Jewellery manufacturer found itself in the right place with the right products just at the right time as consumers in Europe and the United States downscaled purchases as a result of the global financial downturn.
If there was ever proof that that buying jewellery is indelibly printed in the human DNA then one need look no further than Pandora, Antwerp Facets says. For at a time when financial empires were collapsing and the Western world was experiencing its most severe economic downturn in 70 years, the Danish manufacturer of low-cost silver and gold bracelets and charms turned in spectacular figures. And it did so in those countries where the recession was most painfully present.
Indeed, in many places Pandora is not referred to simply as a success story, but more as a phenomenon. One of those is Thailand, where it employs more than 3,500 of its 4,500 workers. Indeed, during the slump in demand for jewellery following the onset of the worldwide economic slowdown, Pandora’s factory in the Gemopolis industrial complex outside Bangkok is credited with almost single-handedly keeping the Thai manufacturing sector operating.
And although the firm sells its jewellery in more than 50 countries in all the continents via around 10,000 points of sale, including over 320 Pandora-branded concept stores, it has seen the largest rise in sales in the United States and Europe, where the economic situation remains most uncertain.
In the Americas, the firm saw sales grow by 92.8 percent which accounted for 40.5 percent of total sales. Meanwhile, sales in Europe soared by 191.2 percent and constituted 48.4 percent of total sales. In the Asia Pacific region, where the recession was less evident, Pandora’s sales grew by a much more modest 30.3 percent and accounted for just 11.1 percent of total global sales.
In 2009, Pandora produced more than 42 million units in its facilities in Bangkok, says Idex Online jewellery industry analyst Ken Gassman. Pandora says this makes it the largest jewellery manufacturer in the world, based on unit volume.
Pandora is a phenomenon of the global recession, but it is not a newcomer to the jewellery scene. Founded in 1982 and headquartered in Copenhagen, for almost 30 years the firm has designed, manufactured and marketed hand-finished modern jewellery made from mostly sterling silver, gold, precious and semi-precious stones at what it describes as affordable prices. Its key products are its silver and gold bracelets and charms, and its best-selling items are its range of charms – especially those with romantic symbols, such as hearts and angels.
In its interim report for the third quarter of 2010, Pandora reported that revenue soared on the year by 116.7 percent to $323 million compared with revenue of around $632 million for all of 2009. Meanwhile, net profit rose almost threefold – up 297.7 percent to $105 million – and volume jumped 51.7 percent. Revenue for the second half of this year is forecast to come in higher than revenue for the first half of the year. Pandora expects revenue of approximately $1.12 billion for the financial year 2010
Meanwhile, revenue from charms grew by 93.6 percent and silver and gold charm bracelets revenue jumped by 83.6 percent. Other jewellery grew by 345.1 percent representing 20.4 percent of revenue in the third quarter of 2010 – up from 9.9 percent in the same quarter of 2009.
Gassman says Pandora has seen a meteoric rise in sales in the past decade. “In 2000, the first year of significant charm and bead sales, revenues for this category were just over $5 million, using a constant currency conversion rate of 5.6 DKK Danish krone to the dollar. By 2009, revenues had grown to $618 million; the 2009 sales were 123 times as great as its sales in 2000. Its sales between 2002 and 2009 grew at a compounded annual growth rate of 97 percent.
“Not only has the company grown rapidly, but it is highly profitable. It has posted a consistent 71-72 percent gross margin, where most retail jewellers in the U.S. are lucky to get a 45-50 percent margin in today’s market. Because the company is ‘asset light and value heavy’, it does not operate a capital-intense business. Nor does it operate with high fixed costs. Its pre-tax margin is 34-35 percent versus the typical U.S. jeweller who generates a pretax profit of 3.6 percent to 3.8 percent.”
Gassman is quite clear about the reasons for Pandora’s success. “In light of the financial situation, many consumers are shopping for jewellery with lower price points,” he said. “Not only that, but they are looking for differentiation. Pandora has benefitted from having the right goods at the right prices at the right time.
“It is not by chance that sales have surged in the United States and Europe where people are cutting back on spending while growth is lower in Asia,” said an industry observer. “This shows quite clearly that cautious consumers in the West are finding value in these lower-priced jewellery products while in Asia the appeal is less because buyers there are focusing on higher-priced goods.”
Pandora’s dramatic rise to prominence would not seem to be good news for the diamond industry, for the world’s most popular gemstone hardly features in the product range of what apparently is the world’s most popular jewellery line. But the diamond industry should look hard and learn from Pandora, because its success tells much about what makes the jewellery consumer tick.
Unlike most jewellery manufacturers, Pandora invests a great deal in consumer advertising. Gassman says the company’s global market spend, including money spent by all members of its distribution chain, totalled at least $175 million this year. That was significantly higher than the amount spent by any of its competitors.
One of Pandora’s most important markets is Italy, its biggest in Europe. “That is the direct consequence of the real passion Italians have for jewellery,” said company spokesperson Lotte Huijg. “By the end of 2010, after only six months, we will have 500 points-of-sale jewellers in Italy.”
For years, the diamond industry has spoken of the difficulty in enticing young consumers, who are said to be more attracted by fashion, travel packages, iPods and iPhones. But Pandora’s typical customer, says Huijg, is women in the younger age range who have a strong personal sense of style and who embrace the concept of affordable luxury. “Most of the time, women at the age of 18 buy their first item of jewellery. Therefore, our focus also lies on reaching young, fashion-forward and trendsetting women who have yet to get to know Pandora,” said Huijg.
Gassman believes it is the younger age group, rather than older women, that is especially enticed by Pandora’s products. “Young people do not want what everyone else has,” he explained. “They are looking for something different, they do not want jewellery that other people are wearing. A very typical piece of jewellery, such as a half-carat diamond on a pendant is not for them, since it lumps them together with women with whom they do not believe they anything in common.”
Huijg said Pandora’s aim is to position its goods as affordable luxury. “We use genuine materials for the handcrafted jewellery. We want only the best for our female customers, but for a reasonable price, so that Pandora appeals to women worldwide and allows them to create and express her own signature style with Pandora.”
According to Gassman, what works for Pandora should also work for the wider jewellery industry. “Customers keep coming back for more. While the typical American consumer might go to a jewellery store fewer than three times per year, a Pandora customer may come back every month. That gives jewellers the chance to sell other merchandise to returning, loyal customers,” he said.
