What changes lie ahead for the jewelry industry?

By: Jan Brassem

Whenever I feel uncomfortable about the state of the jewelry industry, I turn to "Paco" a mythical character who always has (some) answers.

What Paco says puts me at ease, but I'm not sure if she knows more, or assumes more, than I do. Paco does, however, make me think. She knows everything about some things and nothing about everything else. She forecasts the jewelry trends you never thought of--which, at least for me, open windows to the future.

Anyway, the jewelry industry will have an altered trajectory when the economy turns around. There will also be a different set of characters in the game. I asked Paco what she expects--and when.

Jan Brassem: When do you see the economy turning the corner? Soon?

Paco: By all indications, things are not getting bad as fast as before. The Wall Street Journal and the rest of the Wall Street crowd think the economy should stop bleeding around August or September and grow a little bit the rest of the year.

Brassem: What about the jewelry industry?

Paco: The jewelry industry will turn the corner, economically, a bit later, by around September or October.

The industry's growth curve will resemble a wounded bird trying to fly. Economic insiders call it a "falling chicken" curve because it bumps along the bottom until it is finally airborne.

Brassem: What major changes do you see for the industry?

Paco: There are many--which is not surprising for an industry in transition. The most obvious is the shakeout of jewelry chain stores. By my official-unofficial count, at least 1,225 jewelry "doors" have closed, and I'm still counting. That level of disruption--a vacuum really--can mean several things.

First, it is a wonderful opportunity for small independent retailers to capture those customers left unattended.

But developing a strategy to acquire these new consumers will take marketing skill, especially in a soft economy. Retailers with a strong plan could ultimately have a surprisingly good holiday season.

These types of opportunities--such as a drop in competition--don't occur often.

Second, there seems to be a definite interest among foreign jewelry conglomerates in the U.S. jewelry market. Several Indian firms--particularly those with diamond holdings--have started to fill the vacuum. Gitanjali is already a recognizable name in the industry.

Finally, not surprisingly, well-managed and well-financed firms such as Warren Buffett's Berkshire Hathaway noticed the vacuum too. This giant conglomerate recently announced the acquisition of Andin International, a well-known, successful fine-jewelry manufacturer.

Berkshire Hathaway's wholly-owned jewelry subsidiary, fine-jewelry manufacturer Richline Group (formed in 2007 when Bel-Oro International and Aurafin LLC merged), now owns a slew of terrific jewelry brands and describes itself as the largest importer of gold jewelry. Richline Group is a force to be reckoned with.

Brassem: Which jewelry channels will disappear?

Paco: At one time, TV shopping networks were growing like gangbusters and threatening the retail jeweler's very existence, or so it was thought. Now, the big three, QVC, HSN and ShopNBC, are starting to change their product mix. They still sell jewelry but also soap, clothes and computers. Their focus is muddled, and they are reeling around in the dark.

Brassem: Are there new channels?

Paco: Everyone is familiar--or should be--with the social networking sites Twitter, Facebook, MySpace and the hundreds of others. It's time for retailers to use these marketing and networking tools.

On the other hand, when an industry grows this fast, there will always be a shakeout. Already, Facebook is looking for more capital (hard to believe since it claims to have more than 200 million active users), and there have been complaints from users who dislike what they consider to be overly strict enforcement of the site's terms of use. No surprise there.

Brassem: How does the jewelry retailer deal with this transition?

Paco: The retailer has to deal with its losses and move into what William Bridges (author of Managing Transitions: Making the Most of Change, Second Edition, Da Capo Press, 2003) calls the "neutral zone." Jewelers have to pass through an in-between period when the bad times are gone, but the good times aren't there yet. It's when jewelers and their staffs develop a new energy, enthusiasm and discover that the worst is behind them. By this time they should--with proper management--have a new sense of purpose and outlook. Better times are ahead.

Brassem: Any final thoughts?

Paco: After all these years, I have often wondered why there are so many men running jewelry stores when jewelry is designed for, worn and appreciated by women. Why aren't more jewelry stores owned by women?