California: The Road To Recovery

For the first time in five years, the California economy has shown signs of recovery.

More people are working, more of them are buying homes and retail sales are up (see “Jobs & Homes: The Numbers”). That’s welcome news to a state that suffered severely when recession and massive cutbacks in the aerospace industry and government sent the economy reeling in the early 1990s.

The recession was the longest economic contraction California had experienced since the end of World War II. But analysts say the end is in sight. In fact, California will bounce back completely and become a leader in world commerce in the 21st century, according to recent reports by the Center for Continuing Study in Palo Alto, Cal., and the Center for the New West in Denver.

Jewelers aren’t totally convinced the economy is picking up — at least for their industry. “I’ve read the recession is over, but that’s not the case,” says Dale Condy of Gems of La Costa in Carlsbad. “We may be seeing growth in California, but it will take a long time to have an impact on jewelers.”

Bart Heller of Baron’s Jewelers in San Leandro says companies are still moving out of California. “As long as companies continue to move, we’re going to be in trouble,” he says.

These jewelers aren’t alone. An informal survey of more than two dozen jewelers throughout the state showed that two out of three feel tough times still exist. “Economically, things are difficult without much change on the horizon,” says Susan Buck of Houston Jewelers in Visalia. “We’re looking at a flat resale of homes because there is no growth in good jobs and no demand for homes.” Visalia is in the San Joaquin Valley, center of California’s vast farm belt, and farming has remained constant. But several light manufacturing plants opened, then closed quickly, and a major insurance company closed its doors, leaving a significant number of people without jobs.

The recession and a glut of homes on the market as people left California for jobs elsewhere led to decreases of up to 30% in real estate values. Jewelers say that has hit their customers hard. “The real estate market of the 1980s gave people a false sense of security,” says Peter Hess of Snyder & Snyder in San Juan Capistrano. “They had equity in their homes, they felt wealthy and they weren’t concerned. But when the bottom dropped out of real estate, they lost their equity and now have to look for other ways to pay for their retirement. They’re spending on their retirement instead of buying jewelry.”

Marshall Droese of Steiner’s Jewelry in San Mateo agrees. “Until the real estate market comes back, it’ll be tough.”

Hess sees another reason people aren’t buying more jewelry. “I used to go to eight or nine black-tie functions a year; now it’s only two or three,” he says. “People are dressing up less and don’t need jewelry as much. Some of these events are theme parties, such as Western, where you need no jewelry at all.” As a result, he changed his product mix to include more everyday jewelry.

Frank Gutierrez of Estevan’s Jewelers in Fresno says his customers also are buying lower-end jewelry. “I haven’t had any calls for large stones in a long time,” he says. Walter Krenzler of Walter G.E. Krenzler Jewelry in Burlingame finds a little different sales pattern. “The higher and lower ends are selling, but the middle range is slow,” he says. His average sale in 1995 was $1,100-$1,200, down from a normal $1,500-$3,000.

Negative, positive: Several jewelers said consumers’ outlook — and their own — has much to do with jewelry sales.

Jorge Gonzales of Jorge Gonzales Jewelers in San Jose blames the news media for creating a negative view of the economy. “People are scared off by the media, so they are holding back in buying,” he says. Indeed, business leaders have criticized the media for reporting negative economic news. Editors and commentators say they are merely reporting what’s happening with the economy.

Linda Abell of Westwood Crescent Jewelers near the UCLA campus in Los Angeles agrees with Gonzales about media influence. But she tries to counter any negative influence with her own positive outlook. “When people ask me about the recession, I answer that our clients have chosen not to participate in it,” she says. When one longtime customer hesitated before buying a piece of jewelry and mentioned the economy, Abell asked if there was a problem with his job or his wife’s job. There wasn’t. “You read about a recession, but it hasn’t affected you, has it? So all is fine.” He bought the jewelry.

“My mom [Sunny Friedman] has a saying: It’s your attitude, not your aptitude, that determines your altitude. You can go as high as you want.”

Gary Long of Long’s Village Jewelers in Stockton feels the recession isn’t over but that consumer confidence is building. “People are looking more now and buying a little more,” he says. “They’re not holding back to see if they’re going to lose their jobs.”

Sy Messing of Messing Jewelers in Burbank thinks the turnaround started in March or April 1995. “People are spending money; we’re selling higher ticket items,” he says.

The outlook also is positive in the state’s Silicon Valley, which is home to hundreds of high-tech companies. Many of this region’s companies went out of business during the recession. “But for every firm that laid off people, another one started up,” says Georgie Gleim of Gleim the Jeweler in Palo Alto. “Today, all Gleim stores are up and our sales staff feels the economy is better.” Mary Barr of Charles H. Barr Jewelers in Newport Beach says she’s also encouraged. “Attitudes are better,” she says. “We got a real shot in the arm at Christmas.”

View from vendors: How well California retailers have recovered from the recession depends on how they reacted to it, according to vendors.

“Some jewelry retailers changed their marketing philosophy, became more aggressive and focused their merchandise mix with strict attention to what consumers are looking for,” says Paul Frank of Unigem International, Beverly Hills. “But the recession isn’t over for those who make the mistake of just opening the doors and waiting for customers to come in. No one can afford to do that any more.”

Ron Dean of the Diamond Promotion Service agrees. “Promotion has helped,” he says. “Those who promote their stores and train their employees are doing business.” But he’s cautious about the future because California has depended so much on aerospace and government employment, and both sectors have been downsizing.

Bart Boydston, also of DPS, feels that the recession is over, but says the economy isn’t coming back to prerecession levels. “Some jewelers are doing better than others; generally, more established stores with an aggressive promotional plan get customers’ attention.”

Some stores that have always had aggressive promotional programs seem to be immune to the recession. Marion Halfacre of Traditional Jewelers in Newport Beach has seen sales increases of 25% or more every year since 1990. “It wasn’t easy,” he says, pointing to a series of promotions he scheduled for his flagship store and two stores he operates in Ritz Carlton Hotels in Southern California. Linda Abell of Westwood Crescent Jewelers, who also has reported sales increases every year since 1990, planned an entire year’s program around the store’s 50th anniversary this year.

What’s ahead? The Center for New West study says the business exodus appears to be reversing, that young companies will dominate the corporate landscape and create most of the state’s new jobs, and that many of the new jobs will be high-paying positions filled by well-educated workers — good news for the jewelry industry.

Many jewelers remain a bit skeptical. “Let’s see,” says Gary Long.

JOBS & HOMES: THE NUMBERS

Plentiful jobs and housing have attracted many people to the Golden State over the years, but they also were the most vulnerable aspects of the economy when recession cast its shadow in the early 1990s.

Employment rates suffered when the aerospace industry began massive cutbacks and companies responded to California’s high tax rates by moving to other states. The state’s population fell by 687,000 between 1989 and 1994 as people moved away.

Real estate values, which soared during the 1980s, plummeted as the glut of properties for sale grew and as the recession dissuaded would-be buyers. Older homeowners who counted on their properties as a retirement nest egg saw that dream crumble. By 1995, many found they had negative equities.

Today, the lower home values are still bad news for older homeowners, but they — plus lower interest rates — have been a blessing to first-time home-buyers. In Orange County alone (just south of Los Angeles), 5% fewer homes were sold at a loss in 1995, and 60% of the homes went to first-time buyers. In February, the number of homes sold was 31% above the same month of 1995.

An even bigger sign of an improving economy is the unemployment rate, which fell to 7.7% in December, more than a full percentage point below the November figure. For all of 1995, 178,200 new jobs were created in California, raising employment to nearly 12.4 million, the highest number since 1989.

And as more people got jobs, they started to spend more. In fact, retail sales in California rose a respectable 4% in 1995 over the previous year, according to the U.S. Department of Commerce.