Striking it Niche

In an industry where diamonds account for half of all sales, one successful company deemphasizes the category. Na Hoku, a 28-store, mall-based chain of jewelry stores owned by The Sultan Co., Honolulu, does less than 10 percent of its business in diamond-intense jewelry such as three-stone rings and diamond stud earrings. In fact, the retailer offers just one style of engagement ring: a solitaire, available with stones in five different sizes, from 0.25 cts. t.w. up to 1.0 ct. t.w. “The shoppers we get the least of are the young couples looking for engagement rings,” says Steve Bookatz, executive vice president and chief operating officer. “Island-lifestyle jewelry is our business,” he explains.

As the high and low ends of the retail market continue to expand, squeezing the middle, small and medium-size independent jewelers are looking for new ways to compete. One strategy is to create a new, sharply focused market or respond to an underserved one. “Having customers know you’re the expert at one thing, and they can get the level of service, education, and merchandise better from you than from someone who’s trying to do everything is what’s appealing,” says Steve Robbins, company chairman and chief executive officer, Robbins Bros., Glendale, Calif.

Joe Oliver III, director, Mergers & Acquisitions Group, Davenport & Co. LLC, Richmond, Va., agrees. “Niches create a new reason for consumers to be attracted to your store,” he says.

Some industry observers cite the trend toward consolidation as another reason jewelers should consider specializing. The recent series of mergers and acquisitions include Kmart and Sears and Federated and May. At press time, Neiman Marcus was considering a sale, and Saks Inc. was selling parts of its business. “The name of the game is consolidation, so there has to be innovation,” says Dione Kenyon, president, Jewelers Board of Trade, Warwick, R.I. In the face of continuing consolidation, small firms “might need to find niches,” she says.

Robbins believes that niches also are a way for independents to compete with big-box discounters. “These are the answer to Wal-Mart,” he says.

Insights Into Successful Niches. Ethnic niches were perhaps the first that jewelers capitalized on. For example, Don Roberto, a 35-year-old jeweler in Southern California and Texas, specializes in looks for the Hispanic community. The company has 69 stores in locations with high concentrations of Hispanic residents, and its Web site is in English and Spanish. It uses Latino models and features Christian-inspired jewelry such as crosses. The 2000 Census revealed that the U.S. Hispanic population was the second-largest after Caucasians.

Tiffany, too, is dabbling in niches, with its recently launched Iridesse—pearl-only—jewelry stores. Although the retailer mentions only the beauty of the gems when asked about the reasons behind the launch of its new stores, it’s also true that pearls aren’t price-shopped like diamonds and still have healthy margins. Industry research reveals that pearls have a markup of two times, vs. diamonds, which have a markup of just 50 percent. Tiffany has already opened two Iridesse stores and has plans to open 20 more in the next five years.

High anxiety drove Robbins Bros. to abandon a mixed-merchandise store format in the early 1990s and implement a bridal jewelry–only format. When owner Steve Robbins asked himself why customers bought jewelry from his mall-based stores, his inability to answer his own question was “scary,” he says. “I said, ‘We’re in trouble.'”

Intuition played a role, too: Robbins saw that engagement-ring shoppers in Southern California were underserved. “It’s hard to be the best in class in every single jewelry category,” he says. “But by focusing on one customer, we knew we could excel.”

Na Hoku’s nontraditional strategy hasn’t prevented the 81-year-old company from securing spot No. 15 on a national list of the country’s largest jewelry-only retailers. Its success is possible because Na Hoku serves a jewelry niche no one else does. “We’ve taken what other jewelers consider their fringe business and made it our core business,” says Bookatz, referring to Na Hoku’s vast collection of Tahitian-pearl, fine-inlay, and floral-motif jewelry.

Finding a niche may be a successful antidote to tired store formats. Specializing suggests to consumers that retailers have better selection, better product, and even better prices. Some shoppers also prefer the intimacy of being in an edited environment vs. an all-inclusive one. “Walking into Wal-Mart, I feel overwhelmed,” says Kenyon. “I like the experience of being in a focused store more.”

Making Niches Work. Niches can have glitches. Typical challenges include product development and fresh merchandising. It takes a bevy of designers, new collections, and constant creativity to stay fresh. “In a store that lives on three-stone rings and diamond solitaires, there’s not a lot of innovation,” Bookatz observes. Finding employees who share a passion for your niche, or training staff members to present it properly is another potential problem.

Your niche also needs to be large enough to sustain the business, so that means finding customers. “No slick, glossy magazine exists that targets the plus-size market,” observes Cynthia Sliwa, owner, Apprecia Fine Jewelry, Hermosa Beach, Calif., a designer who specializes in fine jewelry for full-figured women.

Some retailers rely on the Internet to find customers. “We couldn’t do this business [www.designershoes.com] without the Internet,” says Barbara Thornton, owner of the eight-year-old Boston-based venture that specializes in oversize women’s shoes. Though she has a storefront, some 85 percent of her business comes from the Internet, as women from all over the world find her through various Web-based marketing initiatives and buy her shoes—starting at 10.5 in medium width and 8 in wide.

Retailers with storefronts face the challenge of determining the right size shop to open. One that’s too big might lead to redundancy in merchandise, while one that’s too small might bore customers. “Somewhere between 800 to 1,500 square feet is enough of a footprint to make [niche retail stores] work,” notes Oliver, who has experience helping retail clients streamline their businesses.

Finding Your Niche. Jewelers who are thinking about specializing in one area of jewelry should:

  • Look for Underserved Markets or Create New Ones. When Thornton had trouble finding size 11.5 shoes, she started a company for herself and others like her. Another new venture is a chain of charm-only stores: World of Charms, headquartered in San Francisco, has seven stores nationwide in upscale malls such as The Plaza, King of Prussia, Pa., and Houston Galleria in Texas. The retailer sells only charms, in karat gold and sterling silver.
    A new company, Love & Pride, New York, is targeting the gay and lesbian bridal market with commitment rings. Founder Udi Behr announced at a recent press function that “everybody should enjoy the right and opportunity to marry,” which is why he has embraced this market and is donating 10 percent of total sales from his bridal line to Marriage Equality USA.

  • Look at Your Marketplace and See the Void. That’s what museum gift shops are doing. A recent New York Times article revealed the rich opportunities available in high-end historic jewelry reproductions: Gift shops are realizing that their upscale clientele have the means and interest to purchase more than base-metal interpretations of museum pieces. As a result, many museums nationwide are profiting from museum-inspired fine jewelry. At a 2001 exhibit at The Metropolitan Museum of Art in New York, the museum rang up $1.2 million in jewelry sales, according to the Times report. More recently, a shopper to the museum’s Web site saw a $25,000 necklace, called in to check availability, and bought it on the spot.

  • Pick a Niche You’ll Have a Passion For. Robbins relates the story of a friend, a collector of vintage watches, who started networking with more and more wealthy private sellers—and buyers—until he had a nice network and profitable business established.
    The goal of specializing, of course, is to continually create interest in fine jewelry. “Any way to get folks interested in the product is good,” notes Kenyon. “Niches are one more channel of distribution for jewelry.”