While the technocrats have declared the recession statistically over, the American consumer will be a dyspeptic lagging indicator making for a sluggish, choppy retail economy. As you negotiate the next 18 months, there are many important issues to be aware of and plan for.
Those traditional drivers of jewelry purchasing, the baby boomers, are aging out of their prime earning and spending window just as home values have declined to pre-1998 levels. Boomers are still maxed out on credit limits and only now are starting to increase their rate of savings, further reducing their money for discretionary purchases like jewelry and watches. Consider reformatting store fixtures and communications methods and adjusting inventory to appeal to the trailing edge of the boomers and the up-and-coming Millennials.
Despite some improving economic statistics, keep in mind that comparative numbers over the next six to eight quarters are coming off dismal statistical bases, so any ray of positive sunshine looks brilliant. Don’t try to dig yourself out of the economic hole before the dirt is done sliding down the hill. Business Week magazine continues to survey top prognosticators (see the Jan. 11, 2010, issue, page 15), and the consensus is that unemployment will remain above 9 percent well into 2011. (“Full” employment means a jobless rate of around 5 percent.) A jobless recovery is a recipe for continued weakness at jewelry counters.
The widening commercial real estate problems and subsequent loan defaults are sending a new round of pain through the economy. The net effect may dwarf the problems Lehman Brothers, Bear Stearns, and Merrill Lynch wrought on your bottom lines. Moreover, on a local level, one out of four home owners are under water on their mortgages, so few will be using home equity loans for discretionary purchases. This is especially true of the regional banks you usually get your credit lines from, because they’re exposed to defaults on local commercial real estate loans (Business Week, 12/21/09, pg. 30).
This will continue to reduce the availability of credit lines to retailers, as well as manufacturers and wholesalers, making business incrementally more difficult to conduct. Protect current lines of credit like an angry she bear and build cash reserves for opportunistic buying of product and advertising and for emergency situations.
If the old expression “What doesn’t kill us makes us stronger” is true, then the jewelry business must be pretty tough.