What began with a roar has ended with something of a whimper, surely disappointing the cavalcade of doomsayers who prophesised catastrophic commercial conditions that were to change Australian retail forever. Luckily, many retailers on our shores escaped relatively unscathed, unlike their overseas cousins.
Spare a thought for jewellery retailers and suppliers in Europe and the US who have been wiped-out. The international jewellery trade – from the diamond cutters in India to the gem merchants of Thailand and New York, through to the upmarket retailers of London’s Bond Street and New York’s Madison Avenue, all were affected. But Australia’s local market was relatively unaffected.
It was only in November last year that the signs were ominous. Superstore chains like Harvey Norman were closing outlets amid comments by founding director Gene Harvey that conditions were the worst he’d seen in 47 years of retail, and a thick coat of panic was spreading across the industry like paint.
If low-priced consumer electronics stores were feeling the pinch, the sentiment was that jewellery would be doomed; its place at the pinnacle of the luxury goods market – always the first sector to feel a downturn in discretionary spending – meant it would bear the full impact of a mass decline in impulse sales.
By late 2008, a relatively early stage of the economic downturn, many independent jewellers were already reporting declining year-on-year sales that were, in some cases, as high as 20-30 per cent. Coming on the back of what was widely understood to be one of the strongest years ever in 2007, the slap of consumer frugality stung bitterly.
“Everybody is feeling the effects,” said Cameron Marks at the time, director of upscale retailer Percy Marks. ”Not only due to the downturn, but also the fall in the Australian dollar, which has significantly increased the diamond price. Our clients are still spending but they have become very cautious.”
JAA CEO Ian Hadassin remembers it well: “Retailers were closing every day. It was as bad as it was during the last recession in the 1990s.”
Common strategy for retailers was to cut costs immediately, axing orders until things improved.
“Inventory is any jeweller’s biggest cost, and we’re spending 50 to 60 per cent less on new stock than in 2007,” Marks said then.
Such a mass reduction in ordering was crushing suppliers who are always the hardest-hit victims of a downturn as retailers slash inventory to maintain positive cash flow.
One year on, those surveying the damage might have expected far worse. Certainly, the industry never even got close to disappearing down the sinkhole as many first thought it would, and casualties have been relatively minor when compared to the situation in other western economies such as the USA and the UK.
Much of this had to do firstly with the Federal Government’s massive $10.4 billion stimulus package, which placed $900 in the palms of consumers everywhere in a desperate play to encourage spending; and secondly with steady reductions in interest rates throughout 2009. In fact, for all the stories of jewellery retailing woe, 2009 has seen the industry buoyed by some strong individual performances, especially in the market’s middle, thanks to the emergence of fresh, exciting product, a greater focus on customer service and a sharp increase in the promotional support that leading suppliers are giving to their stockists.
PROMOTION PAYS
It’s of no surprise to anyone that, after three years of domestic market dominance, Pandora had another breakout year in 2009, which included, among other things, the expansion of the group’s flagship stores across Australia. Of course, entering the downturn, Pandora was flying, with wholesale orders hitting record levels in early December 2008.
“We were up 40 per cent in our flagship store, and we were trading our heads off,” recalls Jeff Burnes, head of public relations in Australia.
While Pandora’s breakthrough product has been its charm bracelet, a unit that can be easily customised to fit most budgets – and therefore most consumers – and which is designed expressly to encourage repeat business as consumers add charms with every gift occasion, the sustained success of the group has more to do with its extensive expertise in brand marketing. It is this expertise that helped Pandora when it really mattered, by reinforcing its brand identity at a time when many customers just needed that extra incentive to spend their money on jewellery.
“In a downturn, people go back to brands they can trust,” Burnes says. “Prestige brands that promised quality and design continued to do well.”
Such widespread marketing saturation comes at a massive cost, but the considerable expense Pandora has poured into brand cultivation appears to have paid-off in spades, with the group maintaining its majority market share amid the glut of “copy-cat” brands eager to capitalise upon the reinvigorated charm trend, according to Burnes.
“Consumers become more pragmatic in a recession,” he says. “(They think) Why save a few dollars when you can have quality and familiarity?”
SERVICE IS KEY
High-end diamond jewellery manufacturer Lester Brand is another supplier to report strong results throughout the downturn.
“Certainly, the second half of the year was significantly better for us than the first, and much of this had to do with the significant strengthening of the dollar; between last October and July this year, retailers weren’t replenishing stock because the currency was weak,” Brand says, quickly adding that the success of Brand’s eponymous label owes far more to best-practice customer service, relationship building and advantages of local manufacturing than any recovery in currency.
“In a downturn, everyone is affected,” he says, “but the good companies are the ones with the depth and flexibility to survive. The success of our business is about detail in every aspect. We have a very strong, loyal customer base and a depth of stock, but we have also recognised the increased competitive nature of the market and have become more competitive ourselves on price without sacrificing service.”
One way Brand does this is by flaunting the advantages he can provide to his retailers because he has both local and overseas manufacturing capability.
“A critical part of what we do well, in comparison with our competitors, is that we are the designers and manufacturers of every single item we sell – we can not only service our own product, but we can offer customers choice and unparalleled flexibility. If they want us to re-create one of our designs in platinum, instead of gold, we can do it.”
It gets said a lot but quality service, according to Brand, simply cannot be understated and will only grow in importance in the coming years, possibly providing the key to survival at retail level.
“The world has changed dramatically, and we all have to think about the future of our business,” he says. “The next five years will not be a repetition of the last five-year cycle; it will be different. Increased levels of globalisation mean that every manufacturer is now coming to Australia, just as every retailer is now going overseas. It’s never been more competitive, and owner-operator stores must find ways to differentiate as much as possible with the growing number of chain stores. This won’t happen on price so it needs to happen on service.”
BUSINESS AS USUAL
When Don Gillett, owner of Brisbane-based Gillett’s Jewellers, was asked how his business had not only survived but thrived in the downturn, he joking said, “What downturn? It’s business as usual.”
An upbeat sentiment across staff and store has been helping Gillett to make strong gains amid the broader contraction: “We targeted a 30 per cent increase in 2009 and, while the year isn’t yet over, our figures are better than ever,” Gillett says, putting it down to a loyal customer base, a wide product range that includes 3,000 items and a rapidly growing online portal that now handles over 50 per cent of the store’s sales.
Since launching his site, Gillett has increased his direct marketing, particularly to the store’s established customer base, to help both the physical shop and its online presence to better work together, to the benefit of the whole business: “These days, you have to do both, but you have to do them both well,” he says.
Constant monitoring of internal sales data has helped the business to identify emerging trends and Gillett casts his net wide, differentiating the shop from the pack by offering a huge array of branded and unbranded product – the Gillett’s range includes such brands as Hot Diamonds, Me to You, Rochet, Lord of the Rings, Georgini, Inori and Nomination.
The store also stocks Pandora, a brand that has sold so well that Gillett believes it could have caused other retailers to rely upon it too heavily during the downturn – neglecting the rest of their stock.
“I’ve been growing my inventory throughout the last year, even as the Australian dollar dropped,” he explains, in contrast to the inventory reduction measures taken by some retailers. “Now is the time to expand your range.”
THE ROAD AHEAD
The year is over and it’s safe to say that those reading this article have survived. Still, recent moves by the Reserve Bank to again increase interest rates mean that growth challenges will continue for the jewellery industry during its most important trading month.
Recent retail figures have shown promise but there’s no guarantee of a strong Christmas period, which is why it is imperative that retailers are not caught napping at the wheel these holidays. Given recent Christmases have been plagued by high interest rates, and given that the high Australian dollar means imported goods are cheap at the moment, jewellery finds itself in a rare position of advantage, poised to pick-up business from consumers spending less on cars and plasma TVs than they would in normal conditions.
“It’s the first time ever that money is coming back into jewellery from these sectors,” Hadassin says, adding that the old jewellery retail mantra holds true now more than ever: “Don’t discount! Instead, inspire passion for the product you sell by continually appealing to the romance factor in jewellery gifts.”
Brand agrees, urging retailers to remain true to the key attributes of valuable jewellery: “There’s definitely been a shift in the type of stock being sold. Stores are selling a lot of lower price-pointed products, such as silver, and they’ve been doing well out of that; however, now that things are starting to improve, retailers should be thinking long term to protect the core of their business, which is diamond jewellery.”
Only innovative and affordable product backed by world-class promotional marketing will bring consumers into the store.
Only exemplary customer service and store ambiance will keep them there; and only faultless packaging and enthusiastic after-sales service will bring them back for more.
Do all that, and retailers and suppliers might just be strong enough to make it through to December 2010 to again hear Jeweller say, “If you are reading this, you have survived”.