What’s Going on With Colored Gems

There is little question that colored stone jewelry has lost a lot of the momentum it had through the 1980s. Whether this is the result of fading popularity or some structural conditions at the wholesale and retail level that limit sales is in question.

How color is marketed and sold in the U.S. is about as diverse as the range of available colors and products. On one hand, the category has come a long way from the birthstone-oriented business of 20 years ago. On the other, variations in supply, pricing, public fashion and competition have profoundly changed the category. Here are two examples of the contrasts in the business:

  • One well-regarded retailer heavily revamped color buying and merchandising after a couple of years of waning consumer interest. Color had been a staple of his designer-oriented stores, and while business was good, colored stone jewelry had fared badly in comparison with a booming diamond business.

  • In mid-1996, Fred Meyer, the huge mass merchant based in Portland, Ore., bought out the 50-store Merksamer’s chain. Merksamer’s carried no natural colored gemstones in its stores, only synthetics. Meyer decided to put in its basic natural color assortments, which range up to $1,000 retail. The stores had immediate success with these new goods.

These are jarring contrasts, reflective of disparate market forces. At one extreme, a fashion-oriented store moves away from many colors, and at the other extreme, a mall jeweler with non-traditional roots shows the way to an upscale chain. These examples represent a future that seems adrift, a future that is heading in different directions for different people.

Values are up. And down

Conversations with suppliers and retailers reveal a few common viewpoints and some very different experiences and positions on color’s current condition and place in the market.

One major factor is how prices and availability have affected a large part of the business. Benjamin Hackman of Intercolor, a major New York City supplier of calibrated and single stones, describes his company’s move away from midpriced goods as the market saw a rapid expansion of low-priced products beginning in the early ’80s. “We found we could not compete in the very low end of the market,” he says. “The market came to be dominated by low-cost Asian companies that were pursuing the growing TV and discount business.” Margins became so thin that the low end of the business didn’t make sense anymore, he says. Moreover, the flood of low-priced goods hurt the middle market, and many retailers, facing much slower turns, cut back and reorganized their colored stone assortments. Intercolor moved into better-quality goods and emphasized ruby, sapphire and emerald, the traditional premium colors that have not suffered as severely from market fluctuations. “The five cheap, popular stones [amethyst, garnet, citrine, peridot and blue topaz] no longer sell for us,” says Hackman.

Meanwhile, Steve Corbo of Corbo’s Jewelers in Rutherford, N.J., says color sales have not dropped all that dramatically in the past few years, declining from about 15% to just under 14% of overall volume. But the mix of goods has changed considerably. Price points now rarely exceed $500, and the assortments are much narrower and focus on higher-turning goods.

The public as final arbiter

The combined effects of escalating color prices and declining diamond prices in Indian goods have shifted the public’s buying patterns away from color and toward diamonds and gold, Corbo says. Heather Breindel, wholesale operations manager for John Atencio Designer

Jewelry, Denver, Colo., agrees. “When tanzanite prices rocketed out of sight,” she says, “the public saw that for relatively little additional money, a diamond piece could be bought.”

Fashion plays no small part in the colored stone market, says Breindel. As a result, tanzanite is the overwhelmingly popular color today, and many consumers have lost interest in more distinctive colors such as rhodolite and pink tourmaline.

To put this in proper perspective, recall that color was not widely accepted until diamond prices boomed in the late ’70s. Ruby, sapphire and emerald have long been staples, but beyond that the color business was divided between specialty dealers and programs centering on modestly priced birthstone jewelry. The rise in diamond prices occurred quickly, and retailers, who anticipated customer resistance, saw color as a perfect category to fill that price gap. Color presented an opportunity to satisfy perceived value at some important price levels.

In the ensuing years, the expansion of color sales vividly demonstrated the public’s concurrence with that view. But color possesses neither the homogeneity of gold or the long-term stability imposed on diamonds by De Beers.

As in some other consumer products, a fragmented, competitive and relatively unregulated product such as colored gems quickly becomes subject to price volatility, if not instability.

While the influx of low-priced goods demanded some changes, a rapid rise in the prices of some goods also damaged sales. Tanzanite again is a prime example. As the popularity of the gem boomed, so did prices. But retailers quickly discovered the public still perceived much of color as modestly priced and balked at paying the bloated prices.

Sales and prices inevitably collapsed and margins shrank. In an odd way, as Hackman says, the market became more controlled. The right contacts at the sources are now essential, but miners hedge against price instability and often demand that buyers take over entire productions – good gems and bad. Hackman deals that way in rubies with Burmese miners and in tanzanite in Africa. There is some danger, he says, because payment is in advance – the miners are working with the customer’s money – and there is no assurance they will not disappear. The whole business becomes more difficult because a full range of qualities needs to be sold.

Countervailing forces

Roy Albers, manager of Swarogem’s (owned by Swarovsky of Austria) color business in the U.S., emphasizes that color is a fashion product and that, by and large, manufacturers and retailers have not been doing a good job of developing the right products, merchandising and marketing. Where this does happen, he says, is in the department stores with designers such as David Yurman and Lagos. In this environment, positioning color as a fashion product works in a big way.

Breindel agrees, partly. Many of Atencio’s wholesale customers – Atencio has a chain of retail stores and a wholesale jewelry business – have confused the consumer by trying to be all things in color. The result can be a store that appears schizophrenic to the customer, often compounded by a sales staff that is poorly equipped to explain and teach the public about color. Breindel and Corbo agree there is a place for stores that speciaize in color, much of which Breindel describes as the “organic” look that does not have mass appeal. But the average retailer needs to stick to the basics, they say,the classic items and the strongest colors for their merchandising plan.

The most common statement heard with regard to most retailers is the inability to properly train employees to sell color. “Too difficult for most salespeople to sell,” says Corbo. Diamonds have a well-formed image, in good measure because of the decades-long De Beers ad campaigns and the Diamond Promotion Service training programs, while color still evokes a lot of questions in consumers’ minds as to its nature and value.

A new tack

Swarogem’s Albers explains how his company has attacked the “mass” market business. “Get the manufacturers to think in new ways,” he says. Expand the use of color into new categories and think fashion all the time. Swarogem is ill-suited to the single-stone business. As a large company with worldwide distribution, Swarogem had to find a way to deal with the low-priced popular colors without getting into head-on competition with many other companies.

The strategy was, and continues to be, to develop high-tech methods to radically increase the value and throughput of the product. That has entailed, as examples, precision-cut stones, carefully preassorted lots in the exact quantities needed by manufacturers, dedicated back-up stocks, cooperative ventures with manufacturers to develop new styling and retailer programs. The latest innovation is stones preset in tubes that can be snapped into a wide range of machine-made or stamped merchandise. This has extended the reach of color into many new product categories.

The focus has been on the most inexpensive and abundant colors, exactly the colors that Intercolor and Atencio have moved away from. This multilevel approach to the market has taken years to take hold but has paid off. Granted, there are few companies capable of the long-term investment made by Swarogem. Its business is booming this year, proving in a way there’s nothing inherent in color that the public is rejecting, only the techniques used in manufacturing, marketing and selling.

There are some early signs of a return to color. Atencio, for the first time in a couple of years, designed some new color pieces for the spring shows, and they sold well. Breindel feels confident color will return, stronger than ever. Note that there is a contrast between Atencio’s business and Intercolor’s. Atencio’s is very successful selling Chatham-created stones – emerald, ruby and sapphire – but has great difficulty selling the much higher-priced naturals. Intercolor primarily sells top-quality naturals.

Todd Wolleman of Leo Wolleman, New York, N.Y., takes a long view – the company has been around for 72 years. The one certainty, he says, is that color is trendy, no different from the couture business. Wolleman, like Swarogem and Intercolor, is vertically integrated now, buying at the mine, doing the cutting and providing direct service to retailers. These companies are geared to go with the trends, and they believe the future will belong to the original thinkers and the branders.

Hackman says retailers who say color has died for them just don’t know how to sell it. He sees the business going to the specialists who know color and develop their own custom pieces.

The market has been jostled into a new alignment, with most participants aligning themselves for certain target markets. The past few years have seen the industry

adjusting to a more educated buying public and a more competitive business – between categories within the store, with other retailers and with alternative products vying for the consumer’s dollar. Suppliers and retailers have zoned in on where they want to be in the market, and as those lines firm up, the industry could well be in for a resurgence.

Treatments, synthetics

As for treatments and synthetics, few companies express real concerns. True, fraudulent actions can hurt the image of color, though highly publicized misrepresentations in the diamond business seem to have had little long-term effect. Most industry people say the public is relatively unconcerned about synthetics and treatments – even when fully disclosed.

There are some concerns that lack of disclosure at the retail level could lead to government regulation requiring certifications of source and treatment. Albers feels the Opticon treatment of emeralds, for example, could lead to serious errors in appraised values, and that could lead to mandated disclosure.

Even then, companies such as Swarogem, Wolleman and Intercolor, those integrated from the mine up, will show it can be done. The trade may need to go through another transition, but it will be a step up in professionalism and that will undoubtedly enhance the image and value of color.

Albers mentions an amethyst dealer who is eager for such regulation to come because it will set a price differential between natural and synthetic stones. And, he adds, Swarogem will be ready to deliver iron-clad guarantees on treatments and origin.

No, color is not dying. It’s mostly waiting for some first-class marketing.

Ben Janowski is a consultant who specializes in the U.S. jewelry industry. Contact him at Janos Consultants in New York City, (212) 288-1155.