Even in a shaky economy, America’s finest jewelers are holding their own
It’s tough to put a good spin on what has, without doubt, been a very bad year for the U.S. economy. January saw record-breaking home foreclosures, up 57 percent over the same month last year. The Consumer Confidence Index dropped to its lowest level in five years in February. And in March, all hell broke loose: Gold crossed the $1,000-perounce threshold for the first time, gas prices soared to $3.25-plus per gallon and Bear Stearns became the largest and highest-profile victim of the global credit crisis, precipitating concerns that the whole darned banking system was on the brink of collapse. At the time of this writing, April was, indeed, shaping up to be the cruelest month.
It doesn’t take Ben Bernanke to recognize that based on these economic indicators and more, prospects for luxury sales in 2008 look considerably less than stellar. And yet, this year’s eight-figure independents, an elite club of American jewelers doing $10 million or more in a single store (provided they don’t own more than seven stores, with one or two exceptions), are reporting from the retail front lines with some unexpected results. The first few months of the year were “surprisingly strong,” says Hank B. Siegel, president and CEO of Lawrenceville, N.J.-based Hamilton Jewelers. “I am quite happy to say that we are enjoying strong sales growth so far in 2008.”
Others, while acknowledging the market is noticeably softer now compared to the same period last year, are in expansion mode. “We don’t just look ahead to the next 18 months,” says Michael Pollak, CEO and cofounder of Denver-based Hyde Park Jewelers. “Our outlook has a five-year horizon.” Among most of Pollak’s eight-figure compatriots—an unscientific, self-reported list of jewelers selected and ranked through conversations with suppliers and members of the Jewelers Board of Trade and through independent research (and printed in the May 16 issue of COUTURE’s sister publication, National Jeweler)—concern about the direction of the economy is tempered by the conviction that given a strong differentiation factor, shoppers will continue to spend money.
“Nobody’s going gangbusters, and we’ll have to work harder,” says William “B.J.” Nichols, president of Reis-Nichols Jewelers in Greenwood, Ind. “But the discretionary luxury consumer is carrying us all.”
PROTECTED BUT NOT IMMUNE
The quintessential luxury consumer is, by all accounts, still investing in watches and fine jewelry. According to a recent survey of 627 affluent individuals commissioned by Elite Traveler, a magazine for private jet owners, 80 percent of super-rich consumers (defined as those worth more than $30 million) and 58 percent of rich consumers (defined as those worth between $10 million and $30 million) anticipate an increase in their luxury goods spending in 2008.
That sentiment was borne out by sales over the 2007 holiday season, which saw a combination of higherticket sales and reduced store traffic (though it bears noting that the former is partly attributable to inflation). “Where we’re seeing decreased volume is in the middle price range shoppers looking for gifts in the $750 to $3,500 range,” says Michael Finn, co-owner of Boston’s E.B. Horn.
While sales of high-end watches and designer or one-of-a-kind jewelry, the categories that appear most resistant to recessionary pressure, remain buoyant, it would be naive to suggest that America’s wealthiest consumers are immune to the seesawing economy. “The better off you are, the better you’re doing,” says Milton Pedraza, CEO of the Luxury Institute, a New York-based research firm focused on the top 10 percent of America’s wealthy. “But there is some softening at every level. Even the guy with the $100 million yacht can postpone the purchase, and some have.”
INVESTMENT DIAMONDS HEAT UP
The same seems to be true for purchases of large diamonds. According to suppliers, prices on stones of 5 carats or more have increased about 20 percent over the past six months, causing sticker shock at the retail level. “Big stones were up for the year but dried up around November and December,” Nichols says. “All year long prices went up, and then it was like somebody flicked a switch.”
“Sales of bigger diamonds have completely dried up,” echoes Denis Boulle, owner of deBoulle in Dallas, a newcomer to the list. “A 10-carat diamond for $700,000? A 5-carat for $300,000? It’s crazy.” The madness shows no signs of slowing down. Quite the contrary. Diamond industry analysts are convinced that a graph plotting large diamond prices into the next decade will show a line pointing straight into the upper right-hand corner.
Good old-fashioned supply and demand is to blame. Rough diamond production will peak at “300 million carats, tops, in 2016, unless some major diamond finds come up,” says Martin Rapaport, the industry commentator. “At the same time, demand for diamonds in dollar terms is going up, based on new wealth and new consumers in India and China. You have a gap between the two such that you know diamond prices are going up.”
A speculative climate may have already settled upon the trade, Rapaport says, noting that there are “not a lot of goods around” because “people are holding them back.” But speculation notwithstanding, the incontrovertible truth is that big stones are not likely to drop in price now or ever.
Which is to say nothing of rising metal prices or currency swings, nor their impact on watch prices, scores of which were revised by Swiss firms at the beginning of this year to account for the steep increase in gold and even steeper decline of the dollar. “The workload to manage all these price increases, with 100-plus vendors, is monumental,” Nichols says. One bright spot of rising prices, at least in the watch business, may be the willingness of some consumers to buy pieces now to avoid paying even more later on.
“We’re not seeing any resistance at all,” says Boulle, citing Patek Philippe as the kingpin in the watch category. He says the difficulty of getting product from Switzerland, where watch firms are now fielding cash orders from hungry buyers in emerging luxury markets such as Russia and China, has created a perception of rarity among his clients that has also spurred sales. “As soon as it comes through the door, it’s sold,” he says of coveted timepieces. “I don’t see an end to that.”
DIFFERENTIATE OR DIE
This underscores a core belief among America’s finest jewelers: When it comes to overcoming the uncertain economy, offering consumers unique products they can’t price-shop at the jeweler down the street is the only viable solution.
For most eight-figure retailers, that means a healthy selection of designer brands sourced from vendors who offer regional exclusivity or, better yet, a private label collection that truly exists nowhere else.
“While everybody’s moaning or groaning, there are some jewelers posting double-digit increases,” says Ken Gassman, a jewelry industry analyst. “They tend to be AGS [American Gem Society] jewelers, and they tend to have a proliferation of brands, whether it’s Hearts On Fire, which is doing very well, or David Yurman. The brands are either national brands or private label brands. They also have a lot of designer names that give them a competitive differential from the guy down the street.”
“The commodities—the 1-carat stones—are sitting on the shelf,” Gassman says. “Consumers want to spend money on something that’s different. It’s an ego-driven thing. Jewelry has always been used to denote power and status, and that’s true for today.” That unique products are in demand isn’t news, at least not in the high-end jewelry business. What is new is the degree to which they’re being sought after by jewelers, especially on the eve of the major luxury buying fairs in Basel and Las Vegas, where eightfigure retailers say they will be focusing on hard-to-get jewels and watches, and likely trimming their opento- buy budgets for everything else.
“It’s the most important time in the last two decades for jewelers to manage their inventories and finances in a very proactive manner,” says Hyde Park’s Pollak. “It’s imperative to find a proper blend of proprietary merchandise. That’s the most profitable part of a jeweler’s business.”Even retailers who say their businesses haven’t been impacted by the economy are vowing to buy cautiously. Bruce Yamron, president and CEO of Yamron Jewelers in Naples, Fla., an eight-figure independent who declined to be added to this year’s list, says he’d rather offer a wider selection of Patek Philippe timepieces than a wider selection of brands.
“We have nine watch lines, and we might go to eight,” Yamron says. “Jewelry is a different story. For sure, I’d concentrate on fewer vendors. Traditionally, we always bring in two to five new looks from Basel and/or Vegas. But we will probably condense and try to do more business with those I support and who support me.”
MAINTAIN YOUR MARKETING
One thing most eight-figure independents won’t be cutting back on is marketing, citing an economic downturn as the perfect time to gain market share. “Pulling back is only an opportunity for someone else to advance,” Pollak says, noting that he intends to maintain his marketing budget both in terms of advertising the store brand and holding events. With regard to the latter, while trunk shows and designer events are key, so is originality and commitment. Just ask Finn of E.B. Horn. For the past two years, the company, in conjunction with PR agency Conover Tuttle Pace, has sponsored a citywide scavenger hunt called “The Great E.B. Horn Diamond Hunt.” Advertised through the jeweler’s Web site and local media, the event has 200 teams of two searching the Boston area for a $25,000 diamond.
“The people who participated became E.B. Horn fanatics,” Finn says, adding that the winning couples from each year have used the 2-carat E.B. Horn diamond prize to become engaged.
THE EMPHASIS IS ON SPECIAL
However, not all successful events require an entire city as the backdrop. In some cases, the smaller the gathering, the more room there is to impress. Yamron Jewelers, for example, recently planned an event for just two couples. “We’re taking a private plane, picking them up in a Town Car, taking them to the best restaurant in the country and a New York show,” Yamron says. Why? “To treat them to something special.”
According to the Luxury Institute’s Pedraza, Yamron has nailed the two most important questions: “How well are you treating your customers?” and “Do you make them feel special?” Jewelers who feel confident about their answers to these questions might not only withstand a crashing economy but thrive in it. Alfredo Molina, founder of Phoenix-based Molina Fine Jewelers, is proof of that. “We had a record 2007. We had the best December we ever had, and we had over 10 transactions in December of $1 million or more,” says Molina, whose by-appointment salon maintains an average sale of $75,000. He attributes the success of his business to owning large diamonds and impressive colored stones, aggressively marketing his store and creating a sense of urgency among his clientele by focusing on one-of-a-kind pieces.
“The baby boomers are in their peak spending years,” Molina says. “There’s plenty of money out there. But sitting around waiting for things to happen? Those days are over.”
