The extent to which Millennial consumers are behaviorally different from all preceding generations has been sufficiently dissected, measured, observed, and described elsewhere so I’ll refrain from doing so here. I’ll start instead by assuming that you accept the notion that Millennials are, in fact, ‘different,’ that these differences are well understood, and among the differences are behaviors rooted in a strong sense of narcissism and entitlement, as well as a need to participate in the design and creation of their personal possessions. As just one example of this predisposition in purchasing behavior, consider the fact that a dozen years ago, Millennial female sixth graders all had to own an iPod, but then insisted on having an iPod case that was their own special color, with a surface that was their own special texture (confirming a strong predisposition to “co-create” the things that they purchase).
This preference for co-creation is so strong that it will significantly change the way engagement rings are sold. And as I write this, I am holding a flyer from one of the major chains announcing the launch of their Custom Design Studio, clearly an initiative aimed at satisfying the co-creative needs of the Millennial female. It’s my understanding that this recently launched capacity, in just 8 regional centers, is already producing over 200 CADs per day. So not only is the consumer changing, in a BIG way; so is your chain store competition. And given the fact that customization represents one of the last bastions of profit and sales that were exclusively the provenance of independent jewelers, this new strategic initiative potentially represents the biggest threat in the past 40 years. Some thoughts:
1) According to data from The Knot magazine, 43 percent of all the engagement rings purchased in America in 2013 were “custom.” Interestingly, only 11 percent were actually customized from the ground up. The rest were, in their words, “tweaked,” such that the degree of customization was a minor change made to the original design. Does this remind you of iPod covers? It should. I’ll speculate that within the greater population of engagement ring buyers, the portion who were Millenials was disproportionately represented in the group that preferred a custom ring, such that during the next three years, as Millenials become an increasingly larger share of engagement ring purchasers, the portion of engagement rings that will be “custom” will similarly expand.
2) The chain store CAD initiative allows consumers to design their custom ring and buy a CAD for just $199. If they then choose to have their ring built by the chain, they get a $199 discount on the production cost of the ring. (By the way, it’s my understanding that 65 percent of CAD purchasers go on to have their ring built by the chain.) This commoditizes the process in two ways. First, it obliterates the historically higher charges (and margins) associated with jewelry customization. One hundred ninety nine dollars will now become the standard, and there is nothing in this era of the internet that you will be able to do to fight that. Second, recognize that the majors are unlikely to price the custom ring at much above keystone, and as everyone launches similar capabilities, the retail margins on custom rings will contract in response to competitive pressures. You must also remember that since the stocking cost for custom rings is essentially zero, this causes the margin requirements for selling custom rings to be lower than the requirements for selling product out of the showcase.
So in a perverse way, the margins required to successfully sell existing stock rings are actually higher than the margins required to sell custom rings. And remember: 3-D printing allows the production cost of a single custom ring to come very close to the cost of producing that ring in quantity. Given a retail value of just two hundred dollars for production of a CAD, we may actually see an inversion of the price curve, such that custom rings become less expensive to the consumer than stocked ones. Imagine what would happen if, for example, custom men’s suits were cheaper than off the rack suits. Scary scenario, isn’t it?
3) The portion of total consumption of in stock engagement ring sales from your case will contract, and I’ll further speculate that this contraction will accelerate rapidly. “Bridal” currently only turns about 0.35 times per year in the independent environment. Expect your actual turn of “owned” engagement rings to decline.
4) Bridal brands are not well positioned in this scenario. The unfortunate reality – for them – is that the Millennial female doesn’t really care what some old guy thinks a pretty ring should look like. She’s far more interested in what SHE thinks defines pretty (remember her tendency to be narcissistically self-absorbed), and she wants to be empowered to become part of the design and production process. That’s what co-creation means! So the share of the engagement ring business owned by branded lines is likely to plummet. Like a stone.
5) The current explosion in “mix-and-match” bridal programs is a direct result of this change in consumption behavior. Think of this new merchandising methodology as “customization without CADs,” since by offering heads and shanks that all fit together, retailers can now allow the Millennial female to essentially “create” her own ring. The major chains have jumped all over this, so you’ll need to as well. Just remember that the final retails need to be in “cash-and-carry” price points ( thereby satisfying another Millennial purchasing characteristic – massive impatience), since it seems reasonable to me that once the final ring price gets much over $2999, she’s going to want you to make a CAD.
6) Every CAD program is built on top of a fundamental 3-D imaging program called Rhino. If you want your store to remain relevant in bridal, you’ll need to pick a “house” CAD program, and then have at least one staff member become extremely comfortable with using it. Beware of “toy” programs that sacrifice sophistication for ease of operation, especially if you’re then compelled to have the final jewelry manufactured by a single source. In selecting the program you’ll be relying upon, I’d tend to favor what’s going to be universal. Our industry may be a little slow to accept innovation, but I suspect you’ll see an entirely new business model spring up as a result of this new paradigm, and it will pay to be using a program that lots of retailers and manufacturers are using.
That’s the bad news part of this article. The good news is that there are excellent opportunities that will occur as a result of this startlingly new Bridal Paradigm. Think of it this way: The asteroid that hit Earth 65 million years ago was very, very bad for the dinosaurs. But at the same time, it was very, very good for mammals. I’ve been thinking about this scenario for quite some time, and I’m convinced that those of us who are ready to react to this challenge in innovative ways will actually discover amazing opportunities. Just get ready to think outside the box!
As a side note, let me also take this opportunity to mention an interesting task that I’m about to undertake. This month’s article addresses how changes in Millennial consumer behavior are likely to impact what we’ll be selling them in the jewelry retailing environment. But that’s only one part of the mystery of selling to Millennials. Another part is: what exactly should you be saying to them to increase the probability that they’ll buy? It turns out that, in the context of the jewelry environment, there is nothing in the academic literature on the subject. To address that gap in knowledge, I’m going to be co-authoring a series of papers that will summarize what we’ll be learning in an academic study conducted by students and faculty at the Graduate School of Business at Florida State University. We’re actually designing the study now, so if you have any thoughts about what you’d like us to test in the jewelry retailing environment, I’d love to hear from you.
George Prout is Vice President of Sales and Marketing for Gems One Corporation, and can be reached via e-mail at firstname.lastname@example.org, or at Gems One’s New York office at 800-436-7787.