IN THESE UNPRECEDENTED times, it can feel like the ground beneath your feet is shifting rapidly. Small businesses in the United States and around the world suddenly have to contend with the effects of shutting their doors while facing uncertainty and anxiety about when and how the COVID-19 quarantine will end. Retail jewelers will be hit especially hard; not only are their doors currently closed, but an imminent recession signals lower spending on luxury goods and services when they reopen. So how are retail jewelers supposed to weather this storm? Well, history can be a great teacher. We can go back to 2008 to see what impacts that recession had on the retail jewelry industry on a macro level. Understanding the impacts of the Great Recession could help you position your business to survive, and possibly thrive, when the recovery does come.
A quick sidenote: IANAME (I Am Not A Macroeconomist). Despite having listened to hundreds of episodes of Freakeonomics, I can only claim amateur economist status. While I do have opinions on which economic trends are at play from the 2008 recession, I cannot predict the future. I am providing advice here on a wholesale basis and cannot take the particular aspects of any individual business into account.
The Great Recession
The recession of 2008 is an example of an economic downturn that significantly impacted the jewelry industry. From a peak of nearly $30.8 billion in 2007, retail jewelry store sales fell 16.6% over the next two years to $25.7 billion. The average expenditure per consumer fell from $102.31 in 2007 to $83.77 in 2009. It took another five years for the jewelry industry to once again achieve pre-recession levels of total sales.
Source: US Census Bureau – Monthly Retail Trade Report
Fine Jewelry, Fashion Jewelry, and Watches
Interestingly, different sectors of the jewelry industry were not impacted equally by the recession. While fine jewelry sales and fashion jewelry sales decreased 19.1% and 21.1% respectively from 2007 to 2009, watch sales actually rose 1.2%. Moreover, the recovery has favored fine jewelry and watches with sales rising 25.8% for fine jewelry and 42.2% for watches since 2007. On the other hand, fashion jewelry sales have only risen 9.6% since 2007.
Source: US Census Bureau – Monthly Retail Trade Report; Bureau Of Economic Analysis – National Income and Product Accounts – Personal Consumption Expenditures
Holidays Took the Hardest Hit
It’s no secret that November and December are some of jewelers’ biggest months in terms of sales. However, in 2009 and 2010, the trough of the recession, holiday sales were down significantly compared to 2007 sales levels. Sales for January through October averaged 85.3% of 2007 level sales, while November and December averaged only 81.1% of 2007 level sales. Interestingly, April had the highest proportion of sales relative to 2007 levels. It’s likely bridal jewelry that kept sales at higher relative levels outside of holiday months.
Source: US Census Bureau – Monthly Retail Trade Report
Consumer Spending Remains Flat
While total sales of fine jewelry and watches has risen above pre-recession levels, data suggests this increase is driven by a larger consumer base as opposed to higher spending. In 2007, the average consumer spent $128 per year on fine jewelry and watches. By 2010, that number had fallen to $98 per consumer. From 2011 onwards, it has remained largely flat, bouncing between $100 and $106 dollars on average per consumer. This could be due to one of the largest groups of potential consumers, Millennials, entering the workforce with monumental student debt and facing a difficult economic environment.
Source: US Census Bureau – Monthly Retail Trade Report; US Census Bureau – Population Estimate – National Intercensal Tables; Federal Reserve Of Minneapolis – Consumer Price Index
The Recovery Was Uneven
The 2008 crash was extraordinary in the fact that it impacted people in all income brackets. However, the extent of that impact and the duration of that impact varied based on income. Income data by quintiles suggests that top earners were the least impacted by the recession, the quickest to recover, and the fastest to flourish following the downturn. It took a little over two years to see the incomes of these consumers rise to pre-2007 levels. Meanwhile, consumers in the lowest quintile took nearly six years for their salaries to increase back to 2007 levels.
Source: US Census Bureau – Historical Income Tables
What Will the COVID-19 Recovery Look Like
There’s mounting uncertainty when it comes to the “shape” of the COVID-19 economic recovery. While many of us are hoping for a “V”-shaped recovery, where businesses will bounce back fast and hard from government-mandated closures, there are other indicators that show recovery may be slow, such as Century Foundation unemployment rate of 18.3%. Will the economy return to record low unemployment quickly, or will it take time to return to reasonable unemployment levels? We’re in uncharted waters. The country hasn’t seen these levels of unemployment since the Great Depression.
While we all hope and pray for a fast “V”-shaped recovery, jewelers should be ready to manage a “U”-shaped recovery, where we see period of stagnation before we see economic growth. Based on all of our insights into the Great Recession, I’d like to offer the following advice on how to weather a “U”-shaped recovery.
Focus on Insulated Lines of Business
The jewelry industry is not recession-proof, but certain lines are better-insulated than others. Bridal sales persist year-round regardless of the economic environment, although the size of center stones may shrink. Don’t hang your hat on big-ticket holiday sales; this is where consumers are most likely to decrease their fine jewelry spending. If you don’t have watches in your store, now is the time to add them to your showcase. The demand for watches survived the Great Recession unscathed and continues to grow.
Focus on High Margin Products
Now’s the time to double down on your highest ROI products. Unless you have higher-end clientele, larger diamond jewelry outside bridal won’t return sufficient margin. This could be a good time to experiment with selling lab grown diamonds. These stones typically trade for 50% of natural diamonds on a wholesale basis and 30% lower than natural diamonds on a retail basis. That’s an extra 20% in your pocket. Colored gemstones are another way to increase your profits; there’s an entry-level priced stone in nearly every color. Finally, when a customer insists on getting over a carat of diamonds, consider adding melee for extra bling without adding too much extra cost. And here’s an added bonus – mounted melee returns higher margins than their larger counterparts.
Focus on Ancillary Services
When new jewelry sales decrease, people put more miles on their old jewelry. That means more bent prongs, cracked shanks, broken clasps, etc. People will always need affordable repair services, especially in challenging economic times. Appraisals are another valuable and affordable service that you can offer to your entire Rolodex of existing customers. An appraisal and insurance service like BriteCo could expedite your appraisal business, while simultaneously bolstering your income through referral bonuses, preventative maintenance payments, and replacement claims. Don’t forget to advertise free cleaning, inspection, and stone tightening! This will increase your in-store traffic, which means more chances to close a sale.
There’s no denying that this is an unsettling, challenging time. However, like all things good and bad, this too will pass. We hope you’ll take this opportunity to try something new and to plan strategically so that you and your business will come back from this stronger than ever.