Buying Groups through the Pandemic - 2020 State of the Industry Report: In-depth update of Australia's jewellery buying groups over a decade

REPORT INDEX - CLICK ITEM TO JUMP TO RELEVANT SECTION

T O P I C S

» Support and advice
» Proactive and positive: lessons from COVID
» Lingering challenges
» Equipped for the future
» Taking the next steps

It feels as if every second day we read about another retailer closing its doors. Economic and financial causes aren’t the only issues at play; Australia has also had to contend with drought, floods, fires and now the coronavirus, all of which have taken their toll on the already fragile retail industry.

In March, Colin Pocklington, managing director Nationwide Jewellers – Australia and New Zealand’s largest buying group – told Jeweller, “The conservative spending of consumers continues to adversely affect the industry. Until we see real growth in incomes and an easing in cost of living, we are unlikely to see growth of sales.”

Yet in the wake of the pandemic, he struck a more optimistic tone: “Obviously the last few months have been stressful for everyone – particularly our Melbourne and Victorian members and suppliers. That said, trading is very buoyant at the moment. Consumers appear to be confident, with the virus now under control.

“An increasing demand for custom design continues to grow, with Australians who would normally be overseas now spending their money domestically,” he explained.

That insight was echoed by Carson Webb, general manager Showcase Jewellers, who said, “Consumers have very limited travel plans and are more confident to remain local, support local businesses, and enjoy the simple things around them again. This is also true for our New Zealand members – and true for many retail businesses, not just jewellery.”

He added, “I’d even go as far as to say this [situation] has seen the resurgence of the independent jeweller, and many would be booked out for weeks with makes and repairs.”

At Australia’s newest jewellery buying group, Independent Jewellers Collective (IJC) – which launched in the first three months of the year – the pandemic had an unexpectedly unifying effect, according to CEO Josh Zarb.

“The uncertainty in the early days of COVID-19 was just as hard for us as anyone, and it took hold just as we were launching IJC. What it did do, which inadvertently worked in our favour, was to pull a group of retailers together very quickly.

“[Our members] formed a very tight bond from the onset, which gave us a great sense of community.”

Zarb also noted an uptick in sales for members, saying, “The most pleasing thing to note throughout the last six months was just how strong regional retail trade has been and almost all of our members’ stores have been trading very strongly.”

By July, IJC had surpassed its initial member target of 40 retailers and that number has held steady for the past five months. As of 1 December, IJC had 43 members operating 52 stores.

Showcase Jewellers recorded a net increase of one new member, to 139 and 212 stores in Australia and 19 stores and 19 members in New Zealand, while Nationwide’s membership remained relatively stable, decreasing from 322 to 317 members, and 364 stores.

Support and advice

__	TABLE 1: GROUP TOTALS
	GROUP TOTALS AUSTRALIA (As at Dec '20)
	Buying group figures have been adjusted from a previous report in February 2020. Members and store counts have increased overall due to Independent Jewellers Collective’s 43 members and 52 stores.
	GROUP TOTALS NEW ZEALAND (As at Dec '20)
	The New Zealand market has remained relatively stable, with a decrease of four members since February.
	GROUP TOTALS INTERNATIONAL (As at Dec '20)
	Members and stores outside of Australia and New Zealand.

During the pandemic, Showcase Jewellers found that its existing e-commerce infrastructure paid off for members.

“To be very honest, our previous strategies of our fine jewellery focus and investing in many of our digital customised platforms has proven to be exactly what we needed to support our members,” Webb explained.

Communication was also a key priority: “Using our active internal communication platform has meant we’ve been able to keep membership up to date and on top of what needs to be done.”

At IJC, Zarb said members had embraced “the Zoom phenomenon” as interstate travel was largely prevented.

“We started hosting regular IJC group Zoom meetings with all our partners [retailers] every two weeks from April and then every three weeks from June,” he told Jeweller.

“During this time, we were able to share ideas and provide some leadership and updates on many issues that the industry was facing.

“This has become a very effective group communication platform for us, as we invite guests to each meeting and we can record these sessions easily for everyone to refer to at a later date. These will continue into our business model moving forward,” Zarb added.

At Nationwide, the focus was also on providing robust digital offering, including new platforms to replace those physical events that were cancelled due to international travel restrictions.

“From late March to October, we spent considerable time supporting members on how to access the various government benefits and negotiating rent relief with landlords”

Colin Pocklington, Nationwide Jewellers

“With the cancellation of the 2020 International Jewellery & Watch Fair [which was scheduled to take place in October], we brought forward the launch of our new eWarehouse in conjunction with our Virtual Pre-Christmas Expo Week,” Pocklington said.

“Our Expo Week was a huge success for both members and suppliers, with orders placed far in excess of the 2019 fair.”

Nationwide’s annual Antwerp diamond-buying trip was also shifted online to ensure members were still able to source and sell Antwerp stones in 2020.

The ‘virtual buying trip’ ran from July to September and connected jewellers with diamantaires through video-conferencing, as well as providing marketing materials to promote the stones and encourage pre-orders.

More broadly, the group also launched its Global Diamond Vault, which gives members access to certified diamonds from both local and overseas suppliers.

In terms of communication and education, Nationwide offered webinars on industry-related topics – including forecasts and marketing strategies – as well as tutorials.

Proactive and positive: lessons Learned from COVID
 

TABLE 2: AUSTRALIAN TOTALS

The following tables include the most recent available membership and store count data, provided by the four buying groups exclusively to Jeweller. While three buying groups experienced declines in membership over the course of 2020 – largely attributed to COVID-19 and expected retirements – new buying group Independent Jewellers Collective notably surpassed its launch target of 40 member stores.

* Nationwide: Excludes 73 members and 80 stores in NZ and 1 member with 4 stores in Fiji; Showcase: Excludes 19 members and 19 stores in NZ and 1 member with 1 store in Vanuatu; Leading Edge: Excludes 1 member and 3 stores in NZ; Independent Jewellers Collective: Started buying group in early 2020.

While the buying groups acknowledged the difficulties of COVID-19, a sense of comparative optimism and positivity shone through.

IJC’s Zarb noted, “The impact of coronavirus on our group has been significant, but we have been extremely fortunate that we were not as negatively impacted by this as others may have been.”

At Showcase, Webb said, “Thankfully, as a group, we went into the pandemic period in very good financial shape with a brilliant six months of trade in the second half of 2019.

“This provided us with excellent leverage to support all our membership throughout the period – especially those in Melbourne.” 

Support during difficult times is perhaps the clearest benefit for retailers of joining a buying group, and this was illustrated as the pandemic raged – forcing independent retailers to modify their strategies and seek external assistance.

“From late March to October, we spent considerable time supporting members with information on how to access the various government benefits and negotiating rent relief with landlords.

"Together with our specialist jewellery store rent consultants we helped over 200 members achieve substantial rent reductions," Pocklington said.

"And finally, we implemented various marketing activities to boost sales,” he added. 

Indeed even prior to COVID-19, unsustainable tenancy costs topped retailers’ list of concerns – something the buying groups acknowledged at the start of the year.

In March, Pocklington said many of his members were already “seeking rent reductions to bring their occupancy costs back in-line with industry benchmarks” while Webb noted that the disconnect between store revenue and retail tenancy costs had widened over time.

“When a jeweller signed a $75,000 lease, say, five years ago, that lease has now risen to around $91,000. Have the jeweller’s sales increased proportionally over that period?

“The statistics will tell you that they haven’t. And what about the legislated wage increases that they have no control over?” Webb asked in March.

Declining foot traffic in shopping centres was also an escalating problem for discretionary retailers like jewellers – and that trend was accelerated by the pandemic.

Charlie Davey, general manager of members and category management at Leading Edge Group Jewellers, told Jeweller in March that high tenancy costs had forced many 'anchor' tenants to leave centres, leading to a decrease in foot traffic.

“Thankfully, as a group, we went into the pandemic period in very good financial shape... This provided us with excellent leverage to support all our membership throughout the period – especially those in Melbourne”

Carson Webb, Showcase Jewellers

As noted in Jeweller’s feature ‘Seeing Eye to Eye: The Retail Rent Review’, overall retail precinct footfall declined 8.1 per cent between 2017 and 2020, while shopping centre vacancy rates reached a 20-year peak in June last year.

Pocklington pointed to the number of store closures to illustrate the seriousness of the situation. “More than 300 Australian jewellery stores – representing 10 per cent of all retailers – have closed in the last four years, with the main factor being falling sales. 

“Without doubt, the biggest challenge has been the significant drop in jewellery industry sales over the last three to four years.”

COVID-19 accelerated another key trend in the retail sector, which is the shift to e-commerce. According to figures from Australia Post, 12 per cent of Australian retail sales took place online in March 2020 – a new record high.

“Over the past two years, I think the changing face of our consumers and their purchasing habits is something that remains challenging for many independent jewellers,” Zarb told Jeweller in March.

Davey agreed: “Bricks-and-mortar retailers are suffering due to the online shopping experience. With each store closure in regional Australia comes a loss of brands and items someone once purchased.

“This drives consumers online to replenish those items – encouraging online shopping in people who have traditionally shopped locally.”

Lingering challenges

The variety of support on offer from buying groups places independent jewellers in a strong position for the future, but the same challenges that existed pre-COVID are likely to continue – both within the jewellery category and across the retail sector.

At the same time, the Australian economy is not expected to fully recover from the deep shocks of the COVID-19 for more than a year.

Analysts at PriceWaterhouseCoopers (PWC) estimate overall Australian household consumption fell 8–11 per cent in 2020 and predict a recovery to “pre-COVID-19 levels towards the beginning of 2022”, with the greatest impact felt in discretionary retail categories.

A recent report by management consultancy firm McKinsey, Australia’s next normal: The cautious consumer – published in August – found that “spending cutbacks and frugal, recession-like behaviour are showing up in our data across all segments and categories, with the exception of groceries” and that temporary relief measures were “masking” consumption patterns.

The PWC report Where Next For Retail and Consumer? noted that while the JobKeeper program, loan and mortgage deferrals, and other government stimulus cushioned the initial blow of COVID-19, consumer spending is expected to drop and then remain stagnant in the medium-term.

“The Australian retail sector was already struggling before COVID-19; 2020 saw the collapse of some iconic Australian retailers. The expected drop in consumer spending, especially in discretionary categories, will put further pressure on the sector,” the report’s authors wrote.

Pocklington succinctly described the trading reality in March, telling Jeweller, “We recognised the start of these difficult trading conditions back in mid-2016 and started developing strategies, training and marketing initiatives to assist members in maintaining profitability in a declining market.”

Zarb explained that there is no simple answer to solve the challenges retailers currently face.

“Unfortunately, there is no one ‘magic bullet’ that will be the single solution to thrive in today’s retail climate,” he said.

However, that doesn’t mean there is nothing retailers can do to improve: “If I had to get specific, I would suggest that retailers really focus on identifying who their customer is and start to ensure their marketing targets them.

“I would recommend that, if they are struggling, they reach out for assistance. All the groups offer numerous support services to assist their members.”

In the new digital world, where consumers are spoilt for choice, Pocklington also advised retailers to offer different merchandise at different price points to competitors – particularly chain stores – and undertake more marketing activity across more channels and platforms each month, as well as make inventory management more efficient to improve profitability.

Webb had similar advice at the start of the year, which is even more pertinent in the ‘COVID normal’ reality: “First, work your stock levels smarter. Customers are wanting ‘the same, but different’. Adjust now, or you’ll drown in stock. The average store is sitting at 38 per cent of stock value over two years old.

“Secondly, a really pertinent question to ask is, ‘Why me?’ Why should the customer in your area, town, city or even online, shop with you? Why are you any different or special?

“If you can answer that honestly, and your customer agrees with you, then you’re on the right track indeed.”

Webb said many Showcase members who focused on custom design and manufacture, and specialise in fine jewellery, are performing very well.

Zarb advised retailers to reassess marketing, while Davey said it was vital for jewellers to concentrate on great customer service and creating a 'unique environment' – a shopping experience that can’t be matched by online competitors.

“Focus on providing a seamless customer shopping experience, from the presentation of your store, website and mobile interaction. Continue to review your cost of doing business and review the options available for payments, utilities and rent, and where needed, get help from your network,” he advised.

However, post-COVID, Webb cautioned: “Stores are certainly using their online presence as a place to connect and get the customers in. When they are in, it’s a matter of keeping everyone safe and yet still trying to maximise sales when you have limited people in the store with social distancing rules."

He added “There’s never a dull moment in retail, however, we are some of the most resilient people you’ll ever meet and we find ways to make things work!”

Equipped for the future

As the business climate has changed, and as traditional retailing has come to grips with digital competition, training and education have become the cornerstones of all the buying groups.

“The uncertainty in the early days of COVID-19 was just as hard for us a anyone... What it did do, which inadvertently worked in our favour, was to pull a group of retailers together very quickly”

Josh Zarb, Independent Jewellers Collective

Pocklington notes that the ability to benchmark your store against other, similar stores is vital: “In the past two years, we have created a 12-month trading budget for more than 150 of our members, and in the process benchmarked their business and provided them with the precise actions needed to improve their profitability.”

Webb doesn’t see the current retail environment as an ‘us versus them’ fight: “It’s about transparency and giving consumers a choice [with lab-created diamonds]. Let’s get on with it and stop trying to pull each other down!

“Our amazing industry needs better cohesion and a few more smiles and high fives, not constant beat ups. We have an amazing industry that offers consumers emotional engagement like no other can. Make it count!”

Before launching IJC, Zarb conducted a review of the marketplace in order to find the new buying group’s niche. He told Jeweller, “Everything we offer at IJC aims at specific one-on-one support for our retailer partners.

“Upon joining the Independent Jewellers Collective, partners will receive a free Business Health Check, covering staffing levels, stock holding, merchandising, marketing and overall business performance and profitability – delivered in a ‘real world’ solution package.”

Taking the next steps

TABLE 3: 2020 GRAND TOTALS

Excludes New Zealand and International stores.

2018 vs 2020 total variance. Excludes New Zealand and International stores.

In March, Webb was quick to address the ‘glass half-empty mentality’ that can permeate any industry during tough times.

“Aside from all the difficulties, the real danger I see is the danger from ourselves, as the retailer, getting stuck in the negative talk and becoming irrelevant to the consumer,” he explained.

Indeed, while retailers must continue to adapt to a more digitally-focused environment, 2020 also proved that the retail experience is a resilient one.

A recent survey of 25,000 international consumers, conducted by Adyen and Opinium Research, found Australians had a far stronger desire to shop in-store than their UK or US counterparts – 72 per cent versus 50 per cent and 62 per cent, respectively – and nearly two-thirds of Australian respondents indicated they they were looking forward to shopping 'for pleasure' again.

More broadly, the Westpac-Melbourne Institute Index of Consumer Sentiment reached a seven-year peak of 107.7 in November, following an 11.9 per cent increase in October. The Index is now 13 per cent above the average over the six months prior to March 2020.

Yet even amid these signs of recovery, Webb recommends “cautious and measured steps”, predicting, “2021 will be a little more unknown as the government incentives slowly disappear. With a vaccine promising to be close, it’s still going to be fragile and uncertain times ahead.”

This is perhaps where the benefits of safety in numbers becomes vital; membership to a buying group offers a range of support not readily available to individual stores.

While retail buying groups do not offer the elusive panacea, and may not be the right choice for every independent jeweller, as the business world becomes increasingly competitive and complicated, they do offer a safe harbour within which like-minded business owners can seek protection and assistance in order to flourish.

Better still, jewellers now have a choice of four groups – all with different advantages – to suit their specific needs. 

More Reading - 2020 State of the Jewellery Industry

» Part 1 – Chain Reaction
The past 10 years has seen significant change in the Australian jewellery landscape – yet analysis of the chain store data shows a number of surprising trends.

» Part 2 - 10 Year Report on Australia's branded jewellery and watch stores
Explores how international brands have expanded their presence in the Australian market – and how the brand-only store model has increased competition with independent retailers.
 

Read THE ENTIRE REPORT

Hover over eMag and click cloud to download PDF