KEY TAKEAWAYS
• Education is key to improving sales as consumers will return more knowledgeable and demanding than ever
• Economic confidence has declined, and retail spending will be concentrated in essentials in the short- to medium-term • Consumers desire positivity, connectedness and emotional fulfilment • Jewellery businesses should take the opportunity to re-evaluate their business model and communication strategy |
A pandemic is known as a ‘black swan’ event – a set of circumstances so unlikely, businesses do not even factor them into forward planning, budgets, or worst-case scenarios. Yet 2020 has brought such an event – COVID-19 – to every continent, leaving deep disruption and financial damage in its wake.
“It has been very strange, unexpected,” observes Roland Lorie, CEO IGI, who is based in Israel. “We had to stop everything in China in the middle of January; all manufacturing stopped too, and all the jewellers in China and Hong Kong like Chow Sang Sang and Chow Tai Fook. Whereas, at the time, in the US and Europe everything was normal.
“Now it's upside down. We're in a situation where China and Chinese customers are back to work – not as if nothing happened, but 60 or 70 per cent back to normal – and the rest of the world is now the problem. The chain has not been interrupted; it's just switched from one half of the world to the other.”
The changes were abrupt, with Avi Levy, president of IGI’s North American division, noting some US retailers were still accepting orders in early April; Lorie observed that IGI’s Belgian lab processed a shipment from an Italian client around the same time.
The US – the world’s largest jewellery market – became the new epicentre of the virus in late March, and Levy characterises the current trading situation as “on hold”.
For the International Gemological Institute (IGI), the virus has caused unprecedented upheaval across its network of 18 laboratories in Asia, the US, and Europe.
“Obviously, the first reaction is that consumer confidence has taken a hit, and consumer spending has as well,” he explains. “People are worried about what money is going to be coming in and they are covering all of their necessities, first and foremost.
“The government's [assistance] packages have been signed off, which will be a big relief. But in general, people are on hold when it comes to where they are going to spend and what they are going to spend on.”
Similar trends have been observed in Australia; recent figures from the Australian Bureau of Statistics saw retail turnover increase 8.2 per cent in March, concentrated almost entirely in groceries and offset by significant falls in discretionary categories such as clothing.
While Levy notes that much of the international gem and jewellery trade is “stalled”, he adds, “There are people who are still trying to do what they can – either to continue to do businesses or to prepare for what’s coming.”
He adds, “The American people are very resilient and assuming things do turn around, people will want to take care of themselves. Jewellery is one of those feel-good types of spending that people choose to make themselves or others feel better, and to celebrate a special occasion.”
Lorie, too, is optimistic, telling Jeweller, “Being locked in the house, I’ve never spent so little money. Once this is over, depending on how long that will take, there will be a ‘contra-reaction’. People will probably want to go out, want to enjoy life. Now, how are they going to enjoy life? That's difficult to say. But there will be a point when they will want to please the person with whom they live – buy presents, buy flowers. I think we are going to get back to that quite quickly once it is over.”
In a recent report, management consultancy firm KPMG analysed consumer spending following the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic in Hong Kong and the 2015 Middle East Respiratory Syndrome (MERS) outbreak in South Korea.
Analysts found spending returned to pre-crisis levels six months to one year after the outbreaks, with KPMG chief economist Dr Brendan Rynne explaining that the impact of COVID-19 is “going to be much longer lasting” than either SARS or MERS as it has led to a “much deeper shutdown within the global economy”.
"Where will you be when they need you?"
With jewellery businesses likely facing at least several more months of restricted trading as social distancing measures are gradually relaxed, Levy believes it is an ideal time to revisit existing business models.
“It’s a great time to re-evaluate what they have been doing for the past six months, one year, and two years, and see where they stand in their business,” he says.
“Here is a time where they can take it apart again and see what's going to make them stronger when they come out of this: how are they going to appeal to their customers after this? What are they going to offer?”
Meanwhile, Lorie points to the complacency of the diamond industry as a lesson in the importance of future planning and investing in communication.
He tells Jeweller, “Until a few years ago, the industry was used to the fact that De Beers was doing the promotion for the industry, spending $US200-300 million a year [on advertising], and everybody was sleeping quietly. [Then] De Beers stopped doing the promotion and the entire industry became like an orphan – there was nobody there [to fulfil that role].”
He adds, “After this crisis the survivors will be the ones that take initiative and go out and find the consumer and not just wait and see; less of the hibernation and more keeping that communication going, communicating without disappearing from view.”
Levy believes messaging is crucial, pointing to the success of actress Jane Seymour’s US jewellery line, Open Hearts, following the Global Financial Crisis in 2008.
“She put a great message out there to customers, she made customers feel good, she had a great story about how and why she put her jewellery together and it resonated with the public,” he explains.
“Companies that go further in their thinking and go back to the emotional side of the jewellery business, the social side and appealing to the sentimental side, those companies will resonate more with people, who are looking for feel-good stories.”
Levy also suggests consumers will be drawn to businesses who supported charitable causes during the crisis.
A new retail paradigm
While changing their messaging and increasing communication, businesses must also adapt to changing consumer spending habits.
Lorie observes that Chinese consumers increasingly turned to online shopping during mandatory isolation – “From what I see in China, the big winner is the Internet,” he says – and a similar trend is emerging in Australia.
As an indicator, online retailer Kogan.com recorded 62,000 new customers and a 50 per cent increase in sales during the month of March.
Experts believe the shift is likely to accelerate growth in the e-commerce sector, and Lorie advises all jewellers to develop an online presence alongside a physical store.
“The winners are going to be the ones that can balance between presenting the products online and selling online, and at the same time having a shop where the consumer can have a physical experience,” he explains.
“Jewellery is not like buying an iPhone or car, where each one is the same. Every piece of jewellery is different. After this [pandemic], more and more, we are going to go in the direction of a mixture of online and physical shops.”
Another sector for businesses to invest in during the COVID-19 ‘downtime’ is education. Alongside laboratory and gemmological services, IGI provides technical training for jewellery professionals and consumers.
“We train salespeople all over the world for all the major companies because they understand that you cannot just be a salesperson in a shop waiting for the customer. When the customer is there you need to be very professional, you need to give the explanation they are expecting,” Lorie says.
“In the back of the customer’s mind is the thought, ‘How do I know this jeweller is selling me the truth, that the quality is correct?’ Our role is to bring that peace of mind to the consumer and to help make the jeweller’s life easier.”
Levy adds, “Education goes across all sectors, from the store level all the way to the consumer level. Transparency is very important in today’s world and education helps with those questions and answers [from customers].”
Lorie emphasises that consumers will become “very demanding” following the crisis due to online research and competition – making staff education even more critical.
“Jewellers need to have educated people, which perhaps was not the case in the past. Too many times I have entered a jewellery store and seen salespeople who were selling, perhaps, shirt or perfume the week before,” he says.
Adds Levy, “It won't be business as usual, coming out of this – that's for sure.”
Amid and beyond the COVID-19 crisis, the necessity for jewellery businesses to change, adapt and evolve is the only certainty.