Fading Independents?

The year 2007 ended with retailing generally reporting mixed results, with many saying it was a poor year. Mall stores did not do nearly as well as last year. We also know that, according to the Jewelers Board of Trade, the number of jewelry operations in the United States is declining, as it has for many years, but more precipitously in the last couple of years.

The trend is not unique to independent operations—those with one to a few stores. The mall business has seen some 50 names disappear over the last 20 years or so (I actually rummaged through some old files and came up with more than that), and we now see survivors like Zales struggling to find their footing.

It would be simplistic to say that the disappearance of 600 or more operations last year was a sign of too much competition or the consolidation of the industry. We have seen consolidation in many retail channels (drugs, books, electronics, department stores, discounters, wholesale clubs, etc.), and in some channels we are essentially down to a handful controlling 90 percent or more of the business. At the luxury end of retail, a few conglomerates (LVMH, Richemont, Vendôme) have aggressively bought established names and maintained their individuality. These companies strive to get your business regardless of the luxury product choices you make. If you are inclined to buy a premium product, the likelihood is great you will be buying from one of a handful of luxury conglomerates.

It would also be simplistic, and wrong, to say, as some have, that the independent business will disappear, just judging by the rate of decline in the number of operations. Many have closed because of demographics, not stupidity or mismanagement. Upgrading and moving into the luxury arena has been hyped as the thing to do. Get out of competing with mall chains and discounters. Intuitively, that sounds right, but for a store located in a middle-class neighborhood or a small town that has only so many doctors and lawyers with the money to go upscale, the option is not there.

I know of an owner of a few stores in small towns in the Northeast who foresaw broad economic decline in his area. He arranged a sale of the stores years ago and opened a new operation on the Gold Coast of Florida. Today he has a successful, high-end operation. He knows he dodged a bullet.

Two other small chains I spoke to have been switching to expensive locations, and they admit they’re a long way from knowing if they made the right move.

These kinds of actions are still possible, though it takes some courage and lots of money. For many retailers, it’s simpler to close and liquidate their stocks. Either they’re of an age when a change is too dangerous, or they don’t have a next generation to take over, or they don’t have a good feel for the luxury business. And so we have a continuing decline in operations.

We have always thought of our business as fragmented and segmented. A cliché like “think global and sell local” actually does apply in our business. But the fragmentation is becoming more defined. A store that does not have a distinct image for offering certain values and services will be in limbo. A mid-market mall store that attempts to sell high-end luxury will confuse or amuse consumers, and an independent that’s just another mall store will likely fail.

But there are many independent retailers who are doing very well. Some made their moves years ago and have built vibrant businesses. Others are owned by new, young, knowledgeable entrepreneurs who love the business and have solid training and skills.

These stores will not only survive but also prosper. Will it be a smaller sector than in the past? Yes. Will they be the most diverse and professional outlets for affluent and discriminating consumers? You bet.