Aesop’s fable about the grasshopper and the ant comes to mind as a cautionary tale for the jewelry business. One sunny midsummer’s day, the grasshopper is jumping around and chirping merrily when he sees an ant stuffing kernels of corn down his anthill. The grasshopper asks the ant why he isn’t enjoying the day, and the ant says he’s too busy preparing for winter. Come winter the grasshopper lies shivering on the ground while the ant and his family are warm and well fed.
As an industry, we’ve been able to fend off some significant problems because of the relatively buoyant retail market, generally positive consumer sentiment, and a real estate boom … fueled by subprime mortgages. (Whoa, is that a frost warning?) Never mind the shifting of jewelry production and sourcing from the United States to Italy, to Turkey, to India, and finally to the Orient in just 30 years. Some of the key retail players now source directly from these low-cost foreign producers, cutting critical steps from the supply chain and reducing markups so they can remain profitable.
As U.S. producer/wholesalers gobble up the weakened and collapsing competition, your choices for sourcing and various lines of easy house credit and generous take-back policies are going the way of the grasshopper. Economically speaking, these are noble efforts applauded by Wall Street analysts and facilitated by financial institutions everywhere. Unfortunately, their goals are not the jewelry industry’s goals. When is the last time you saw a bank successfully run a jewelry store?
We have endured a progressive run-up in the price of precious metals without raising consumer’s prices at the same rate. To compensate, the natural instinct and inclination is to demand that manufacturers reduce the gram weight per piece. The pieces get thinner and “bigger” by having more open space, and we call it a design trend. With rising commodity prices, retailers tend to reduce the percentage of higher-karat gold they stock, further hurting their own margins. Suddenly you see price alternatives to platinum (like palladium and rhodium-coated white gold) being hawked as the next big thing, all the while hoping the consumer does not take offense as we, pardon the pun, squeeze the golden goose.
Recessions typically come in five- to eight-year waves, and we have been on an upward run since 2002. Maybe this is a function of the average length of institutional memories. However, as stock market volatility increases and gas prices show resistance to falling below $3 a gallon for regular, chill winds are blowing. Now there is a real awakening to the dangerous trap of offshore outsourcing. As you contemplate pet food, toys, and toothpaste, think about what might be going into the other 58.33 per-cent of the alloy that makes 10k gold.
How good is your quality control in their offshore factory, or do you rely on U.S.-based assays and grading labs in this era of just-in-time deliveries? Would you care to sue in the supplier’s home-country arbitration court? Can you withstand not getting what you ordered in time for the holidays or having your best-selling Q4 products come back to you in droves if there’s a recall or a problem with quality?
In squeezing out the fat in the supply pipeline, are you neglecting to build added value to justify decent margins to conduct business in good times and bad? We no longer have wholesalers that can act as intermediaries to resolve supply and quality issues. Manufacturers, under pressure from retailers to hold the line on costs, cut halo branding campaigns and co-op funds. As we tear out pages from the Wal-Mart playbook, we forget that we do not have their volume leverage and we are selling product that looks—and is—only slightly better than what is found on the shelves of every big-box discounter and basic mall jeweler across the country.
Twenty-eight centuries after Aesop, what are you doing to prepare for the inevitable winter of our own making? Come back next month for some preseason thoughts to help you get through the next cold front as you seek the retail advantage.