Market Place

PARTNERSHIP BUILT AROUND FREE TRADE

The North American Free Trade Agreement was created to allow three friendly neighbors to share their products.

Slated to be finalized by 2005, the agreement will reduce import and export tariffs on trade among the United States, Canada and Mexico. Companies are looking toward new business opportunities as NAFTA makes trading outside the countries’ borders more attractive.

The real estate adage “location, location, location” applies to this trade pact. The U.S. makes a better door than a window between the other two players in the trading game and often acts as a middleman in the trade process because of location. Realizing this, two jewelry companies saw the potential for a great partnership from a different perspective.

“Trade between Mexico and Canada is limited. We realized that it isn’t as big as it should be,” says Valentino Diaz, president of Sixtar America, the U.S. division of a Mexico City-based company. “Our idea was to approach the Canadian market more directly instead of going through the United States.”

Approach it they did. With a formal agreement reached at February’s JCK International Jewelry Show in Orlando, Fla., the 35-year-old fine gold jewelry manufacturer formed a partnership with IBB International Ltd. of Vancouver, British Columbia, Canada’s main distributor of gold jewelry products. IBB will be the sole distributor of Sixtar products, and Sixtar will manufacture a line of jewelry specifically for the Canadian market.

“We wanted to create a liaison with Mexico to prepare for NAFTA falling into place,” says Jeremy Bowman, president of IBB. Bowman appreciated Sixtar’s innovative design and facilities and tested Sixtar products with major and independent jewelers for about a year. “The response has been phenomenal,” Bowman says.

The partnership with a Canadian company is part of Sixtar’s overall efforts to branch out beyond the Mexican market. Eight years ago, the company moved to Irving, Tex., to begin manufacturing for the U.S. market.

“The government protected the Mexican economy for a long time, but when it opened up the market and allowed imports to come in, suddenly Mexico was a very attractive international market,” says Diaz. “Our company faced competition from Italy and China. We knew we’d have to compete or go outside.”

NAFTA, implemented in 1994, has eliminated duties on exports from Mexico to the U.S. This has helped Sixtar America grow. Tariffs still exist on exports to Canada, however, and are a factor in the pricing of Sixtar products. The partners are planning for the year when tariffs will be eliminated to ease trade between the two countries. “By 2005 the duties should be reduced,” says Bowman. “It’s important to create this relationship now to prepare for that opportunity.”

The free-spending youth market

As the children of the original Baby Boomers reach their teen years, expect a rapid increase in their already formidable spending spree.

In 1996, preteens and teenagers (ages 10 through 19) controlled $366.5 billion, a 9% increase over funds held by the same age group in 1995, according to “Teen-Age Economic Power-1996,” the Rand Youth Poll’s 44th annual nationwide survey of monetary trends.

Of that $366.5 billion, young people spent $82.1 billion while saving $15.6 billion for the future. This age group also controlled $44.3 billion designated for family grocery purchases, and influenced their parents’ purchases of goods and services to the tune of $224.5 billion.

Preteens and teens don’t expect to slow their personal economies down any time soon. Looking to 1997, 63% predicted they will spend more than they did in ’96, while 22% say they will spend the same. A mere 10% predict their expenditures will decrease from what they paid last year.

Not only do the young people in this age group expect to spend more, the size of the group itself will swell following a steady climb in birthrates starting in 1991.

Older adults in segmented Market

Don’t be swayed by a gray head and think all older adults are the same. You can’t lump them into one neat group when it comes to buying habits, and as the leading edge of the Baby Boom becomes eligible for AARP discounts, the senior market will become even more segmented.

Consumer behavior among older adults depends on the experiences they have had and the way they adapt to them, writes George P. Moschis in American Demographics magazine. Moschis, a professor of marketing and director of the Center for Mature Consumer Studies at Georgia State University in Atlanta, divides the senior market into four groups based on the amount and type of aging experienced.

Healthy Indulgers, 18% of the over-55 population, have experienced the fewest life events such as retirement, the death of a spouse or chronic illness that contribute to psychological and social aging. This group’s main focus is on enjoying life, says Moschis.

Healthy Hermits (36%) have experienced life events that have affected how they see themselves. Most commonly, this is the death of a spouse, and the reaction is to become psychologically and socially withdrawn while still resenting the resultant isolation.

Ailing Outgoers (29%) suffer health problems, but maintain posi-tive outlooks.

Frail Recluses (17%) accept the physical decline and social changes brought about by aging and are spiritually strong. Moschis says this group is made up of individuals who fit into the other three categories previously.

When it comes to spending, Healthy Indulgers, not surprisingly, will be most likely to walk through your shop’s door. They value convenience and personal service. They also may have more disposable income than younger consumers, as they sell large single-family homes and move to condos and apartments. Moschis says it’s a relatively upscale group that often has money invested in furnishings and other possessions. However, the members of this group are most likely to move to other categories.

Mature Americans move from one life-stage segment to another in a somewhat predictable fashion, says Moschis, as they experience and react to life changes. It is possible to identify those who are “at risk” for moving into a given life-stage, he says. Retailers can then be proactive in aiming sales and marketing efforts at the customers most likely to buy. web-wise consumers to boost web buys Scouring the World Wide Web

for great buys on goods and services will become routine for consumers, ultimately becoming at least a $200 billion business by the end of the decade, says a study by the Deloitte & Touche Consulting Group. On-line shopping will more than double the total sales of catalog and TV home shopping.

The study’s authors, Richard Furash and Peter Gertler, say a new term is needed to describe the phenomenon. Instead of “electronic retailing,” they dub it “electronic consumerism.”

“Electronic consumerism is about controlling interaction with consumers – controlling the look and feel of how customers make buying decisions across a wide range of industries,” says Gertler. “It is quite phenomenal to realize the power that a provider of interactive services would have to hold banks, retailers and service providers to a single standard of interface.” This move to cyberspace has at least four strong messages for retailers to heed, say the authors.

It frees the retailer and the consumer from physical constraints, allowing each to enter international or local markets. It also allows the retailer to remain open around the clock.

Consumers are increasingly dissatisfied with the retail experience, says the study. Almost half the respondents in a national poll consider shopping in stores to be an unpleasant experience. Traditional competitors are building Web sites, linking computers and kiosks with toll-free service centers, participating in on-line malls and filling orders in a variety of ways. Non-traditional competitors are doing the same thing. On-line marketing makes it easy for suppliers and international retailers to absorb customers from your traditional pool.

PROFITABILITY UP, SO WAS SPENDING

There are the profitable jewelry retail stores, and then there are those that make serious money. According to Jewelers of America’s “1996 Cost of Doing Business Survey for the Retail Jeweler,” the stores with the highest profits were those with lower operating expenses, higher net profit before taxes compared to net sales, better inventory productivity, higher sales growth, higher sales per employee and physically smaller stores than other companies.

The annual survey looked at the sales, expenses and profits of 208 U.S. retail jewelers based on 1995 financial data. Retail sales growth was up overall, rising 8.5%, in contrast to a 8% rise in 1994. Jewelry stores were a healthy antidote to the retail trade as a whole, which only saw a 4.9% overall retail sales growth.

The companies identified as “high-profit” had a “profitability rating” (the ratio of earnings before interest and taxes to total assets) of 15.5%. This compares to a profitability of 7.1% for all surveyed guild stores, 8.6% for independents and 8.4% for chains.

The difference is in the numbers. Jewelry stores as a whole maintain operating expenses – payroll, occupancy costs, advertising and promotion, training and others – that equal 43.6% of their sales, while high-profit firms keep their expenses down to 38.1%.

The average sales growth for retail jewelers in 1995 was 5.7%, while high-profit firms saw a 9.9% growth in sales. High-profit retailers also achieved higher sales per employee – an average of $133,531 – while overall jewelry stores averaged $118,539 per employee.

Meanwhile, operating expenses were up on the whole (from 42.9% of sales in 1994 to 43.6% in 1995), while sales growth was down from 6.7% in 1994 to 5.7% in 1995.

Other findings in the survey:

  • Gross margins were up slightly overall in 1995, from 48.5% to 48.8%, after a nine-year low in ’95. Interestingly, the average gross margins on diamonds and diamond jewelry were down overall and in almost every category of retail store. Margins rose for watches, karat gold jewelry, cultured pearls and repair charges.

  • Diamonds and diamond jewelry continued as top sellers in 1995, making up 38.9% of total sales. Karat gold jewelry was 15.7% of sales; colored stone jewelry 10.3%; watches 6.1%; tabletop, gifts and silverware 3.6%; cultured pearl jewelry 2.3%; and other jewelry (including silver) 8.6%. Repairs accounted for 14.5% of sales.

  • Of independent jewelers, smaller stores had fewer employees and sold less per employee. Independents with sales volumes under $500,000 in 1995 had an average of three full-time employees and averaged $84,403 per employee. Full-time employees at this store averaged a salary of $18,668. At independent stores selling between $500,000 and $1 million, the stores averaged five employees at a salary of $30,602 and sold $124,775 per employee. Stores selling more than $1 million averaged nine employees at salaries of $34,269 and sold $164,064 per employee.