IDEX Online Research: 2010 Rings in the First Wave of the “New Normal”January 03, 10
Retailers who have managed to survive the trials and tribulations of 2008 and 2009 will find themselves operating in a less competitive “new normal” retail environment in 2010 and beyond. That’s the conclusion of Susan Rada, editor of the National Retail Federation’s magazine, Stores.
Jewelry retailers are no exception: at the end of 2009, there were about 22,000 jewelry firms in the U.S., down from roughly 23,000 at the beginning of 2008. Several large chains – most notably Whitehall and Friedman’s – have closed, significantly reducing the number of jewelry stores in malls. That means there are already fewer jewelry merchants poised to serve a retail market that is expected to grow by 4-5 percent annually over the next decade.
While some may lament the passing of the specialty independent jewelry in America, the equation for the survivors is simple: fewer merchants + a growing market = sharply increased market share for the remaining retailers.
The National Retail Federation (NRF), along with IDEX Online Research, have made several predictions about the retail market for 2010 and beyond, including the following:
1. Fewer competitors in a growing market – In addition to a reduced number of retailers selling to a greater number of consumers, the National Retail Federation suggests that there will be an increased number of mergers and acquisitions in 2010 due to greater availability of financial capital, reduced company valuations, and the need for weaker companies to merge with stronger merchants.
2. Modest store expansion – Store expansion and new retail square footage will continue at a snail’s pace. Not only are there only a few new shopping centers being built, but the NRF believes that landlords will be “repackaging” existing space to better suit retailers and their customers. Among the major jewelry chains, IDEX Online Research believes there will be no net increase in the number of doors they operate in 2010.
3. Consumer credit more available – While “cheap credit” and soaring home equity won’t be a hallmark of 2010, consumer loans will become more available. This will allow consumers to unleash their pent-up demand for bigger ticket items in 2010. Small businesses should also benefit from increased capital availability. Since roughly half of all jewelry purchased by consumers in the U.S. is sold on the monthly payment plan, increased credit availability should help boost sales in 2010.
4. Consumers will spend again, but frugally – Shoppers have already begun to return to the malls and stores. November and December holiday sales were stronger than most analysts had predicted. However, shoppers will continue to focus on frugality. They have now been conditioned to only “buy on sale”. They will seek coupons and other enticements to reduce the retail price of goods, even if those goods have already been marked down from their original price. Jewelers have always been the “king of discounters,” so they will need to continue to fine new ways to convince shoppers that, in fact, their jewelry is on sale at a truly discounted price.
5. Online sales will grow faster – Online retail sales growth is expected to significantly outpace the growth of store-based retail sales. Not only has the internet become a comfortable, reliable place to shop, but goods are typically less expensive. Most online merchants don’t charge sales tax – which some consumers see as a competitive differential – but online merchants’ shipping charges offset those sales tax charges. Jewelers have been late to the online commerce party; it is time to start participating. Jewelry merchants should stop believing that jewelry can be sold only by being romanced in a store setting by highly trained sales associates. At least 6 percent of all jewelry – mostly diamond jewelry – is sold online in America; that’s above the total market share – about 4 percent – for all retail categories.
6. Value retailers will thrive – With consumers shopping more frugally, those merchants who offer the perception of “value” – primarily everyday low prices – will post greater sales gains than other merchants. Retailers who offer “high-low” sales – a high everyday price coupled with low on-sale prices from time to time – will lose market share. Jewelers are among the group of merchants who seem to promote mostly using a “high-low” strategy.
7. Social media will stimulate consumer demand – With more information being available to more people, consumers will know where to shop for the best deals. Retailers will need to be on Facebook; they need to Tweet; they need to be “talking” to consumers every way possible.
8. Luxury retailing will come off life-support – Consumer wealth levels have been on the rise. The stock market is up, and home prices have begun to recover. The top earning consumers – the 20 percent of consumers with the most income – account for more than half of the total household wealth in the U.S. and are responsible for 37 percent of all consumer spending. These high-income consumers are the heaviest purchasers of jewelry. Roughly one-third of all American households – those earning $70,000 per year or greater – account for about two-thirds of all jewelry sales.
9. Generational spending will shift – Baby Boomers have been responsible for this nation’s spending spree for the past three decades. But Gen-Xers and Millennials will be at the forefront of the recovery, according to the NRF. While the engine of the Boomers has nearly run out of gas, sharply higher income levels among younger consumers will help fuel the economic recovery in the U.S. However, merchants must understand this tech-savvy, price-driven shopper, if they hope to capture market share. The most recent data from the Consumer Expenditure Survey shows that households with younger consumers – age 25-34 – spend just as much on jewelry each year as consumers in households 35-44 and 45-54.
“New Normal” Consumer
What will the “new normal” consumer look like? The NRF has already said that this consumer will exhibit more conservative spending habits. Instead of taking on more debt and ramping up conspicuous consumption levels, they will focus on savings.
The NRF says that “shoppers are beginning to exhale”, but they will not revert to their old spending habits in 2010. Double-digit unemployment will have a sobering impact on shoppers, since almost everyone has a friend who is unemployed.
The NRF and IDEX Online Research has six predictions about consumer spending habits for 2010:
1. Shoppers will spend a little more – Women will spend a slightly more on fashion – clothes and beauty aids, perhaps even jewelry – in 2010 than in 2009. But if they can find a “deal” on a hand-held electronic gadget, they will likely use some of their discretionary “fashion” budget to upgrade, since many consumers consider it “fashionable” to have the latest electronic digital assistant.
2. Saving is no longer an after-thought – Saving is a “regular line item” in the family budget. If a retailer can’t demonstrate that they offer true savings, the shopper will likely move on to the next merchant. Jewelers will have a particularly tough time convincing consumers that the merchandise in their stores is really “on sale.” Jewelers have always been heavy users of discounts; for example, J.C. Penney was advertising “70 percent off on selected jewelry” in the week prior to Christmas. With discounts like that becoming commonplace, jewelers will be expected to pay consumers to buy their goods.
3. Look for the “omni-channel” shopper – This is an evolution of the multi-channel shopper. The omni-channel shopper uses all retail channels simultaneously, and expects openness and transparency. With the introduction of the IDEX Online Diamond Retail Benchmark (DRB) price list, shoppers will now have a benchmark price for buying diamonds; this will increase transparency of an item which has historically been shrouded in secrecy.
4. Men will become more important shoppers – Men will take increased responsibility for shopping for the family. In part, this is a generational shift, but it is also due to high unemployment levels among American males.
5. Shoppers’ mantra is “more for less” – Some shoppers will trade down. Almost all shoppers are seeking value. Jewelers have already experienced lower average tickets during the recession; this trend will likely continue.
6. No wasted time for shoppers – If retailers want to keep customers, they need to develop innovative loyalty offers. Further, the NRF says merchants must invest in technology that tracks buying behavior; this will lead to a customized reward system to each shopper. Jewelers are lagging significantly in the field of technology. Despite repeated pleas by jewelry industry trainers to set up customer data bases (or, at the very least, maintain a little black book), most jewelers simply don’t track their customers’ shopping behavior.
“New Normal” Stores
The NRF notes that shoppers spent less time in stores in 2009, and they will continue to reduce their shopping time in 2010. If retailers are to grab shoppers’ attention, they need to understand how consumers will think, and then configure their stores and their retail offers to match. Here are the NRF predictions:
1. Opening price points are most important – Retailers will be competing based on their opening retail price points. If they set their opening price points too high, they will scare off value-seeking shoppers. Most of the major chain jewelers reduced their advertised opening price points during the 2009 holiday selling season.
2. More exclusive merchandise – Merchants will need to spend more time differentiating themselves from other retailers. Exclusive merchandise and a differentiated product mix are two ways to set merchants apart from the competition. The argument continues: should jewelers focus on their store name as the brand, or should they participate in brands offered by buying groups such as HeartStar. Everyone has an opinion, but the message is clear: if a jeweler wants to build sales and build margins, they will need some exclusive merchandise to differentiate themselves from their competitors.
3. Stores will become smaller – According to the NRF, “retailers will need to reconfigure their space or else they will be left with large stadiums designed for a sport that customers no longer want to play.” Merchants who offer the same-old, same-old shopping experience won’t be around long enough to make it to the final play-offs. Most independent jewelers have stores of at least 2,000 square feet, much of which is devoted to the back office or storage. Neither the back office nor storage generate sales and profits. Take a page from the chain jewelers’ stores: devote as much space as possible to selling square footage.
4. Stay on trend – In a world where retail trends move through the bell curve – warm to hot to cold – at the speed of Twitter, merchants will need to be able to spot hot trends and react swiftly. Otherwise, they will be left with last year’s goods that won’t sell to this year’s shopper. With inventory turns of only once per year, jewelers are always selling “last year’s merchandise.” This must change.
5. Focus on ethnic diversity – Retailers who cater to America’s growing ethnic diversity – and understand those market segments – will take market share from competitors. The Asian market holds much potential for jewelers, according to data from the Consumer Expenditure Survey. As a group, Asian consumers earn more than any other ethnic group in America, but they spend far less per household on jewelry that just about any other group. Further, as more states approve same-sex unions, the market for wedding jewelry will increase significantly. Research has shown that partners in same-sex marriages spend more on jewelry than those in heterosexual marriages.
“New Normal” Information Technology
The NRF says that it is time for merchants to upgrade their technology in advance of the economic upturn. NRF research has shown that retailers have languished in their ability to turn information into actionable tasks. Here’s the “new normal” information technology world of 2010 that will affect jewelers.
1. Shoppers are using technology – While most shoppers have hand-held gadgets, far too many retailers aren’t reaching those electronic interfaces. Retailers must deploy technology that empowers the customer. The NRF says the in-store convergence of digital shopping options and shopping mobility is not coming down the road – it is here now. If you aren’t on board, you are already behind.
2. Stop stalling on RFID – A new study shows that the use of RFID can improve inventory accuracy by 27 percent over a single quarter of the year. With a high average ticket per item and a very low inventory, jewelers should have embraced RFID long ago. RFID will help keep track of high-value goods, and will quickly identify any merchandise which is not turning. Further, insurance companies will likely reward those merchants who use RFID.
“New Normal” Payment Options
What’s wrong with merchants’ current cash registers? They are out of sync with consumers’ desire to cut down on shopping time. Checkout lines are vanishing, but not quite as rapidly as shoppers’ patience with long lines and tedious processing times.
What’s new in payment options? Go to any Apple computer store. They sell the same big-ticket goods as a jeweler, and they don’t have a cash register in sight. But all of the sales consultants have a small hand-held electronic gadget that swipes your credit card and send your receipt to your home computer. You walk out of the store with only your purchase; the cash register receipt doesn’t get lost at the mall food court. And, the environment loses fewer trees.
Jewelers who think this kind of futuristic payment method is not for them are going to disappoint those Millennial consumers who are shopping for a diamond engagement ring. They buy Apple computers, and they expect that all merchants will have the same rapid, tech-driven check-out processes.
The NRF says merchants will need to expand their payment options. If they don’t, they will risk losing the fast-emerging, high-spending generation of shoppers that don’t understand why they can’t use online payment options like PayPal or Bill Me Later in more traditional retail settings.
It Is All About Change
Too many jewelers are comfortably rooted in the past. “It worked for my father, so it will work for me,” they say. They also say, “I really am for change, but you go first.” Either way, those are the merchants who won’t be with us at the end of 2010.
IDEX Online Research is predicting that at least 500 jewelry firms will fold their tents and steal off into the night in 2010. Those who ignore the “new normal” will be the first to disappear.