With the growth of online jewelry retailers such as Blue Nile and Amazon, and the number of specialty jewelers closing their stores rising 40%  from an  average of 500 per year earlier in the decade to more than 700 in 2006, the total number of doors closing has increased at an accelerating rate  in the U.S. A tough future is ahead for independent jewelers. To survive, they will need to adapt.

 

History tells us that as the U.S. economy slows, an increasing number of specialty independent jewelers typically go out of business. Most economic forecasters are calling for a slowing global and U.S. economy in 2007. If the forecasters are correct, we would expect to see the number of independents going out of business reach perhaps 800 jewelers in 2007.

 

 Since the expectation is that the economy will start recovering in late 2007 or early 2008 – and jewelry store closures tend to lag 9-12 months – we should expect the number of jewelry store closings to begin to slow in late 2008 or early 2009.

 

Independents also tend to be more susceptible to get hurt, since the economics of operating a single jewelry store are daunting. While we can point to a few highly successful single-store operators – Borscheims, for example – the economics of the jewelry industry favor multi-store operators.

 

Currently, for every independent jeweler which closes in the U.S. market, a chain jewelry store opens in its place. Multi-store chains can attract talented people, because of the opportunities for promotions and the possibility of expansion of duties beyond the store sales floor. Multi-store chains can buy better from vendors because of the size of their orders. Typically, multi-store jewelry chains have stronger finances, because of the efficiencies of scale. Thus, they are “bankable”: banks will lend them working capital to pay vendors much more readily than they will lend money to most single-store mom-and-pop operators.

 

Most retail sectors have already consolidated. In the consumer electronics industry Best Buy and Circuit City dominate. Once, however, there were Crazy Eddie, Newmark & Lewis, Federated Group, Highland Appliance (once the second largest consumer electronics retailer in the U.S.), Audio Video, and others. Ditto for the home center industry which is now dominated by Lowe’s and Home Depot.

 

Where have all of the independent hardware stores gone? Mostly, they went out of business, except for a few who affiliated with a buying group such as Ace Hardware.

 

One of the questions we are regularly asked is, ‘Will the jewelry industry become a duopoly? If so, who will the two dominant competitors likely be?‘ The jewelry industry is not likely to consolidate to the level of just two or three dominant competitors, simply because there is too much customer service required for this fashion-driven, luxury goods market niche. There are still some retail sectors which have not consolidated: wine stores, cobblers, florists, and a few others. This is the domain of the merchant who provides customer service levels that a giant like Wal-Mart cannot provide.

 

While we believe that independent jewelers will continue to go out of business at a measured pace, they won’t become extinct like the dinosaurs near term.

 

To succeed, merchants should mentally get out of the jewelry business and get into the business of jewelry. This is a major distinction we are making here. Most independent jewelers are in the business because they like diamonds, colored gemstones, and precious metals. Minding the store – going over financial reports, hiring good people, finding good locations – is secondary to selling luxury fashion merchandise. Those jewelers won’t be in business much longer.

 

The successful jewelers are in the business of jewelry. They focus on the business of jewelry before they buy the first sparkling gemstone. The successful jewelers pore over their monthly financials, looking for ways to improve their results. . If there is one financial measure that jewelers should review monthly – or better yet, or daily - it is cash flow. When the cash is flowing, everything else will pretty much take care of itself.

 

When a jeweler truly understands what it means to be in the business of jewelry, they could be successful running any retail operation – selling tires, televisions, or toys.

 

The key to success comes from first understanding the business of jewelry, leveraging that knowledge with one store, and then rolling it out to additional stores, rather then rushing out to open new stores to become a multi-store operation.

 

Jewelers tend to be family operations, with the head of the family running the operation. It is imperative for family jewelers to bring in fresh outside viewpoints. We’d recommend that every jeweler form a Board of Advisors, including their banker and perhaps other successful business people around town. Join an industry “share” group. Broaden your horizons. And most of all, love making a profit more than you love those sparkling gemstones and shining precious metals.