The October issue of American Jewelry Manufacturer includes a piece by Jim Marquardt, Manufacturing Jewelers & Suppliers of America president, entitled “Dealing with the Majors.” The article addresses a significant problem facing many jewelry manufacturers. The problem is declining profitability. Its cause is the economic power of major retailers, which far exceeds that of jewelry manufacturers. That power has allowed retailers to shift the legitimate burden of retailing onto the backs of their suppliers.
Talk with almost any manufacturer in the $50 million range, and you’ll hear tales of incredible arrogance on the part of their big customers. If recent conversations in Orlando and Tucson are typical, the situation has gotten worse, despite last year’s outstanding fall selling season.
It’s been argued that national brands have a demand “pull” effect on consumers, and thus the manufacturer, in a sense, is in a partnership with the retailer. But this is the jewelry business. Can you name one national jewelry brand that pulls product through the distribution channel? JCK’s Jewelry Consumer Study (JCK, November 1999, p. 98) shows that Americans recognize only two brands, and neither is a manufacturer. Tiffany is a retail brand. De Beers is a marketing brand for diamonds, no matter who finds, mines, or sells them.
Manufacturers long ago gave up the notion of creating a national consumer brand in this business. Some talk a good game and even provide co-op programs so their customers can tag along with their ad programs in the big consumer publications. For the most part, however, manufacturers don’t have branded products. The margins necessary to develop and maintain brand names simply aren’t built into their cost structures. Yet these same manufacturers routinely cave in to the demands of the majors for memo programs, return of merchandise (in some cases, the merchandise of competitors) for any reason, and markdown money. The manufacturing community is financing the inventory position of the majors! There’s no corresponding increase in pricing for a value-added service like inventory financing, because there’s always the greater fool waiting in the wings to step in and “get the business.”
When U.S. antitrust laws were written, their objective was to curb the power of large monopolistic firms like Standard Oil, whose commercial behavior tended to reduce or eliminate competition. Today’s global economy tends to reward the concept of “bigger is better.” Thus, we hear nary a peep from the Justice Department when the likes of America Online and Time Warner decide to merge.
The jewelry industry is a different business. It’s diverse. It’s fragmented. It’s populated primarily by small and moderately sized businesses in both retail and manufacturing. But the economic clout of a number of retail entities is awesome. These firms use their power to bludgeon suppliers into a partnership based on submission.
A colleague once joked that the manufacturers should repair to an offshore retreat and figure out how to do business. Terms of sale, memo arrangements, and returns would be discussed and resolved. Such an arrangement would be an outright violation of the Sherman Antitrust, the Robinson Patman, and probably a whole host of other laws. But manufacturers need to take individual stands and announce that they will no longer abide by purchase order boilerplate that precludes them from making a fair profit in their business.