Business Report

Over the past decade, consolidation squeezed many sectors of the economy. Jewelry is no exception. According to the Jewelers Board of Trade, the 1990s saw a 21.1% decline in the number of manufacturers, a 5.6% decline in retailers, and a 1% drop in wholesalers.

JBT president Nat Earle says mid-sized companies—both retailers and manufacturers—are being squeezed the most. Some have simply gone out of business, while many others have consolidated or have been acquired by larger firms that are growing ever larger. Membership in JBT has grown among smaller firms, as well. In fact, most new JBT members are small. “It’s the dog-bone effect,” he says, referring to industry shrinkage in the middle and growth at each end.

Earle says mid-sized manufacturers are most at risk. Because these firms need sales forces, credit departments, business plans, human resources expertise, and so forth, overhead is often their undoing. “Companies in the middle find it difficult to compete because they typically can’t afford all that stuff,” Earle says. “Those people add a lot of overhead, and you have to generate larger sales to cover those costs. If you can’t, because the competition is too tough, they may be in a position to sell out to someone who has that infrastructure in place already.”

Mid-sized manufacturers “usually compete on price point with similar-size firms, unless they have a very distinct, selective product,” says Earle. “And you know how long those unique products last in the jewelry industry. They’re on the street one day and knocked off the next.” U.S. suppliers also compete against foreign manufacturers, which enjoy lower labor costs, tax and duty protection, and, in some cases, government underwriting. The foreign challenge will intensify as barriers to international trade continue to fall.

Economies of scale have also worked against mid-sized jewelry retailers. “Larger retail companies can go out and buy a medium-sized chain with anywhere from five to 15 stores, and they can absorb that into their central purchasing and advertising allowances and so on,” says Earle. “They’re laying out money, but they aren’t laying out more overhead. They don’t have to hire any more in the central office to look after the new ‘kids.’ ” Jewelry chains typically make these acquisitions to obtain desirable real estate locations or regional dominance, he adds.

Although many domestic manufacturers are bypassing wholesalers and selling directly to retailers, the number of JBT member wholesalers declined by only 1%. “In general, there’s been a decline in the number of wholesalers,” says Earle. “But there are still quite a few hanging on. Many of those trying to deal in domestic products are barely making it. But many wholesalers have shifted away from domestic manufacturers and are now representing foreign firms, particularly those from Italy.”

Among the 500 companies surveyed, primarily manufacturers and some wholesalers (16% of JBT’s membership), the median number of full-time employees was 12, meaning that half the companies had fewer employees, and half had more. Among respondents with sales below $1 million, the median number of employees was 3.9. Among companies with revenues between

$1 million and $5 million, the median number of employees was 10.6. Among companies with revenues over $5 million, the median number of employees was 16.

Turn Money Burners Into Money Makers

It takes around four years for an unsold piece of jewelry to become worthless and begin costing you money.* One way to turn old inventory into cash is to sell it through an online auction such as eBay.

Jeweler Ed Yonan, owner of Yonan’s Fine Jewelry in Turlock and Merced, Calif., had a 1965 18k ladies’ Rolex that wouldn’t sell in these communities—so he expanded the market. He posted it on eBay and sold it to a woman in Japan for $825 plus $30 for shipping and insurance. “I couldn’t sell the Rolex here even when I tried ‘giving’ it away for $400,” Yonan says. “I would recommend that other jewelers look at eBay for slow inventory. If not, they’re missing the boat. There are millions of people looking at this site.”

According to eBay (www.ebay.com), 5.6 million customers worldwide use the site, including thousands of sellers. A spot check in early October found 212 pages of jewelry. Evie Black Dykema, an analyst with Forrester Research, a Boston firm specializing in online retail trends, says, “Everybody’s using eBay for excess inventory. It’s the easiest way to get as many consumers as you think might be interested, and to get exposure for your merchandise.”

At Valley Findings & Tools in Modesto, Calif., owner James Cruce has been using eBay to help jeweler clients make extra cash on goods they would otherwise melt down. Cruce pays the posting fee, which is based on a sliding scale, and splits the profit with the client. “If a jeweler takes the stone out of grandma’s ring, puts it in a new setting, cleans up the mounting, and posts it on the ‘heritage mountings’ section of eBay, he can sell it for five times the gold weight,” he says.

Trent Crowley, president of Astor Online (www.astoronline.com), a separate online corporation spun off from Astor Jewelers of Memphis, sells at least 100 jewelry items every day through auctions on eBay. “When jewelers have a one-of-a-kind item and feel that if the right person saw it, they could sell it for more money, they can put it on an auction site,” Crowley says. “A rare piece might only sell for $1,000 locally, but if someone in New York City saw it on eBay, they might buy it for $3,000.”

Earlier in the year, Crowley sold 300 items a day, but that proved to be a logistical quagmire. “I think eBay as a venue for the typical jeweler has merit, but only if he can monitor the items,” says Crowley. “The Internet is time-consuming and very labor-intensive.” Adds Cruce of Valley Findings, “It’s like owning a dairy herd. You have to work your computer every day to be successful. People expect precision, immediate communication, and everything has to be overnight. The minute you sit back and take a rest, you’re in trouble.”

Mark Moeller of R.F. Moeller Jeweler in St. Paul and Edina, Minn., occasionally uses eBay to sell jewelry. “Some of the lower-end pieces we get in estates—inexpensive, cookie-cutter stuff—seem to draw big money on eBay. This is merchandise you would look at and think you’re lucky to get the cost of gold out of it.” Moeller estimates that if he had one person dedicated to selling items on eBay, he could have annual sales of at least $100,000 through the site. “It’s no secret. This is a good way to move product without jamming up the counters.”

For pack rats with old inventory, eBay could be ideal. Ralph Fava of Ralph M. Fava Jewelers in Little Falls, N.J., uses the site to sell limited-edition Waterford plates. He has so many that even Waterford refers customers looking for out-of-production pieces to him. “I’ve been in business for 70 years, so I’m talking about plates that are 35 or 40 years old,” says Fava. He concedes most jewelers are better off investing money than holding inventory for decades. “I don’t gamble, but this paid off.”

“eBay makes sense for a lot of people,” says Rich Goldstein of iJeweler, an Austin, Texas, firm specializing in Internet marketing. But, echoing both Cruce and Crowley, he warns, “Success depends on whether you post items one at a time and follow up on people’s questions. Online auctions work for anybody who’s got the time and patience to ‘futz’ with it.”

Jewelry Stores Still Dominate

Jewelry stores accounted for more than half (55.6%) of jewelry and watch retail sales in 1998, according to Discount Merchandiser magazine. Trailing far behind were department stores and discount stores, at 14.1% and 12%, respectively.

The magazine’s analysis represents the most current data available on jewelry industry market share. Combining information from numerous government and corporate sources, it estimates the jewelry industry’s total revenues hit $29.5 billion in 1998. That’s well above the $21.4 billion in ’98 jewelry sales reported by the U.S. Commerce Department, which includes only retail jewelers’ sales. But because the Discount Merchandiser estimate largely depends on the Commerce Department data, it, too, may be low. According to JCK estimates, the venues excluded by the government—department stores, mass merchants, television shopping, catalogs, and the Internet—account for at least half the value of jewelry sales today.

Discount Merchandiser also reported that 91.3% of jewelers’ revenues come from jewelry and watches. No other venue where jewelry is sold came close to that figure. At catalog showrooms, it ranked second, at 29.2%

Jewelers Anticipated 10% Gains Through First Nine Months

Members of JCK’s nationwide panel of retail jewelers are optimistic about sales results through the third quarter of this year. Responding to a questionnaire mailed in August, the jewelers projected sales would show a hefty increase of 10% for the first nine months of the year. Of 504 jewelers polled, a high proportion—25%—responded, giving the results statistical validity.

Ship Your Line—Or Hang On Tight

Gangs that target the jewelry industry and its traveling sales reps are becoming increasingly violent. In response, more wholesalers, manufacturers, and custom designers are turning to trade shows.

But thieves haunt trade shows, too, waiting to exploit any mistake. Take the case of Ken Reynolds (not his real name), who checked into a regional show carrying a line of custom-made pieces for display. His employer had made her final selections one day before the show’s setup, so there wasn’t enough time to ship the small line at a reasonable cost. Besides, Ken is a big guy and believed he’d have no trouble protecting the two bags.

When Ken arrived at the show, he joined the queue to check in and get a badge. The queue moved quickly. Most of the time, Ken held the two cases, but occasionally he set down one or both between his feet. He had just stepped forward and was dragging a case behind him when he felt a sharp tug. In that instant, the line was gone. The show’s security guards responded to his shouts, but it was too late.

Unfortunately, the company’s basic Jewelers Block policy did not cover the loss.

Most Jewelers Block policies’ off-premises coverage excludes merchandise while it’s at a trade show or convention—regardless of whether it’s stolen or lost. To insure goods at a trade show, a jeweler must purchase additional coverage, referred to in insurance lingo as an “endorsement.”

Here’s how. Several weeks before the trade show, ask your insurance agent for an endorsement to cover your merchandise. Your agent will need the name of the show, the dates your merchandise will be there, and the value of the goods. In addition to purchasing the endorsement, ship merchandise to the show site via armored courier such as Brinks or Dunbar.

If you must carry your line, keep it in your possession at all times. Criminals are waiting for you to relax your attention for even a few moments. When you carry your line, you expose yourself to a high risk of loss or injury.

If you’re an exhibitor, keep a constant eye on your displayed merchandise. Otherwise, you’re an easy mark for sneak theft when your display area is crowded with buyers or your booth is unattended.

It isn’t just exhibitors who can find themselves with an uncovered loss at a trade show. Jewelers who purchase items and take immediate delivery also risk an uncovered loss. It’s best for a buyer never to take possession of jewelry while at the show. Many shows prohibit the practice, yet claims filed with insurance companies indicate that it still occurs. Sellers should ship your purchases to your store.

Also, avoid carrying a large briefcase to and from the show. You may be carrying only papers and a change of shoes, but thieves don’t know that. They assume you’re carrying jewelry and will target you for a sneak theft or robbery.

This is one of a series of case studies prepared by Ronald R. Harder, president and CEO of Jewelers Mutual Insurance Co.