As printed in letters to the editor JCK July 96 comment welcome
WHO KILLED THE GOOSE THAT LAID THE GOLDEN EGG?
I’ve heard more conversation than ever about what it is that has eroded the
confidence and profitability of the jewelry industry. The culprits range
from misrepresentation of grades to the grading report, from false
discounts to wholesalers competing with retailers, and of course Rapaport
and Fed Ex.
I will make the case that most of our problems are common to most other
retail industries and that the retail climate in general is a battlefield
between the DavidAEs and GoliathAEs, with the edge going to the Philistines.
I have talked to many of my fellow merchants in Glencoe, all of whom are
independent luxury, or at least upscale, stores. They are all struggling to
find identities that will be competitive with the big guys.
The fact of the matter is that large chains have access to a lot of money
and, thus, inventory. They don’t open a 5,000-sq.-ft. store with the goal
of building inventory. They open with a full complement of everything. They
have unbelievable buying power and can squeeze concessions from willing
vendors that allow them to sell for 20% above an independent’s cost while
still making keystone. Return privileges are also an advantage. Their
vendors are jobbing out the large orders overseas for very cheap labor.
The large retailer carries only the top producing merchandise for quicker
inventory turn. If a category has 100 items, they will stock only the top
50. This is why all the merchandise looks the same at the mall. The other
50 items are the scraps left for the independent to sell, but they are the
bottom 50 sellers. The chains also have very little customer service, which
keeps costs down.
The small retailers have two options. They can try to be a small big store
and stock a little of everything. This strategy is a losing one since they
will typically have less merchandise, higher prices and less budget for
promotion and advertising. Or they can concentrate on the strengths a small
business has – such as customer service and the ability to operate within
a niche. This is also a tricky strategy, since customer service is very
labor-intensive and, thus, expensive.
A prime example is Parkway Drugs down the street. The store does a big
delivery service on prescriptions, something Walgreens doesn’t do, and goes
out of its way for special requests. The owner told me he will close the
doors when he retires because it is almost impossible to survive on only
that business. He needs to sell bread-and butter items such as Listerine,
but he has to charge $7.85 while Walgreens charges $6.50. Customers are
smart enough to use him where he is strong and use Walgreens where it is
strong. This works well for Walgreens, but not for Parkway.
We all hope our service will instill some feeling of commitment among our
customers. But people look out for their own best interests: prescriptions
from Parkway, Listerine from Walgreens. Loose diamonds from wholesale-type
outlets, custom mounting from small independents, fashion jewelry from the
This brings up a final point. The industry is being segmented into two
distinct markets. Large companies gain great economies of scale. Few
companies can compete on price with Wal-Mart, Service Merchandise and Home
Shopping Network. The other market, the service-oriented market, is
becoming decentralized as anyone and everyone enters and tells their
neighbors, “I can get it for you wholesale.”
What is the answer? There isn’t much room to maneuver. The key is to be
strong in what you do well and get out of peripheral markets. You also must
decide if you have the staying power to ride out the impending shake out of
both markets. Once equilibrium is established, the hot investment money
will go elsewhere. We will not make as much as we used to and they (big
finance companies posing as retailers) will not be able to profit
excessively off the goodwill that our parents built up.
Steven Pollack, President
The Missing Link Jewelers