Is the family jeweler going out of business?
To many in the fine jewelry business, the hard-sell marketing language that appeared on the website of Oklahoma City’s Samuel Gordon Jewelers would have been unthinkable prior to the company’s January announcement that it had decided to shut its doors.
“Deepest Discounts of the Sale! Up to 70% Off Storewide! Brand Name Liquidation! Going Out of Business.”
“My stamina has been deteriorating,” says owner Gary Gordon, the third generation of his family to run the business. “I can’t work six days a week, and I come home exhausted. I made the decision it’s time.”
Having serviced Oklahoma City jewelry lovers since 1904, Samuel Gordon Jewelers ranked among the highest-profile family-owned retail jewelry success stories of our generation. In 1990, Gary Gordon consolidated the company’s three existing stores into a single mammoth freestanding unit, creating a jewelry industry version of the superstore. The revamped business thrived, elevating both the store and the man to national recognition and prestige.
Loyal Tiny Jewel Box shopper Madeleine Albright (second from l.) with the proprietors, the Rosenheims
So Gordon’s announcement just prior to Valentine’s Day that he was liquidating his inventory and seeking to end his lease on the 12,000-square-foot building—a decision that may have been hastened by the lack of a succeeding generation working in the store—fueled growing speculation that the independent jeweler model has become obsolete.
Jewelers and industry analysts point to a number of factors that are making it increasingly difficult to operate an independent retail jewelry business profitably. Shrinking margins fueled by the Internet diamond boom, proliferating governmental regulations, and the long hours required to sustain a healthy business—all are causing the children of current owners to reconsider expectations that they’ll take over the family store.
“The bulk of our members are reaching retirement age,” says Ruth Batson, CEO of the American Gem Society in Las Vegas. “Now imagine you’re the kid and your parents are coming home every night and griping about the Internet and smaller profits and longer hours. There are easier paths to making a living.”
The original very Tiny Jewel Box: a 100-square-foot storefront on G Street
With more than 20,000 individual jewelers in operation today, the industry’s highly fragmented retail landscape evolved thanks to the willingness of suppliers to help finance inventories through consignment. But new trends—such as the burgeoning power of brands like David Yurman and Mikimoto, which control the number of doors they sell through—are making it harder for small companies to carve out a niche.
While total consumer spending on fine jewelry continues to climb, statistics show a definitive trend toward consolidation of the business into fewer, larger companies. According to the Warwick, R.I.–based Jewelers Board of Trade, the number of jewelry retailers operating in the United States fell from 24,843 in 2004 to 21,463 in 2014, a decrease of 14 percent. Moreover, explains JBT President Dione Kenyon, over that period the credit agency broadened the types of companies it includes in its reporting, making the decline even steeper on an apples-to-apples basis.
“You can’t just open a store today and expect people to come,” says Taylor Cowardin, the fifth generation of his family to work at Cowardin’s Jewelers in Richmond, Va.
Jim Rosenheim’s mother, Roz, who opened Tiny Jewel Box in 1930
The difficulties inherent in passing down a family business are in no way unique to jewelry retailing. According to London-based management consulting firm PricewaterhouseCoopers, only 41 percent of family-run companies across all business categories plan to pass leadership to the next generation. And just 30 percent of these businesses actually survive a second generation of ownership and management.
Despite the hurdles, examples of jewelers that are successfully passing the torch to a new generation are plentiful. While many of these parents say they’ve encouraged their children to make their own life choices, the decision to enter the family business often comes naturally.
The Bergs—Chad, Lee, Brenda, Ryan, and Scott—of Lee Michaels Fine Jewelry
At Baton Rouge, La.–based Lee Michaels Fine Jewelry, CEO Lee Berg is well into the process of passing the 10-store business he built to his three sons, Ryan, Scott, and Chad. When he initiated the succession process, he explains, there were three potential roads to follow: splitting the business in thirds and letting each son go his own way, forming an outside board of directors to choose the next CEO, or running the company by a committee of the father and three sons. They chose the third option. Once that decision had been made, they say, the key to success was maintaining open and honest communication and mutual respect for each other’s opinions.
“If you can’t reach agreement at the goal and strategy level, it won’t work,” says Scott Berg, who presides over the company’s Baton Rouge division.
Oklahoma City’s Samuel Gordon Jewelers, circa 1948
Lee Berg adds that developing and implementing the succession process was contingent on hiring professional help to provide overall direction and an objective opinion. “We’ve put together a family charter, working out how this would function through both conflict and agreement,” he says. “Now we have a road map for them to get started with as I hand off responsibilities.”
David J. Bonaparte, president and CEO of Jewelers of America, agrees that the jewelers who succeed in generational leadership transition are generally those who formalize the process. “If the owner is going to retire, the family has to come to terms,” he says. “They can’t do that without fully developing a legitimate succession plan.”
Death and Taxes
Building a rounded succession development team requires hiring tax and accounting professionals to advise on plan aspects—from balancing financial returns among stakeholders to inheritance and estate issues.
Founder W.H. Cowardin with his children at Cowardin’s Jewelers’ original store, circa 1870
“That’s not something you can do when you’re 70 years old and have five years left to do it,” says Jim Rosenheim, chairman of Tiny Jewel Box in Washington, D.C., which he is passing down to his son, Matthew. “You have to execute this plan over years to mitigate existing tax laws.”
Rosenheim capitalized on the opportunity provided by the recession in 2007–2009 to reassess the company after values had crashed. “The business was losing a ton of money, and the numbers were terrible,” he says. “But I knew it wouldn’t last, and I was able to transfer ownership at minimal tax consequence. If you don’t plan this out, you might have to liquidate the business to pay the taxes.”
This completed the restructuring of the company so Matthew and his sister owned the corpus of the business in addition to the physical store itself, which they had acquired through a trust set up in their names that had purchased the real estate several years earlier. Rosenheim retained only 3 percent of the equity but all the voting control, leaving him able to continue making business decisions until he feels Matthew is ready to take over.
Groomed for Success
Another major component to successful transition, jewelers say, is grooming the new generation to assume the decision-making.
When offspring join the firm, the family head often steps into the role of mentor, nurturing their ability to make strong choices. “I make recommendations and counsel them,” Lee Berg says. “But I try hard to let them take their own paths.”
The goal is to cultivate intelligent and capable leaders eager to put their own stamps on the business. Scott Berg, for example, envisions solid opportunities for Lee Michaels to expand under the sons’ leadership.
“I can see us acquiring and developing other businesses,” he says. “We were first in a product-driven economy, which became commoditized. Then we became service-driven. Now we’re in an experience-driven economy. And our goal will be to take the customer experience above and beyond.”