5 min read 15 Feb 16
Summary: Last week, there will have been a rush of customers to jewellery stores across the UK (and the world) to purchase gifts of charm bracelets, rings, earrings and the like in time for Valentine’s Day. But as people queued to buy gifts for their loved ones, few will have been concerned about the complexity of the businesses they were buying from, or indeed the seismic changes the jewellery industry is going through.
The jewellery market is fragmented, there are only a handful of global brands – such as Tiffany and Pandora – and those brands that do exist only represent around 20% of the global market. That leaves 80% in the hands of unbranded and often local players, in a market worth over US$250 billion.
The apparel industry was in a similar position 20 years ago, but since then the global players have taken an increasing share of the market. Through changes in branding, logistics and customer responsiveness the companies have been able to roll-out retail outlets across the world. And the lessons have not gone unheeded by the jewellery industry.
The leaders in the apparel industry were the pioneers in what McKinsey calls ‘fast fashion’. Brands became common across geographic boundaries and customer feedback became increasingly important (partly as supply chains allowed apparel retailers to be much more responsive in ordering new product). Linked to this and perhaps most important, were the significant shifts in logistics. Until about 15 years ago, apparel retailers worked on the basis of two seasons – ‘Spring-Summer’ landing on shelves after Christmas sales, and then ‘Autumn-Winter’ which would arrive in August. However, fast-fashion brands such as H&M, Zara and Top Shop led the way from the late 1990s onwards, becoming much more dynamic.
Inditex (through its brand Zara) has been a leader and is at the extreme end with new products landing in its store every week. The operation is set up to be able to deliver this with 70% of its sourcing (supply of product) coming from ‘proximity’ markets and using air freight rather than sending product by sea. New product lands in stores every week and when it’s gone it’s gone. That facilitates an extreme level of product churn, customer excitement and exclusivity – the sense that you have to buy something quickly as it may not be there the next day.
The jewellery retail industry is quickly adopting the fast-fashion model, with the roll-out of brands cross-border having already begun with players such as Tiffany and Cartier at the high end and Pandora in the mass market.
In logistics, these companies are embracing even more sophisticated models. One of the biggest areas of change has been in the way product is developed and delivered to stores. Pandora for example, offers a Valentine’s Day collection of jewellery that is one of seven ‘drops’ in its business per year. A ‘drop’ is simply a new collection of goods/produce, and Pandora has, over the past few years moved from the traditional two drops per annum (that most jewellery brands follow and again mirrors what apparel retail used to do) to seven. The arbitrage for retailers is that more drops or refreshes implies more cost – buying product in less depth, shifting smaller quantities of product through the supply chain and more staff hours to move product around stores – relative to higher sales and potentially higher gross margin via better full-price sell through/lower markdown. It’s an arbitrage that’s paid off for Pandora.
Why do these regular product updates work so well? Jewellery retailers are adopting this approach because it gives the customer a reason to go into the store and shop. For Pandora, having collections around ‘occasions’ (such as Valentine’s Day, Mother’s Day, Christmas) makes sense because its products can be inspired by the day/celebration.
More importantly, the need to lure shoppers into the store (whether clothing or jewellery) is stronger than ever – physical retailers competing with the internet can no longer rely on the customer simply strolling in because they’re in the area. The fast-fashion industry has delivered strong growth and profits on the back of regular product delivery enticing consumers into their stores to see what the latest ‘new’ thing is. The jewellery industry wants to replicate this.
There is another area where fast fashion has shown the way. Leaders like Inditex have shown how the use of customer data can be a very powerful tool in driving sales growth. The more that retailers can learn about what their customers are buying the more they can deliver product the customer wants through their highly responsive logistic network, and as their businesses grow, the more data they can collect and the better they become at predicting trends and demands. This virtuous circle is one that jewellers like Pandora are now using to significant effect – it’s no coincidence that the most popular materials in one season will be the lead materials used in the following collection!
With jewellers following a similar path to apparel, we should expect an increasing penetration of brands in a largely unbranded industry. In the US for example, the number of stores has declined steadily over the last 15 years. Independent jewellers have lost market share to larger brands as they are unable to compete with exclusive merchandise offerings supported by significant marketing budgets. It would not be surprising to see this replicated globally.
Branded jewellers are certainly on a charm offensive.
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