As I write this, it’s the evening of December 22, and I’m on a train from New York City bound for home, several hours away. I spend the first 22 or so days of December each year at our office in Manhattan, monitoring our customers’ progress with our promotions, managing an enormous in-stock merchandise assortment (everything from $29 steel bracelets to $15,000 diamond Riviera necklaces), working on next year’s programs, and even occasionally answering the phones when we’re totally slammed with incoming reorders. We set all sorts of records this month, so as I now return home in a combined state of satisfaction and exhaustion, I have very high expectations for next year. But I’m also troubled by what I’ve been hearing all month. Something has changed, and I am now sensing that a fundamental alteration in consumer behavior may have taken place that bears examining.
I’m hearing it from everyone. From small stores in small markets, to big stores in big markets… East Coast, West Coast… North or South… with the exception of energy producing areas, where local economies are dramatically benefiting from new extraction technologies, the experience appears to be universal. This Christmas, the Big Spenders didn’t spend. And it’s not that they came in and made a smaller than normal purchase. This year, they just seem to have disappeared.
Many of the jewelers we serve are extremely closely connected to their local communities. They personally know many of the wealthiest people in their towns, and for many years, they’ve earned their living selling to these big spenders. So when they go through their sales receipts, they know who is missing. And they’re telling me, unequivocally, that these key folks haven’t come in.
Viewed mathematically, this scenario can produce a devastating impact. If you examine historical data from Independent Jewelers, you will discover some very consistent patterns, one of which is that year after year, the top 4 percent of transactions typically yields about 50 percent of total annual revenues. This does not mean, by the way, that you can just focus on that four percent. The other 96 percent of transactions are generally pretty important for the overall health of your company, and when you consider the lifetime value of customers, a concept that we’ll explore in a future Applied Marketing 101 article, it would be irresponsible to disregard them. But there’s no denying the fact that, to make December’s numbers, most of you need this key 4 percent of purchases, and the incredibly important consumers who make them.
Part of the 4 percent of transactions/50 percent of sales relationship comes from the significant effect that Bridal sales have on store revenues, and the much higher average ticket that engagement rings typically represent. And considered on an annualized basis, sales of diamond jewelry to celebrate anniversaries actually represent a higher dollar value than sales of diamond jewelry for Christmas. But given the compressed time frame for Christmas shopping, it doesn’t take much of a reduction in transactions from the 4 percent to leave a gaping hole in the December revenue stream.
So…why didn’t they come? There’s no question that there was a psychological letdown when Romney lost among the wealthy entrepreneurial class who saw real hope for economic growth if government policies took a pro-business direction. There’s also been a sense of insecurity regarding new tax increases, and the unknown impact of Obamacare on small businesses. And then there’s the fiscal cliff. By the time you read this, there will have been some sort of resolution, but it will have come far too late to help Christmas sales.
These factors are temporary, and not life threatening (provided of course that at some point, we summon the courage and political will to deal with some very important long-term issues). But there are real changes taking place that are systemic, pervasive, and too important to ignore. First, if you’ve been making a living selling to affluent Baby-Boomers, it’s time to redirect your focus to a younger crowd. Marty Hurwitz from MVI, who spends a tremendous amount of time and effort studying these things through the JCOC (his internet based market research platform that canvasses enormous numbers of consumers to discover their likes and dislikes), has found through massive consumer preference studies that Boomers are essentially done as jewelry purchasers. They are still affluent, and they still have discretionary income, but they are now increasingly choosing to direct their expenditures elsewhere.
Then there’s also the unfortunate reality that it’s becoming more and more difficult to acquire the core elements of an upscale lifestyle. The government may be telling us that inflation is under control, but don’t tell that to thirty-somethings who are trying to keep up with the Joneses. Have you priced a 3-series BMW convertible lately? Or seen what a Chanel handbag goes for? Not only do the visible trappings of success cost more each day; they all compete directly with what you and I are selling. And I am still haunted by the results of a DeBeers study from a decade ago that found a significant preference on the part of girls in their teens for an iPod over a pair of half carat total weight diamond stud earrings. Those girls are now in their mid to late twenties. Have we really done our part as an Industry to remind them that Diamonds are a girl’s best friend? Or is it possible that the next generation of consumers will acquire the cultural imperative to use an engagement diamond to signify the onset of a pre-marital relationship, but then lose interest in gifts of diamonds as a mechanism for communicating enduring love. Now that’s spooky, isn’t it?
So…what can you do as a luxury retailer to react to all of this?
First, make a conscious choice to go wide. Unless you’re in a top twenty market where there are so many consumers that you can afford to be a niche player, you’re going to want to appeal to as wide a group of consumers as possible. Remember, the root of the word “exclusive” is “exclude.” Who, exactly, do you really want to exclude from your customer base?
Second, find methodologies for developing a dialogue with potential big spenders in their thirties and forties. It’s time to start data-mining the greater community where you’re located, and create lists of go-to prospects who need to learn about you, and your store. And count on it… I now feel extremely motivated to build advertising and merchandising platforms that accomplish precisely this objective, so if you’re a Gems One customer, rest assured that we’ll be focusing significant effort in this direction in 2013.
Third, make sure you’re acquiring information about birthdays and anniversaries from your customers in their 30s and 40s. And reach out to them at these key times, when they actually have a specific reason to buy from you.
Fourth, if your store’s revenue stream is bead-dependent, it’s now time to find and start advertising emotionally-impactful products that will help you transition into whatever the next hot thing is. It is imperative that you retain the middle-aged female self-selectors who represent the majority of your bead clientele, as well as the male gift-givers who have dutifully returned to your store to fill those wonderful bracelets. Remember Beanie Babies? I know my wife bought hundreds of those for my kids, but when Beanie Babies lost their cool, my wife simply stopped shopping at the store that carried them, because there was no replacement item to make her return.
Make the conscious decision now to expand your customer base. The advertising resources that you deploy to accomplish this are not an expense. They are an investment. Just be sure to invest wisely.
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.