Do We Need the Mall Jewelers?

Why hasn’t the jewelry industry experienced the kind of consolidation that wiped out most other independent retailers? Why hasn’t jewelry gone the way of hardware, books, appliances, and stationery, devolving into a national duopoly duking it out for market share?

One could argue that books and stationery don’t require a lot of specialized knowledge, and unless one is in the market for a restaurant-grade refrigerator, Consumer Reports eliminates the need to consult with a salesperson about the finer points of top-freezer vs. bottom-freezer models. Hardware does require specialized knowledge, but I daresay both Lowe’s and Home Depot have done a far better job of training (or hiring) than have many of the jewelry chains.

It isn’t just small stores that have disappeared. Most of America’s discount department stores also have died off. Remember E.J. Korvette? Two Guys? Bradlees? Caldor? Kmart (né S.S. Kresge, now owned by Sears), despite its famous Blue Light Specials and “Attention Kmart Shoppers” slogan, now runs a distant third in a market dominated by Wal-Mart and Target.

Do we even need Kmart? Its new animated blue lightbulb character is cute, but Target has the market cornered on cheap chic, and Wal-Mart has it covered on cheap everything else. For that matter, do we still need Sears? Kohl’s and J.C. Penney do a better job on apparel and home furnishings, and now that Lowe’s and Home Depot sell appliances as well as hardware, Sears has no reason to exist except that its Craftsman and Kenmore brands still offer well-made products at an appealing price.

Even some duopolies have a clear winner and a troubled also-ran: Best Buy vs. Circuit City (see “Editor’s Page,” JCK, May 2007, p. 490). Bed Bath & Beyond vs. Linens-n-Things. Barnes & Noble vs. Borders. The Sharper Image recently closed, although its Web site claims “something big is coming.” Until it does, rival Brookstone wins the gee-whiz gadget category.

In all these cases, there’s little, if any, differentiation of product, pricing, or shopping experience between the two retailers. There’s also little territory exclusivity. So the mere fact that one store is pulling ahead of the other proves there’s no need for both. The victor, one presumes, has better leases and a better-run organization, but not necessarily better products.

In categories with two strong players—Home Depot and Lowe’s, for example, or Target and Wal-Mart—there is some differentiation between them. Target and Wal-Mart each staked out their corners of the discount market, and Home Depot and Lowe’s, despite a sizable number of similarities, have enough tangible differences to make an argument for each.

So, is jewelry immune to consolidation or is it merely coming late to the consolidation game? I believe the answer is both. Analysts I’ve spoken to offer a variety of reasons that the industry hasn’t consolidated across the board. One, despite the high cost of materials, the cost of entry into this business is relatively low. Two, while commodity jewelry tends to be undifferentiated, truly fine jewelry requires education, explanation, and a high degree of personal service. Thus, independent jewelers who specialize in niche areas not addressed by the chains (custom, estate, high-end stones, etc.) are thriving—and there are many of them. Yes, the Internet may be killing diamond margins, but although consumers can get a high-quality stone from Blue Nile or Costco.com, they can’t get an exquisite, unique, custom-designed setting to put it in unless they go to a jeweler. And they still can’t compare a beautiful emerald or a beautiful aquamarine or a beautiful strand of Tahitian pearls online, either. (In this month’s “Our World” column, Ben Janowski analyzes this phenomenon in greater detail.)

But, as senior editor Rob Bates writes this month, the mall jewelers are highly vulnerable to consolidation, and it’s already begun.

We need the mall jewelers. There is a customer for the mall jewelry store, and there is a huge market for that level of product. As the JCK–Harrison Group Consumer Jewelry Study reports, consumer recognition of brand names is strongest in that space. And every exposure that consumers get to the category as a whole adds a degree of stickiness in their minds, even if that’s not where they’d choose to shop. It’s the same reason a company-owned branded store drives sales of that same product higher in neighboring stores.

But when most mall jewelers offer similar merchandise at similar price points in a similar shopping environment, there’s no reason for so many to exist. Unless more differentiation happens soon, I predict the market will dwindle to either one dominant national and several strong regionals or a national duopoly and very few regionals. Either way, there essentially will be two mall jewelers per market, and if they don’t learn a lesson from The Sharper Image, eventually there might only be one.