Analysing the jewellery retail sector nowadays is not an easy task. Everyone in the business must have noticed that month after month we are facing conflicting news: on one side many jewellers complain about the crisis and release figures on how many of them had to shut down their business; on the other side, we hear that other retailers are doing wonders and, apart from a small setback during the peak of the crisis, have experienced increasing revenues.
The truth is that we are facing a paradigm shift, after which nothing in the retail market will be the same. Those who have the size and resources to resist the turmoil will emerge even stronger; those who don’t are doomed to perish.
Small-scale retailers appear to be suffering this very destiny: squeezed between giants that are invading their traditional territory, the middle and low-class segment. On one side, luxury brands are expanding their business with access-level pieces to attract more customers, while on the other large discount retail stores are tempting customers with lower quality products offered at unbeatable price.
Would you buy a Walmart/Costco/Argos engagement ring?
Online jewellery forums and generalist websites are flooded with this kind of questions. Many young men are tempted by the idea of buying an engagement ring right where they buy their everyday products: in large, convenient, discount stores.
Discount retail giant Walmart has kept expanding its jewellery department for years, and now covers a vast range of collections, including diamond jewellery and, in particular, a vast selection of engagement rings. And the same is valid for other large retail stores selling jewellery products: Costco and Target in the United States, Argos in the United Kingdom and Ireland, just to name a few. They all offer hundreds of diamond products in their catalogues.
Discount retail is particularly attractive for the younger generations, who often experience low income and precarious employment. They do much of their shopping in such stores, as they are conveniently located in proximity to residential areas or allow easy online purchases, offer a vast range of products and, most importantly, they are convenient in terms of money.
But what do these stores offer in terms of quality? Generally not much. A quick tour to their online catalogue show diamond engagement rings just above the industrial level (clarity between I1 and I3), with a price ranging between less than 100$ for ten pointer and silver ring and around 3.000$ for a 1 carat and gold ring.
Of course men looking for the perfect engagement ring for their beloved would not be immediately convinced by this kind of offer, and this is why they often look for some comfort and approval in the Internet audience. The results of these online pools are variegated: sometimes other users comfort them by saying that it’s the thought that counts; some other times they convince them not to be cheap and to go for a more expensive jewel.
But in the end many of them decide to buy discounts jewellery, which explains why Walmart alone sold $3.3 billion worth of jewellery in 2010, just while so many retailers in the United States and Europe were going out of business.
Luxury for every wallet
One of the most studied trends in modern marketing is the expansion of luxury brands to cover sections of the market below their original target. It is a tendency that we have already seen in different sectors. One example is the automotive industry premium brands such as Mercedes or BMW are expanding their fleet with the production of small hatchbacks and city-cars, something that was simply unthinkable 20 years ago; in the fashion industry too, many top houses also possess brands that offer a larger production of prêt-à-porter items.
Jewellery makes no exception, and the last few years of crisis have pushed premium brands to experiment even more on this area. The range of options for jewellery items (including engagement rings) at Tiffany, Cartier and many other high-end brands is now vast enough to accommodate the financial boundaries of a young professional buying a present for his girl.
Branded diamond jewellery obviously comes to a cost, with a price per carat sensibly higher than equivalent artisanal non-branded items. Yet the name itself is considered a valid assurance to all those customers who are interested in quality but do not feel competent enough to scout for other options. This is especially true in the modern, fast-paced world, where buyers do have neither the time nor the will to establish a relationship of trust with their local jewellers, preferring the credibility of a notorious name to the risk of a disappointing purchase.
And while it is true that even branded retail stores are suffering from the economic downturn of the last years, the overall size of their head companies allows them to even up the balance of stores closed in the agonising Western markets with those opened in the emerging ones. In other words, for every store that Tiffany had to close in the United States and Europe, at least another one has been opened in the florid markets of East Asia.
Small retailers, whose business is traditionally geographically located, do not have the financial capacity and marketing competence to move their business to foreign markets. A declining selling volume leaves them with no choice but to close their store.
Conclusions
What at a first glance appears to be a rather chaotic revolution in diamond jewellery retails is indeed a slow transformation process, which is following some precise trends and will continue for years:
1) An expansion of discount retailers, to accommodate the preferences of a large number of young customers who buy diamond jewellery mostly because social conventions tell them to, and are therefore inclined to look for low price rather than good quality;
2) A consolidation of branded speciality stores, which will not expand at the astonishing rate of discount retail shops, and might even slightly shrink until the recession is completely overcome, but have found a strong customer target, which ranges from wealthy buyers to people who accept to buy a product which is a little overpriced compared to the competition as long as it comes from a fully trusted brand, which guarantees its quality and glamour.
3) A sharp decline in small and local specialty stores, where direct contact with the client is what really counts, due to the tendency by new generations to look for information on the internet through specialist websites and crowd-sourcing, and to prefer online and discount retail shopping to seller/customer relation.
Matteo Butera, Rough&Polished
