Through a strange coincidence, I am writing this column on precisely the one-year anniversary of my trip home from India in 2020. I had flown to Mumbai ten days prior as an alternative to my annual Product Development trip to the Hong Kong Show, which sadly had been canceled due to a new virus, COVID-19, that was raising havoc in parts of China. The trip had gone well, a blessing given the fact that the strength of my fall marketing programs was predicated on successfully guessing what would be selling nine months later in December. But it was clear that this COVID thing was starting to get weird in the States, and there was even a possibility that flights through Europe were going to be canceled to prevent the spread of the infection, so it was time to race home.
In retrospect, it is almost surreal how events during the second half of March, 2020 subsequently unfolded. Only a few days after my return, the Governor of Pennsylvania forced my wife’s jewelry store – as well as almost every other business in the state – to close. And suddenly I was becoming acquainted with a new set of national actors, including Drs. Fauci (a rising star and ultimately a darling of the left), Birx (who reintroduced me to the statistical concept of granularity), and Giroir (one of those terribly difficult French last names that are almost impossible to successfully pronounce). And yes, we would flatten the curve, and get back to normal quickly, wouldn’t we?
Well, as things played out, it soon became evident that a “new normal” was going to be with us for a while. And from a business strategy standpoint, it was important for me to try to anticipate the jewelry marketing and merchandising consequences for this new scenario, both for the hundreds of retailers who rely on my marketing initiatives, as well as for my employer. My first thought was that we would see a scenario similar to 2001 after the attack on the World Trade Center, in which the collective emotional reaction to a national psychological trauma would act as a catalyst for a massive increase in engagement ring sales, so it was time to focus on bridal.
Second, I could see that the economic shock to the national economy was going to displace huge numbers of workers, especially those with limited savings, so I had my team at the advertising agency working round the clock on gold-buying content.
And third, I became extremely concerned that while COVID cases might decline as the weather became warmer in the same way that the flu spontaneously disappears each summer, the natural tendency for virus infections to bloom when the weather turns colder in late fall would compel blue state governors to shut down “non-essential” businesses. The proper response was obvious, and I immediately set out to build bolt-on websites that would allow our customers to make sales in December even if their stores were forced to close.
So yes, there were things that I could do to mitigate a portion of the effects of a global pandemic, but I must confess that my outlook for the balance of 2020 was pretty bleak. The pandemic was shutting down the global economy, the Dow was down almost 40 percent, and it seemed likely that jewelry purchases by affluent consumers might completely evaporate. The only conceptual silver lining I could find in that very dark COVID cloud was that the retailer cleansing that should have occurred during the 2008 Crash, but didn’t because of beads and gold buying, could now commence, hopefully resulting in a smaller, but healthier, jewelry retailing community. But I couldn’t help but wonder how deep the cleansing would go, and how many of my friends would be amongst the “cleansed”.
But then a series of events occurred that gave me hope. The Fed was clearly committed to providing sufficient liquidity to keep the global economy from complete collapse, and the aggregated push from the world’s central banks was spectacular. Suddenly it was raining money, and in a financial world in which bonds yields were at all-time lows, some even negative, that money had to go somewhere. As a result, the market came roaring back, and financial stability was achieved. And then as we moved into June, retail jewelry sales began to catch fire, owing to something that I hadn’t properly anticipated, something wonderful, that would produce spectacular record sales month after month after month, ultimately producing the inconceivable result of actual net sales increases for 2020. And this wonderful “something” is what I have come to refer to as the Airbnb Effect.
You see, in 2019, Americans spent $739 billion on travel. From a luxury discretionary spending standpoint, travel is a really big deal. For context, consider the fact that during the same period, Americans spent just $78 billion on jewelry and watches. And then in March of 2020, the whole travel thing just came to an abrupt halt. It didn’t just slow down. It stopped, completely, irrevocably, game over.
There is no question that for some Americans the pandemic caused economic dislocation that preempted luxury purchases. But for many – perhaps most – the pandemic shifted what would have been spent on travel into other luxury areas. RV and boat dealer inventories evaporated as buyers (many of whom had also simultaneously received huge PPP checks) flooded showrooms. Real estate markets boomed. Even new car dealers were cleaned out and used car prices rose by as much as 30 percent as demand simply outstripped supply. And investment vehicles like tech stocks soared to ridiculous levels (Tesla stock is now valued at 1.25 million dollars per car sold, literally making the company more valuable than all of the other American car manufacturers combined).
And yes, jewelry sales took off like a rocket.
That’s the very, very good news.
Now for the bad news.
The travel spigot is about to get turned back on, as America likely achieves herd immunity in May (barring unforeseen circumstances). How quickly the spigot turns to full blast is open to question, but I submit that the sucking sound you will likely be hearing this fall will be the echoes of billions of luxury discretionary dollars flowing out of jewelry store cash registers and back into cruise ship, airplane, hotel, and restaurant coffers. Don’t get me wrong; I’m not a pessimist. In fact, I’m an optimist, and I’m very happy to see that our “Old Normal” may once again become a possibility, because I very much enjoyed living there. But I’m also a marketing statistician, and I can do the math. And in the jewelry retailing vertical, there are going to be some substantial challenges as these events conspire to significantly reduce consumer jewelry purchasing levels.
Fortunately, there are already a number of potential strategic moves that I’m working on in anticipation of the coming contraction, which I’ll be writing about in future columns. But recognize that you will only maintain last year’s sales levels this fall if you succeed at expanding your market share, because the fine jewelry pie is going to be shrinking. And count on it: I’m going to be approaching this fall with a wonderful sense of anticipation, because I know that it is precisely at times of great change that market shares are most easily rewritten.