diamonds are forever.

Developing New Forms of Consumer Advertising
Roger Marks, chief executive officer, Rogers Jewelry Co.

As retailers, our biggest challenge will be how to effectively reach the consumer with our advertising message. Communicating with the public as we have for years with the standard media (commercial radio and television) will diminish in effectiveness as satellite radio and digital recording devices increase in use and popularity.

We are great believers in top-of-mind advertising. Billboards are one option for this, but limited space and increased demand could make the cost too high for the limited message delivered. Direct mail is a possibility, but frequency and top-of-mind penetration is problematic. These methods may be used, but others to generate traffic will need to be created. It will take imagination and a considerable amount of creativity to establish effective clienteling and outreach programs. It will take some trial and error to find what works and what doesn’t. It’s time to begin developing and experimenting with these methods.

Many jewelers believe the Internet is the biggest problem. However, selling jewelry is best done by painting pictures, not posting numbers. In the last year, while many felt they were losing business to the Internet, the major retail jewelry companies showed the largest growth in diamond sales. They ran some very effective advertising programs (particularly on TV), and have proven that consumers are motivated to purchase jewelry because of romance and beauty.

The difficulty in the future will be how to communicate that romance and beauty message effectively to the consumer without relying so heavily on radio and TV. Jewelers who solve that riddle will be successful. Those that don’t will find difficult times ahead. I feel we have time to develop effective programs and that a large number of retail jewelers will survive and thrive in the coming years.

Global Competition
John Kennedy, president, Jewelers’ Security Alliance

The most critical issue facing the U.S. jewelry industry is how it responds to increasing global competition, as the jewelry firms in other countries become more powerful each year. Cheaper labor and lower costs have already pushed a large amount of U.S. jewelry manufacturing to offshore locations, such as Thailand and, increasingly, China.

One outdated idea is that advanced technology and high quality would allow U.S. jewelry firms to keep costs down and remain competitive. However, U.S. firms now compete against firms in many countries that use advanced technology and have excellent quality. Any competitive advantage the U.S. might have had is rapidly disappearing.

In the diamond world, India has become a dominant force. Indian companies are not only competing with U.S. firms but also becoming partners with, or purchasing, major U.S. diamond firms.

The successful path for U.S. manufacturers will be merger, acquisition, and consolidation to achieve a size that enables them to manufacture and sell in a world market. The traditional fragmentation of the U.S. jewelry industry, with a vast number of small players, won’t continue. Larger and stronger players will compete around the world, while many smaller players won’t survive intensified global competition. U.S. firms must view themselves as operating on a global stage, be it locating manufacturing facilities, finding customers, or seeking partners.

While increased global competition is thought of as an issue for manufacturers, globalization also has major implications for retailers. At the luxury end of the retail market, foreign companies that own diamond mines are starting to enter U.S. retailing: De Beers hopes to have six retail stores in the United States by year’s end. Aber, a Canadian mining company, bought Harry Winston. These retailers/miners are assured of controlling access to high-quality goods without paying intermediaries.

The independent U.S. jewelry retailer also faces global challenges. The supply chain of diamonds from mine to retailer is getting shorter. Gitanjali Gems, an Indian Diamond Trading Co. sightholder, has bought a majority ownership of Samuels Jewelers, a U.S. retail jewelry chain with 97 stores in 18 states. The larger U.S. chains are also trying to get more direct access to diamonds and other merchandise using fewer middlemen. It will be increasingly difficult for the independent retail jewelry store to compete on price with chains that have more direct access to product at a lower price than the independents. So, nimble independent retailers will have to offer better service, greater convenience, and unique product to keep their heads above water.

Improving Cash Flow
Joseph M. Menzie, president, Joseph M. Menzie Inc.

Improving cash flow may be the most important issue facing our industry over the next few years, followed closely by the need to fuel consumers’ drive to purchase. Everything we do is affected by our ability to generate cash, but the seasonality of our business, coupled with a slower turn on inventory, has put tremendous pressure on all segments.

Inventory, as a rule, is an asset on the books. However, if it isn’t liquid at close to a cost price, it becomes a liability and a bottleneck to cash flow. Inventory must be reduced. Yet, oversaturation (too much product in the system, from manufacturer to distributor to retailer) coupled with distribution (no clear idea of where and how best to distribute products to a market segment) are two very big problems. And there are more manufacturers from more origination points, all vying for business. There’s too much inventory in the pipeline chasing fewer sales.

Retailers have four methods to dispose of one-year-plus merchandise. The retailer can, if the vendor agrees, return merchandise. There may be some exchange ratio of two to four times valuation of goods. This gives the retailer a net increase/liability of merchandise.

Another way is to discount products, put them in your estate case, and keep lowering price. But that makes you look like a discounter, and customers will realize your markups and profits.

A third way (very labor and time intensive) is to break a piece into its components and make a new one.

The fourth is to get closeout companies to help you liquidate or buy your old inventory. You may cash out, but at what loss from cost factor?

A fifth way that’s being developed is Web based. It creates communities for niche markets, helps retailers retain most of their cost per item back, and identifies a retailer as an active reseller who turns merchandise and replenishes stock.

For smaller independents and small chain operations to survive, we must reduce inventory and turn it into cash. But turning merchandise isn’t the entire solution. Building consumer desire and confidence, adding value to our products, marketing, and promoting are all key ingredients.

Distributors/manufacturers should spend less time developing new items and more time developing partnerships with retailers and training their staffs to better understand and sell their products. They can simplify the process with signage, tent cards, certification, and interactive mechanisms such as Web sites that stimulate sales.

The bulk of retail selling comes in the year’s final months. Yet, the demand, the drive, and the desire to purchase our products the rest of the year isn’t being fueled by our industry as a whole. We as a trade—especially the leadership of the various trade associations—should sit down together to find commonalities and long-term solutions to generate the desire and demand needed for future growth. We’re all in this together. We all need to capture more disposable income.

Buying Trends Among U.S. Women
Frédéric de Narp, president and chief executive officer, Cartier North America

My background is European, and in European countries, women have a different approach to buying and wearing jewelry. They express themselves and their style with their jewelry and have a more playful attitude. Many European women have a jewelry and watch wardrobe. They change their jewelry based on the occasion and their mood, expressing themselves and their style through it.

In the United States, however, women tend to consistently wear one or two great pieces of jewelry and a watch. They mark milestones and achievements with a piece of jewelry or a watch. It’s not as often thought of as a way to enhance your wardrobe.

A similar challenge is interest in design. American women have a different appreciation for jewelry, which is reflected in their purchasing trends. Americans look for value and invest in classic pieces that can be worn every day. European women are also interested in value, but have a stronger interest in fashion and trends. They invest in unique pieces with innovative design.

I view these as huge opportunities. There’s so much room for growth in the U.S. market. Women are more independent, have higher incomes, and are making more self-purchases. There is more wealth in the United States than ever and an increased interest in luxury goods that exemplify history, craftsmanship, quality, and design. The United States is an emerging market for luxury goods, including jewelry and watches. I’m fascinated by the potential.

The Future Viability of Jewelry Products
Dennis Ulrich, chief executive officer, and David Meleski, president, The Richline Group (Bel-Oro, Aurafin, Michael Anthony)

We believe the future viability of our products for the consumer, particularly gold primary-value items, is foremost. Our concern includes consumer issues such as the environment. Social responsibility messages resonate with the consumer. Our industry is proceeding in a responsible manner, and we must communicate that clearly with the public. Price is another consumer issue. In May 2006, gold topped a quarter-century high of $725. There’s less elasticity than we require at this higher market for a high percentage of price-point-conscious consumers. And where do prices go from here? Finally, will new generations of consumers view gold as less hip, trend-worthy, or fashionable? Trend-right gold must be celebrated.

Competition issues include the growing acceptance of alternative metals like steel, titanium, and silver, and the popularity of nonjewelry items such as iPods and BlackBerrys.

The third major issue is demographics. Baby boomers account for nearly 20 percent of the population but hold over 70 percent of the wealth and buy 80 percent of the luxury goods. Millennials (ages 18–34) are the new key. Technology and luxury are two things they clearly desire. As boomers fade, we need to replace their demand by exciting these newer generations.

Ensuring future viability will require product development, branding, and relevant marketing. Aggressive product development requires significant investments of people, time, and money. Our industry continues to be challenged with low margins that mitigate such investment, especially longer paybacks from capital equipment in newer, advanced technologies. New horizons must be forged if we are to compete.

Branding must be cultivated on two levels: trade and consumer. Trade marketing must clearly differentiate offerings, and provide turnkey marketing to our clients for their strategic positioning. Consumer branding—the absent ingredient in our industry’s profile—must reach a level competitive with nonjewelry marketers. This must be accomplished by investing in consumer campaigns that create identity, provide information, inspire interest, influence the purchase decision, and instill confidence. Consumer branding aligned with store branding will deliver the consumers required for our mutual future viability.

Relevant marketing will combine the previous goals with a message that demonstrates good design, good value (preferably luxury), social responsibility, and a campaign that sells, together with our clients.

Comparatively sluggish gold jewelry demand is a current problem for our industry, but an uninterested consumer is the larger future concern. World Gold Council awareness programs, i.e., “May Is Gold Month,” are the right vehicles, but our industry must embrace targeted, aggressive branding and marketing programs for the future or risk ever-increasing revenue shortfall. Margins must be sufficient to support such mutual programs. Collaborative product development with our clients will ensure achievement of their strategic gold jewelry initiatives.

Our industry won’t be competitive by focusing solely on cost. Future viability with the consumer is our critical issue.

Competing in a Changing Market
Helena Krodel, associate director of media, Jewelry Information Center

The Internet has helped consumers obtain fine-jewelry education, discover more product options, become price conscious, and enjoy immediacy in obtaining jewelry. Jewelry retailers can compete by developing clever marketing, being attentive to customers, having a market niche, and positioning oneself as an expert.

The rise of “retailtainment” means retailers’ success will depend on the experience and atmosphere, not just the product. Stores like Apple, Starbucks, and Sephora create an environment where people are encouraged to linger, try products, and hang out. Maybe it’s time to create a jewelry lounge with an espresso machine or a private area where customers can try things on and have fun with the jewelry. A children’s toy area would allow busy moms to peek at jewelry while their kids play. Jewelers also can investigate methods to make the shopping experience more interactive and fun, such as a computer on the countertop to show customers all the colors a particular necklace comes in.

Specialization is another strategy. Retailer Sabon specializes in selling chunks of soap. The company says it packages its soap “with love,” offering a selection that’s deep, specific, and not animal tested. Decide what you want to be known for, and then stock the most and best of that product.

If you don’t have a Web site, you may be viewed as staid or out of touch. Build one that features the store’s history, mission, and philosophy. Make it personal. Include biographies and features on staff members to present the business as personable and friendly. Post jewelry education information to build trust. More intricate Web sites can offer interactive shopping features like wish lists that can be e-mailed to loved ones. Showcase jewelry with good-quality pictures and zoom capability. Web sites are relatively affordable, and an enticing one will pay for itself.

Diamond Investments
Tom Chatham, president and chief operating officer, Chatham Created Gems

The information highway has spawned a new type of consumer: the informed consumer. I will bet every retailer reading this has had instances when a 20-something walks in looking for a diamond, fully armed with printouts, fact sheets, and prices.

Many years ago, Martin Rapaport warned the industry about the commoditization of diamonds. People stopped looking at stones and instead read certificates. There is even talk now of creating a type of hedge fund called a diamond derivative. Can you think of anything more volatile and subject to manipulation than diamonds?

De Beers is backing out of the diamond business. It’s cutting ties to sightholders of long standing. It can’t seem to make up its mind about who it is and who it wants to do business with. Meanwhile, Australia’s Argyle Mine is running out of production, Russia has declared it will no longer be tied to De Beers, Canada is running their show, and Africa is in constant turmoil.

It was bad enough when Orange County dove into derivates based on AAA bonds. When interest rates went up, the bonds went down, and Orange County went bankrupt—and that was a relatively safe investment. Diamonds are not.

There was a time when natural diamond was an important industrial tool. Every nation needed a supply, sort of like the need for platinum, aside from jewelry. But laboratory-created diamonds have all but eliminated that industrial need, so what is the value of diamond based on? Today, it may be supply and demand. But that supply chain is becoming murky. Russia is cutting some of its production and so are De Beers and Canada. De Beers is opening retail stores. Where is the argument of supply and demand when the mining company that digs up rough at an average cost of $180/ct. cuts its own stones and puts them in their storefront window? If needed, the De Beers retail store can outcompete every level of the industry and still make money.

The bottom line: Watch out for long-term diamond values.

The Internet’s Impact on the Jewelry Retailer
Mark Schneider, president, Mark Schneider Design

The Internet has given buyers the ability to purchase diamonds without setting foot in a jewelry store or consulting a jeweler. It has given entrepreneurs the opportunity to sell a product consumers believe is overpriced and difficult to understand. Sellers have used the Internet to market diamonds in the purest form with little overhead and sometimes no inventory costs. This allows them to sell diamonds for less than a brick-and-mortar jeweler. Most consumers shop price and convenience and believe jewelry stores work on high profit margins. Internet sellers have put pressure on jewelers to lower prices or lose an important percentage of their business. Net profits have been reduced, and gross sales lowered. Accordingly, jewelers will purchase fewer diamonds for stock and rely more on memorandum. Diamond suppliers will charge more for memo diamonds, further eroding the retail jeweler’s profit margins.

Consider how Toys “R” Us and Wal-Mart changed the way toys were sold. Toys “R” Us had beautiful stores with well-trained, knowledgeable employees. With its strong purchasing power and large advertising budget, the company put independent toy stores out of business. The toy market changed again when Wal-Mart offered cheaper prices than Toys “R” Us. Consumers became unwilling to pay higher prices for the same goods, despite the customer service offered at Toys “R” Us. The same pattern is developing for diamond retailers.

The jewelry industry has helped diamonds become a commodity by emphasizing the value of a diamond certificate over the importance of the jewelry professional. Consumers believe that if the diamond has a certificate they don’t need the assistance of the professional jeweler. For some buyers, diamond purchases are becoming like Wal-Mart shopping, where the lowest prices earn the sale over quality and service. Many consumers are uninterested in the service and quality offered at a retail store. Shopping habits are changing, and low price points are often winning.

Jewelers need to examine their businesses in the context of the competition presented by the Internet. They must adapt and find ways to reinvent themselves to give people a reason to shop in their stores. They should find a niche that makes them indispensable, whether it’s providing appraisals, focusing on design, creating and promoting a unique brand, or a carrying product no other jeweler in the area is selling. The jeweler needs to develop a value for his brand so customers will be willing to pay a fair price for jewelry that is special and unique.

Getting a Fair Share of Luxury Spending
Huw Daniel, president, Platinum Guild International USA

Every purchase of a $900 flat screen TV and $2,500 designer handbag raises the question, “Why wasn’t that a jewelry purchase?”

Perhaps we need more aggressive marketing programs, exploring new niche target markets via small-scale tests, like baby-boomer bridal remounts, push gifts, or same-sex commitment jewelry.

What customers say is not always what they do; hence many spend far more than they said they would for a house, a car, or a vacation. Platinum Guild International’s nationwide and ongoing mystery shopping program shows customers too often aren’t buying their first choice in platinum engagement rings and wedding bands—but not because they’re not prepared to pay for it. The reasons are the in-store selection is too limited, or they were shown a cheaper alternative first, trading down to a lower ticket sale, not what they wanted.

A simple e-mail to an engagement ring customer six months later may be all it takes to convert an engagement ring sale into a higher-value three-ring sale.

Many worry that increasing transparency is undermining diamond margins. True, but that misses the point brought home to me by a reputable buyer at the recent JCK Las Vegas show. She told me at least 30 percent of her bridal sales must be in platinum, because she can’t make her numbers through lower-price unit sales. In other words, margins and dollars are in the setting. Remembering that bridal is a zero-sum game—ideally, a onetime purchase for the happy couple—to whom are we doing a service by selling anything other than the best? Not the couple and not our industry. PGI’s research shows owners of platinum bridal jewelry are prone to buy more, so platinum bridal can be a springboard to incremental high-ticket sales across the customer life cycle.

Back on Main Street, Louis Vuitton doesn’t worry about charging $2,500 for a handbag destined to last a season or two. The raw material–to–price equation, an obsession in our industry, never enters the discussion because it sells value, not price. Value comes from the beauty of the piece and the powerful reputation of the brand, and lives in the realm of perception and aspiration.

By focusing on the emotional value of an object, and how it is going to be used, we don’t need to burden the customer with our concerns about rising and fluctuating material costs. After all, what purchase is more emotional than a ring that says “I want to marry you,” and two bands that say “I do”? By shifting the focus of the sale from the price of the parts to the emotional value of the whole, the jewelry industry has a better chance of getting its fair share of those luxury dollars currently finding their way to other doors.

What’s Trust Got to Do With It?
Eli Mermelstein, vice president of marketing, Croton Watch Co. Inc.

Honesty and integrity have built trust between customer and jeweler that’s been unparalleled. This has kept the jeweler in good business for centuries. Recently though, I have begun to worry. Here’s why:

First, the film Blood Diamond aired some dirty laundry from the secretive jewelry world. Second, over the past few years there have been some high-profile cases concerning jewelry establishments laundering money for organized crime syndicates. Third, the jewelry industry has seen a number of high-profile tax fraud cases.

I don’t know anyone who has traded in conflict diamonds, laundered money, or committed tax fraud, and most of the men and women in this industry would never engage in those activities. But do consumers know that? How will widespread knowledge of conflict diamonds or reports of money laundering and tax fraud affect the trust we build with our customers?

To maintain trust, we must go beyond the letter of the law. Let me share some common sense.

A major retailer has a long wall covered in picture frames. Most contain pictures of employees, but some contain just one word—integrity. Integrity starts with the front line: the “company face” your customer sees. So, most important, have an ethical staff. Your employees are a reflection of you and your business.

Next most important is the knowledge you and your staff impart to customers. Training, training, and more training is the key. Train your staff to understand the Kimberley Process and any other information particular to the items you sell. Educate them on how jewelers police themselves to ensure conflict-free diamonds are in their displays and vaults. Train them to understand the Patriot Act and how jewelers are working with the U.S. government to stop money laundering for terrorists. Explain to your staff that your establishment doesn’t charge tax, but merely collects it. Once they understand these issues, they can build trust with your customers.

Third, remember that you come from a long and proud lineage. You’re a jeweler—someone who helps provide heartfelt expressions of love and thanks for every occasion. While there may be a lot of dishonesty outside your store, you know that inside you’re honest with yourself and your customers.

Integrity During a Time of Rapid Changes
Donna Baker, president, Gemological Institute of America

The key challenge for our industry will be keeping up with the rapid pace of change and doing it with candor and transparency.

We are seeing increased globalization, new technologies that affect every step of gemstone processing, and more product choice than ever before. Increasing competition requires business plans that separate fads from trends and pinpoint emerging markets. A deep knowledge of the industry is essential but so is a business strategy that is robust yet flexible enough to respond to market forces that can change direction seemingly overnight.

To address these challenges, GIA has established the following priorities: Improve our responsiveness to our clients, shorten turnaround time in our laboratories, disseminate our research more widely to help the public and the industry keep abreast of new treatments and synthetics, develop educational programs in a variety of media that will serve students better throughout their careers, and strengthen our connection with our international constituents by expanding our services globally.

In all that we do, we have one key objective: Maintain the highest degree of integrity.

Integrity is the one overriding concept our industry must embrace as it addresses change. No single goal affects so many levels of the gem and jewelry industry as maintaining—and enhancing—public trust in what we do and how we do it. It is the cornerstone of our industry.

The need for integrity is most obvious in the processes and practices that directly affect consumer confidence, such as the proper grading of goods, full disclosure of treatments and synthetics, and fair pricing. To meet this need, GIA is introducing a new array of colored stone and pearl services, in addition to recent enhancements in its world-renowned diamond-grading reports.

The concept of integrity transcends what happens at the retail counter. We have seen how the exposure of inhumane conditions in western Africa during the 1990s impacted the diamond industry. In the days following Sept. 11, 2001, we read about concerns that trading in colored stones was funding terrorist activities.

As a result we are seeing, in effect, a steady evolution toward common, worldwide standards throughout the industry, from corporate governance and supply chain integrity to accurate grading and disclosure of gemstone properties.

Some standards are already well enforced, such as financial dealings and anti-money-laundering procedures through the USA Patriot Act, the European Union, and other jurisdictions.

Some standards remain a work in progress, due to the complexities of establishing global guidelines. For example, many companies are working hard to ensure the integrity of their supply chains against illicit gems and gems that were mined under substandard conditions. Unfortunately, this isn’t universal, and abuses open the entire industry to criticism from organizations whose mission is to expose such issues, sometimes unfairly.

Some standards are voluntary, which is where GIA has played a critical role. In fact, GIA’s diamond-grading system was adopted worldwide, because it provides a common language and process for the public and the industry.

Keeping and Increasing In-Store Traffic
Sarah Person, owner, Exclusively Diamonds

The convenience of shopping online and the ability to create your own ring weaken the need for consumers to visit a brick-and-mortar store. So, jewelers must create the desire for customers to visit their store and reward them with a memorable shopping experience. At Exclusively Diamonds, we’ve implemented four programs that have created traffic, generated excitement, and increased sales.

Clean-and-check postcards: We send a postcard to customers every six months to remind them of the importance of cleaning and checking their jewelry. This allows us to check prongs, buff the gold, and clean stones. This free service makes our jewelry look spectacular years after it is purchased. It also allows the customer to see new inventory, fill out a wish list, or make a purchase while they wait. It’s important that staff work together so that while one person cleans the jewelry, another entertains and wows the customer. Customers are often limited in their time and attention, so it’s important to make the most of every minute they’re in the store.

Celebration Club membership: Exclusively Diamonds mails a $50 birthday and anniversary gift certificate to be used for purchases over $100 during the month of that celebration. This allows for self-purchases as well as gift purchases. It generates large dollar sales but salespeople must be highly trained to turn a $100 sale into a larger purchase.

Event marketing: This creates excitement and sales. Our last promotion, “Color Your World,” was on a Wednesday in June. The first 100 customers received a free gemstone at the door. The parking lot started to fill up at 9 a.m. We played music and did a tailgate party serving mimosas and coffee drinks until we opened at 9:30 a.m. When we did, over 50 people were waiting in line to shop, and by late morning the gemstones were gone. Customers were so thrilled to receive a gemstone that 30 percent purchased mountings and had them set the day of the event. The excitement created a momentum in our sales as we sold color, engagement rings, a 4.00 ct. diamond ring (a woman’s self-purchase), a 2.00 ct. diamond pendant, diamond earrings.

Expanded bench services: We added a third goldsmith in February and purchased a laser welder in May. Promoting our shop and bench services differentiates us from chain stores and the Internet. This expanded service allowed us to set and deliver all of the gemstones the day of our “Color Your World” party. We’ve increased our advertising budget to market our bench services to smaller towns in our area, boosting our repair revenues 40 percent in the first half of 2007. We’re now including eyeglass repair in our advertisements to further expand our services.

Competing With the Internet
Aida Alvarez, senior vice president, merchandising, Birks & Mayors Inc.

To compete with the Internet, retailers must continue to promote a sensory approach to certain jewelry and Swiss watches. Being able to touch and feel these products, plus the welcoming presence of a sales professional who can answer technical questions and provide additional services, are lost to those who buy online.

Retailers face greater competition from Internet diamond vendors, because their diamond suppliers offer their listings to online vendors who can sell their “virtual” inventory of diamonds for a few percentage points above cost. In addition, for many young clients educated by what’s online, value is defined only by cut, color, clarity, carat weight, and shape. They don’t care where they buy a diamond ring, only that they’re offered better prices.

It’s essential for jewelers to offer private labels, higher quality, and one’s own patented cut diamond. Many clients will gladly pay the price to their local jeweler to get a quality diamond with authentic paperwork and sales professionals who can assure them about their purchase.

Even designer lines are offered for sale online or linked to major department stores on an exclusive basis, affecting independents who carry those same lines. But shoppers will come and spend big money for such luxury items if they feel their local jeweler won’t pressure them to buy and will continue offering them superior service. Also, branded products shouldn’t be offered online. Retailers shouldn’t have to compete with their vendors. Branded products can have Web sites—but only for information and store locations, and we should tell our vendors that.

With recent bad publicity about diamonds and the increase in metal prices, it’s becoming more difficult, even for Internet vendors, to show just the value of the investment. We must continue offering the best-quality product and, above all, highlight the best personal service. Since many clients prefer comparison shopping online, jewelers should have Web sites to show products. We also should look for ways to invite them to shop in our stores and explain to them how important it is to see and touch our products. We all must do a better job communicating the experience and emotion of buying and owning jewelry, and—if a gift—how a recipient feels opening that special box.

Our message must be, “Buying jewelry is all about trust. You can trust your local jeweler. You’re important to him or her as a friend and neighbor. Your jeweler remembers your anniversary and other special occasions, updates you on trends, explains differences in diamond quality, and lets you compare pieces and try on jewelry before buying.”

We must tell them, “If your jeweler cares enough to look carefully at every jewelry piece before buying or making it, you—the consumer—should care where and what you buy.”

The Internet doesn’t offer the interaction, confidence, and the guarantee one gets shopping at an established jeweler with professional salespeople. This is the message we must continue to convey and reinforce.