"BGC introduced me to a Chinese factory who designed our exclusive brand for us."
-- Jewelry Brand Designer

Is the sky falling?

By Jan Brassem
For Pro Jeweller Magazine

After hearing the depressing economic news coming out of Washington, reading the ‘downer’ articles in all kinds of magazines and listening to my kid’s music teacher, I cautiously stuck my head out the door to see if the sky was indeed falling. No it wasn’t, but you’d think the bank would be knocking on my door at any minute to foreclose on my house. (I own the house free and clear but I’m not sure it’ll make any difference.)

After talking to retailers across the globe – jewelers among them – I got the feeling the retail industry in general, and jewelry retailers in particular, are in a bad way. The picture is not pretty. Jewelry retail numbers are terrible -- sales are way off and margins – if any – are thin. There’s nothing but gloom, whining and groans. But then again, it’s still early. They’re looking for that light at the end of the tunnel -- as long it’s not a freight train.

Free jewelry and economic advice has become so confusing, that many solve problems you didn’t know you had in a way you don’t understand. Most of it, of course, isn’t worth the price.

I’d like to add some more free advice to your collection but I’ll add a couple of new elements, a) my experience of managing an American jewelry company in a recession and b) a graduate business school education. (Most jewelers tell me that’s an offset.)

Of course, the major reason for the worldwide economic challenge is the global recession, (the “Great Freakout of 2008” as they call it in the US). While US President Barack Obama paints a gloomy picture, (“crises” had become his favorite word), he evidentially feels America’s economic problems can be solved with American dollars – lots of dollars. To date – I think – he has budgeted via Stimulus Plans, Bailouts, budget initiatives and other measure in the neighborhood of US$3 trillion – and growing.

It should be no surprise to anyone that the world economy (or any country’s economy for that matter) is subject to fluxuations. When The Business Cycle, as it is called, expands, income and employment grow, and everyone is happy.

On the other hand, when the economy contracts for two or three successive quarters, (as it’s doing now), the financial system is in recession. Jobs are eliminated and everyone worries. This expansion-to-contraction cycle takes, on average, 7+ years. All governments -- Obama included -- try to shrink the time between contraction and expansion, but, no matter how hard they try, cannot eliminate it altogether. The Business Cycles is an economic fact of life

This begs the question: Since seasoned governments, as well as jewelers, have navigated the recession of 2001 – 2003, why were so many unprepared – even shocked -- at the current recession? The answer is straightforward. They didn’t learn the lessons of 2001-2003 and worse, ran their governments and companies at Status Quo.

Anyway, I called my business school professors at Harvard University and New York University to see if there was anyway for jewelers to capitalize on this miserable business environment.

They gave me an earful. First, they said, protect the existing business. Here are their thoughts.

  • Initially, be sure you survive the recession. Doing nothing, however, is not an option. While other companies are distracted, cultivate relationships, look for new customers, investigate new channels, deepen your relationship with your bank.
  • Announce a new concept that will be launched when the economy recovers. Develop new ideas to polish your stores’ name. Ideas and press releases to local papers are cheap but priceless. Announce a new pricing structure to celebrate the recovery.
  • Throw out things that have outlived their usefulness. The recession is a great time to dispose of unneeded samples, unused desks, meaningless reports, cluttered space and inefficient systems. You get their idea. The clean sweep will have physical benefits as well psychological meaning to your team.
  • Spend time with your clients, customers and vendors. A company depends on paying customers and efficient vendors but now maybe a good time to do a little extra for nothing. Consider it an investment for the future. It might cost the company time and expense, but the results could be priceless.
  • Here are some of their other ideas. a) Communicate, communicate and then communicate. b) Lead from the front. Your team needs to see their leader. c) Experiment, experiment, and experiment but do it cheaply. d) If possible, a recession is a great time to steal (er, take) market share, especially from competitors going out of business or restructuring. e) Great fortunes have been made in bad times – don’t stand still. f) Have courage to make the tough decisions (layoff, firings, closings).
  • Make no rash decisions. Think extra carefully. Starting a marketing campaign or acquiring a company or hiring a top executive during a recession is a tricky business. What do you do if the recession drags on; do you carry the extra baggage; do you fire the recently hired executive? Due diligence in important.

Professors from both universities then gave three insightful initiatives on growing a business during a downturn.

A. Invest in technology. Now may be a good time to invest in quality development tools, production technology, jewelry design systems and such. These assets could be cheaper now than in good times as the competition for them slackens. Using these assets could translate to an increase in profitable sales now as well as after the recovery.

B. Pursue Mergers and acquisitions. History shows that the best M&A ‘deals’ are made during downturns, generating up to 50% more value than during more ‘normal’ times. Closely monitor the financial and operational health of your competitors – in the jewelry industry or not. Companies lacking the financial resources to stay afloat may welcome your advances.

C. Rethink your financial model. The downturn could change the way many of your suppliers, banks and market channels think and operate. Successful and nimble jewelers anticipate these changes and adapt ahead of their competition to protect their existing business and gain an advantage.

Companies adopting a comprehensive approach to protecting their existing business and taking proactive steps to grow during the current storm, will not only be positioned to safeguard their operation but get a jump on the competition as well.