Trends and challenges in 2017
By the time you’re reading this article, the 2016 presidential election will be over. And if you’re anything like the folks we spoke with about the state of the jewelry industry, you too will be glad because it means that we can finally move on and start planning for the year ahead.
“There’s been uncertainty because of the election,” says Ruth Batson, CEO of the American Gem Society and AGS Laboratories in Las Vegas. “The industry is ready to move on to the selling season.”
But what should you plan for? Although no one is anticipating any large changes for 2017, several issues could have a profound effect on jewelry businesses. Read on to learn about what the jewelry industry could be facing in the coming year.
Where We’ve Been, Where We’re Going
Things appear to be looking up for the U.S. economy.
According to the U.S. Census Bureau, the middle class in the U.S. finally saw incomes increase this past year, with median household income surging 5.2 percent to $56,516, marking the first increase in median income since 2007. While the median household income remains lower than its peak of $57,909 in 1999, economists seem positive that incomes will continue to gain ground in 2017.
This increase in household income could be one reason why the Conference Board’s Consumer Confidence Index saw back-to-back monthly gains in 2016, reaching 103.5 in September, the highest level since the Great Recession of 2008. Although the index dipped to 98.6 in October, the Conference Board reports that the overall sentiment is the economy will continue to expand at a moderate pace in the near term.
“All of the fundamentals are in a good place, giving strength to consumers and leading us to believe that this will be a very positive holiday season,” NRF President and CEO Matthew Shay said in a press release this fall. “This year hasn’t been perfect…but our forecast reflects the very realistic steady momentum of the economy and industry expectations. We remain optimistic that the pace of the economic activity will pick up in the near term.”
Marty Hurwitz, CEO of MVI Marketing in San Luis Obispo, California, shares the sentiment that things are looking promising for the economy in the coming year. “The good news is the Department of Labor reports that middle class jobs are growing for the first time since the recession,” he says. “We’re seeing a bit of a renaissance for middle-class salaries, which drives the bulk of jewelry buying. If this continues (and I’m optimistic that it will), it will be positive for jewelry retail.”
If it does, it will be a welcome development for the retail sector: Despite gains in consumer spending and a growing economy, the jewelry industry has seen an uptick in the number of store closings this year. According to the Jewelers Board of Trade, through the end of the second quarter of 2016, 825 jewelry businesses ceased operations or consolidated/merged, a 63 percent increase over the same time last year.
“We still have erosion in the jewelry store market,” says Harold Dupuy, FGA vice president strategic analysis of Stuller Inc. in Lafayette, Louisiana. “Jewelry store reduction is about 4 percent, when, historically, we’ve had about a 2 percent closure rate. I think this will continue for a while, as the jewelry market in the U.S. is overpopulated.”
Dupuy attributes the closings to a number of factors: retirements, consolidations, marginal businesses that cannot sustain themselves in difficult times, and retailers that continue to operate the way they did decades ago and haven’t kept up with the way today’s consumers shop.
Even with the uptick in jewelry store closings, jewelry sales have continued to grow, albeit at a slow pace. According to Dupuy, the industry is up 3.9 percent through September, with jewelry store sales up 1.2 percent through August. “The overall pie is growing at a slow rate,” he says.
While it could be easy to look at the number of store closings this year as a bad sign, this thinning of the herd could actually be a good thing for the industry. “It’s always talked about in a negative way, but the survivors will be doing more business,” says Dupuy, who believes the industry could expect sales to be up 1 to 3 percent in 2017.
Batson is quick to point out that, overall, retailers seem optimistic about the future. In a recent survey of AGS members, 57 percent reported that they expect to expand their business over the next five years. “This shows that there is still optimism out there long-term,” says Batson.
Part of this optimism may stem from the recent launch of a diamond marketing campaign by the Diamond Producers Association, a joint venture between several of the world’s leading diamond mining companies. Earlier this year the group revealed a new campaign platform that targets Millennials and focuses on redefining diamonds as symbols to celebrate “real” and “rare” human connections, rather than as gifts to be given for specific occasions.
The first “Real Is Rare” marketing campaign was just launched in October so its effects likely won’t be known until January. “It’s hard to predict,” says Ronnie VanderLinden, president of both Diamex Inc. in New York City and the Diamond Manufacturers and Importers Association of America. However, he is optimistic about the campaign. “It’s good for the industry, and I think next year things will improve.”
Martin Rapaport, chairman of the Rapaport Group, also believes this joint marketing campaign will benefit the industry. “I think the advertising will have some effect this year, but a greater effect in 2017, especially during the 2017 holiday season,” he says.
However, VanderLinden stresses that diamond advertising needs to be focused on more than just the typical bridal consumer. “The inevitable engagement ring is still there, still happening. People are going to continue to get married and buy jewelry to celebrate,” he says. “It’s the earrings, bracelets, necklaces fashion side of the industry that we need to
It’s also important to note that this marketing campaign could affect a variety of jewelry businesses beyond just those carrying diamond jewelry, as it has the potential to spark new interest in jewelry among consumers. However, Andrea Hill of StrategyWerx in Chicago warns that companies should not count on it as part of their marketing strategy.
“We are a diverse culture now,” she explains, pointing out that there are many more advertising avenues than there were when previous industry-wide campaigns were launched, making it more difficult to reach large swaths of consumers. “Companies need to be doing more relevant marketing relative to their niches. They can’t rely on others to bail them out with marketing. We all have to invest in it.”