The State of the Industry

Recently, the CNBC show Kudlow & Company had an interesting interview between Lawrence Kudlow and Fred Smith, the chief executive officer of FedEx. At one point Smith said FedEx’s business from China had “doubled from last year to this year.” He also said that FedEx’s “business with India had increased fivefold.”

Over the past few years many U.S. manufacturers have formed alliances with both Chinese and Indian suppliers to assure adequate supply of diamonds and finished goods at competitive prices. Simultaneously, the DTC has increasingly favored Indian suppliers as sightholders. So it seems clear the barriers to doing business in this part of the world are dropping fast.

Back in the United States, the Jewelers Board of Trade tells us that the number of U.S. retail jewelers has declined from approximately 36,000 in 1974 to 24,843 at the end of 2004. In the past 10 years, the number of jewelers continued to decline by nearly 11 percent. Similarly, the number of manufacturers in the United States has fallen from 4,357 in 1994 to 3,583 10 years later.

The reasons for consolidation are varied. For the retail community, increased competition at the low end of the price-point scale from the Wal-Marts, QVCs, Searses, JC Penneys, and a host of chain jewelry stores in mall locations has helped make the decision to sell or retire practical for many main-street jewelers. The lack of effective marketing at the local level has also played a role. The high mobility of the American population necessitates continuous but effective marketing by local retail jewelers.

When it comes to manufacturers, few have built and nourished a brand name, whether it is a trade brand or a name that consumers instantly know and trust. I daresay that if JCK repeated the consumer survey of five years ago asking consumers what names they could associate with jewelry manufacturers, the results wouldn’t be any different from Tiffany, Cartier, and De Beers, recognized by 40 percent, 25 percent, and 15 percent, respectively. The manufacturing community has been browbeaten into using their resources to provide guaranteed sale arrangements, memo, and display and promotion support. At the same time, suppliers are price pressured with the Indian, Chinese, and other Asian suppliers waiting in the wings for an audience from buyers with big checkbooks.

Ultimately, when all you have to offer is price, the supplier with the lowest price will get the business. And that is a lesson the Asian suppliers will learn the way their U.S. counterparts have learned during the past 10 years.

Independent retailers face a similar situation from new competitors such as Amazon, Blue Nile, and The major jewelry chains have recognized the need to move upstream. Sterling’s Jared division and Zale’s new effort at moving upstream with its Bailey Banks and Biddle store in Houston are telling moves in the battle for the upscale consumer’s dollar.

FedEx is not the least expensive supplier of package delivery services. But it has a brand name, consistent excellent service, and a No. 1 position in the marketplace. It’s a safe bet that 10 years from now FedEx will still be leading the pack. How many jewelry retailers and manufacturers in the United States will be able to say the same? Not to decide is to decide.