The Cutting Edge

One man’s candy. Another man’s raisins.

When I first got in the jewelry business, things looked pretty bleak. It was 1988 and the mall stores had all but destroyed main street across the country. Independent jewelers seemed to be down for the count, money was getting tight from the banks and the economy was starting to slow down. Everyone talked of shrinking margins and those half price sales at the malls. The old timers were liquidating their stores and getting out of the high end jewelry business. I saw a great opportunity.

You see, ones man’s candy is another man’s raisins. While the older jewelers saw their best days behind them, at 28 years old, I saw the independent fine jeweler as one of the few good long term players in American retail. I still feel that way. Let me explain. Previous to the advent of the shopping malls in the 70s, we had what I call a Service Based-Mercantile Economy driven by independent retail merchants who delivered a high level of personal service, home delivery, and even house charge accounts. With the advent of the Malls (and the dominate power of TV) we shifted to a Mass Market-Advertising Driven Economy dominated by department stores and national chain stores. The late 80’s also saw the birth of the Big Box stores and they lead to the destruction of everything from the corner book store, to the office supply, even the humble local hardware store.

But the high end jewelry business was different. It’s very limitations, high inventory costs, slow turn and tight margins were the very reasons that the business had a future for the independent! You see, the big players have tried for years to make money in higher end jewelry ( Baily Banks & Biddle, Carlyle & Co. etc) but there simply isn’t enough money ( profit ) in the high end. There is not enough margin to pay the higher real estate and management costs. I understood that only exorbitant 300-400% mark ups could carry a 10% rent factor. This necessary profit margin would insure that the chains could only play on the low end of the business, and that was just fine with me. High end jewelry had a future. I saw candy.

I had a theory.

You see, I had a theory. If you combined a high end jewelry store with emerging national jewelry brands and market dominant advertising, you had a business model that would produce millions in revenue, solid conservative profits and long term stability. I was right. All over the country, high end independents jewelers exploded in the 1990s. And while the high end jeweler has stumbled since 2006, who hasn’t? I’m starting to hear the same grumbling I heard in 1988… it’s the national chains, it’s the internet, it’s the falling profit margin. I have news for you. Our business model is as valid today as it was in 1988. I still see candy.

Tough competition.

Yes we have tough competition. The internet is only going to grow and chains like Jared’s are move up market because those are the only folks with any expendable income. Jared’s has also been helped by national brands needing someone to step up to the plate and buy inventory. They are spending heavily on advertising, both radio and TV, and it is working. Jared’s averages over $4 million per door! They have continued opening new  doors right though the Great Recession. Even small chains like Reed’s is opening stores. This week Reed’s will open a store right here in Mount Pleasant, SC, complete with top designers like Marco Bicego, David Yurman, TAG Heuer and Rolex. What does Reed’s see that so many don’t… candy. The truth is Jared and others are simply filling voids that we leave open for them. They are operating like high end independent jewelers and in many cases are beating the local independent stores at their own game. They are using our play book. Whether they win or loose in your town  however, depends on you.

Raisins in candy wrappers.

A high end independent jeweler with the right brands, location,staff and advertising can not be beat. Let me put it a little more clearly. Once a high end jeweler becomes market dominant, his only competition is himself. By market dominant I mean that they not only have the brands consumers want at all the right price points, they drive their business with the largest advertising budget in the market. There is no resting on your reputation. There is no cheap way around this. It’s lead, follow or get out of the way. No outside chain can compete with an independent with a true market dominant position. And make no mistake, a well run, market dominant independent jeweler will always beat the chain store because invariably, at some point the chain will start chasing higher margins by reducing the quality of inventory and staff. They move down market. They get greedy. They start selling raisins in candy wrappers.

Congratulations,you’ve survived.

Now it’s time to thrive! You have a choice this holiday season, a choice that will carry you though the next decade and beyond. Am I building a market dominant jeweler or am I just trying to survive? I believe we will see solid business this holiday and many of you will be on solid financial footing for the first time in years. You need to decide, what are the steps I need to take in 2011 that will increase my market share and improve my market position. What do I need to do to truly become the dominate jeweler in my market? What are the brands, store location, people and advertising that can get me there? Do you see candy or raisins? What you see is exactly what you’ll get. This sure feels a lot like 1988 to me.