As you read this, you’re living in the fourteenth month of an extraordinary post-pandemic world where the economy has been artificially inflated with trillions of dollars in rescue funds, and unsurprisingly, it’s been raining money. As a result, most of you have been able to cleanse your inventories, while simultaneously building amazing amounts of cash. But let me ask you a question: When the rain stops, and it will, will your company be properly positioned for success and future growth?
Recognize that while the pandemic created a wonderful opportunity to increase the health of your company, it also compressed 10 years of evolution in the shopping habits of American consumers into a ten-month period. As a result, you are about to discover that the internet is a far more deadly threat than it was before the pandemic, because now, we are ALL shopping there – even the older, more affluent consumers who represent a significant portion of your customer base. And if you thought your margins were under pressure before the pandemic, you’re about to enter an era with a new selling dynamic where everything you do is going to become even more challenging than it was before.
This scenario will require a powerful merchandising response, if you are to create acceptable margins in the new Diamond Jewelry retailing era. And as I consider the strategies that are available, I am reminded of a scenario I encountered over 45 years ago: a story about lobsters.
One of my favorite professors at Brown was Dean Hazeltine, whose duties included teaching the only two courses offered in the business realm: Introduction to Management, and Introduction to Marketing. Hazeltine wasn’t a big believer in quizzes and term papers, so the entire grade for both courses came from the score on the final exam, which in the case of the Marketing class was a 24-hour take-home test based on a Case Study. And in 1975, the Case Study was a 36-page analysis of the highly publicized failure of a well-funded company in Boston that had unsuccessfully launched a brand of lobsters (using a thought process parallel to the highly successful launch by Frank Perdue of chickens sold under the Perdue brand).
The Case Study was chock full of charts, graphs, and interesting information (e.g., did you know that if you put 10,000 lobsters in a tank and one dies, the rate of bacterial transmission from the decaying lobster to the live population will occur so rapidly that 90 percent of the lobsters in the tank will die within 48 hours?). But as I analyzed the data, looking for the single cause – or group of causes – that I could identify as the catalyst for the failure, I came up empty. After 4-5 hours of analysis, I was actually starting to panic, because while I was generally pretty good at solving this kind of puzzle, this time I was totally stumped.
And then it occurred to me, Hazeltine had pulled a fast one on his students. The weighty Case Study, including all the graphs, charts and data, was actually a red herring. The reason the lobster company had failed had nothing to do with the information contained in the Case Study. Instead, the reason for failure could be found in a fundamental facet of consumer behavior. New England consumers simply couldn’t be persuaded to pay extra for a branded lobster because it was impossible to make the case that branded lobsters were actually better eating than their non-branded cousins. This simple fact killed the company.
I was reminded of the Lobster Case Study in 2005 during my first trip to the March Hong Kong Show, when my employer at the time, Jitu Surani (one of the key family members of the JB Diamonds empire) took me on a tour of Kowloon jewelry stores. Because while it was true that certain American jewelry brands had gained traction (especially bridal brands), the vast majority of finished jewelry in most independent jewelry stores at that time was still unbranded.
Yet as we went from store to store in Tsim Sha Tsui, I was shocked by what I saw, because I immediately noticed that nearly everything in the China stores was branded. And it occurred to me that I was getting a glimpse of the future of American jewelry merchandising, because while it is undeniable that American consumers are generally unwilling to pay a lot extra for jewelry simply because it’s branded, what I was now seeing was jewelry in branded collections that cost no more than their commoditized competition, but had a name, a story, and a tag line that created added perceived value.
What I was seeing was a new formula: the use of a brand name with key product attributes that could be easily communicated by a store sales associate and a counter pamphlet, but where the marketing costs associated with the brand didn’t measurably increase the price.
And then several years later, in key comments on an investor call to Sterling’s CEO, Terry Burnham (whose efforts during his tenure set the company on an extraordinary growth path) made the following comment: “We will no longer sell undifferentiated commodity products.” Burnham was true to his word. In 2000, less than 10 percent of the linear showcase space in a typical Kay store had been devoted to branded collections. By 2012, over 85 percent had become so.
In my view, Burnham and the stores in Kowloon were describing a powerful merchandising path to the future. Note that I’m not referring here to the “Big Brands” like Rolex or Cartier that have broad consumer ID. Instead, what I’m suggesting is that as you merchandise your store, put increasing emphasis on unique branded diamond collections that you can own exclusively in your home market. Time after time, I’m seeing accelerated rates of sell-through from these brands, because, male gift-givers, female self-selectors, and bridal purchasers will consistently gravitate towards products with a story.
And fortunately, you can go to school on how the majors, specifically Kay, Jared, and Helzberg, as well as mid-majors like Robbins Brothers and Kesslers, have already positioned their diamond departments, building a tri-partite strategy in bridal and core basics using mined, lab, and specialty cut diamonds. If you analyze their strategy, you’ll see that they have each created a price point grid that allows them to sell consumers up the ladder, to maximize the value of the sale while simultaneously maximizing margins. Next month I’ll go into greater detail explaining the finer points of what they’re doing. It’s a brilliant strategy, and if your key diamond suppliers can supply all three categories in the same high turnover styles, you can attack the most important looks and price points without expanding your inventory.
So as you stock up for this Christmas, you should start to implement this tri-partite branded diamond collection strategy. You just need to be sure that your sales team is properly equipped to persuasively articulate the key benefits of each branded collection, so prospective buyers will know why to buy it, as well as how to explain to their friends why they bought it, or in the case of a gift recipient, what makes it special. When Christmas comes, you’ll see higher sales at better margins, and if you’re lucky and capture the attention of early adopters, the benefits will reverberate well into the future.
Forty-three years ago, I properly reasoned that New England consumers wouldn’t overpay for a lobster just because it had a name. But I can tell you it took more than a little fortitude for me to present Dean Hazeltine with a two-paragraph answer on the final exam. Fortunately, when my grade appeared several weeks later during the summer, it was clear that I had guessed right. I rewarded myself with my first purchase ever of a nice bottle of scotch, a celebratory habit that continues to this day.