Thursday, August 23, 2018

The Revised FTC Guidelines – Their Impact on the Diamond Business

PUBLISHER'S NOTE: An earlier version of this editorial was printed in the September 2018 issue of The Retail Jeweler. This is the most up-to-date version.

By Frank Dallahan, Editor, The Retail Jeweler

The Federal Trade Commission recently issued its revised Guides for the Jewelry, Precious Metals, and Pewter industries. Their stated purpose of this effort is “to advise marketers how to make non-deceptive claims about jewelry products rather than preventing unfair practices.”

For more information on the other FTC Guidelines reviewed, please click here.

While each of the topics reviewed by the FTC is important, the most eagerly and nervously awaited were the ones addressing cultured diamonds and diamond definition. Within the past couple of years, lab-created diamonds have occupied a great deal of time, attention, and thought throughout the industry. The discussion is eerily similar to what took place the last time the Guides were changed in the 1980s. Then, it was the “natural” gemstone groups who fought hard against giving lab created gemstones a modicum of respectability. They favored the use of the word “synthetic” to describe the fact that lab created gemstones were different and, therefore, not as good as those coming from the earth. The position of the diamond people today was virtually identical with the position of the Colored Gemstone importers in the 80s.

The diamond sector of the jewelry industry had an intense interest in the outcome of what the guides said about lab-grown and mined diamonds. Both sides of the question wanted their way to prevail. The mined diamond group wanted to retain the use of the word natural. They also would have preferred to have the word synthetic connected with lab created diamonds.

Lab-created diamonds won the argument with the declaration from the FTC, that a diamond is a diamond as long as it is chemically, optically, and physically identical with mined diamonds. The caveat of the 1980’s that a lab created diamond must still retain the phrase “lab-created” associated with a manufacturer’s name such as Chatham “lab-created” diamonds. The FTC allowed sellers of mined diamonds to continue to be able to use words like: natural, real and genuine. The reality, I suspect, is those descriptors are immaterial. The important word in any discussion with a consumer is the word diamond. After that it becomes a matter of how well the diamond is cut; what the clarity is; what the color is, what does it weigh? And, finally, how much does the diamond cost?

I think mined diamonds have a distinct edge over lab created diamonds because the jeweler has to explain what a lab created diamond is. How is it created? How is it manufactured? The jeweler needs to create a unique selling proposition for the lab created diamond. While the lab created diamond is chemically, optically, and physically identical to a diamond from the earth, a jeweler will likely differentiate the two by stating mined diamonds provide employment and education for many people throughout the world and especially in Africa. Whereas, many created diamonds originate in China and provide education and employment to many Chinese people, the difference between the two products comes down to price and the environment.

The environment question is one promoted by lab-created producers, though they fail to acknowledge the heavy use of electric power to produce the lab-created diamonds. And, of course, the mined diamond producers are accused of tearing up the earth without any regard for the environmental impact they cause. It is a point counterpoint argument with neither side scoring points.

While branding is not a major factor in either group, there are several mined diamond producers who do have a semblance of brand names, though in the main they are trade names. Lazare Kaplan, Julius Kline, Hearts on Fire, Forevermark are a few that may have an edge on the lab-created producers when it comes name recognition and/or endorsement from retail jewelers but ultimately, it is the trust emanating from the jeweler that is most important to the consumer.

Lab-created diamond producers do not have their act together in developing a branding story that would create a needed unique selling proposition. The impression is that the product carries a price advantage. DeBeers announcement that their lab-created diamonds are ok and appropriate for fun, fashion jewelry and that they are only worth $800 per carat, puts the lab-created producers into a box. Of course, these conditions will probably change as we go forward. We will likely see a branding effort develop. We’ll also see a lab-created association emerge as well.

The battle lines have been joined. The FTC Guidelines started the conversation going within the trade. The reality is nothing much has changed except for the DeBeers move into the created diamond business and positioning it as fun jewelry.

The FTC Guidelines likely will not have a material effect on the jewelry business going forward. It really isn’t that much different than what happened with the colored gemstones in the 80’s.

The more things change, the more they stay the same!

Wednesday, April 04, 2018

What To Do About The Challenging Scene of the Current Jewelry Business

By Frank Dallahan, Editor, The Retail Jeweler

Everyone in the jewelry industry remains uneasy and unsure and is looking to the Las Vegas shows for a true sign of a turnaround. Though the past Christmas season was for the most part, one characterized as an improvement over the past few years, this spring season as of this writing seems to be unsure.

It’s time to call a halt to the nattering nabobs of negativity.

Those who can Do! Those who can’t close up shop and give up.

For the doers, it is time to refocus your thinking on the basics of the retail business: Inventory control; reorder policy; standards for reordering; and the number of suppliers your store supports. Other “basics” to evaluate are: store location, display, promotion and your sales staff.

This process begins with the internal policies of inventory control and management. You also will need to look at some of the key external policies of how you promote your store to the marketplace you serve. The one point I’ll make at the outset of promotion efforts is: There needs to be a balance in your promotional efforts. It cannot all be directed to on-line. Certainly, you need an on-line presence, but you also need to allocate promotional dollars to other promotion in its various forms from local newspaper, catalogs, community support projects, and direct mail. Your consumer market is not 100% millennials, who only search for jewelry stores and jewelry products on-line. Personal contact from your sales team to valued customers reminding them of birthdays, anniversaries, wedding gifts, graduation gifts are all opportunities that will benefit from the personal touch of a phone call.

For years industry experts have talked about how retail jewelers are over inventoried with lots of dead, non-turning stock. Just ahead, there are three or four months where retailers can decide to focus on doing something substantive about eliminating or substantially reducing this problem. Forget the politically correct word, issue. The over inventory situation is a definite problem. It attacks good merchandising principles by allowing old, picked over skus to remain in the show cases. Simultaneously, the level of old stock, in many instances, prevents reorders of merchandise that actually sells.

Part of this process is an analysis of actual unit sales by product category. You need to go through each department and review the actual sales of the products in your inventory. You need to do this with the actual inventory and sales data as well as the physical samples in front of you. This is a time-consuming process, but eye-balling your inventory and looking at the data simultaneously will provide you with a new insight into your assortment. Part and parcel of this

exercise is the evaluation of the price points of your product assortment. What is needed is balance in price range, going from low to high, making sure you are not over-inventoried at the high end or the low end.

Design differences in your product line is important as well. This part of the exercise can be especially valuable when you compare competitor lines within a particular assortment. Wedding rings, for example, offer many similar designs from one manufacturer to another. The same applies to diamond engagement rings. Eliminate duplicate designs and choose the best seller between similar looks.

In this issue of The Retail Jeweler there is an appropriate tie-in story measuring the performance of silver jewelry as a product category over the past nine years. What should capture your attention in the story is the inventory turn achieved by silver products in jewelry stores. The second attention getting fact is the margin provided by silver jewelry. Merchandise that turns over needs to be a priority in your thinking. Whether it is silver, gold, platinum or whatever, inventory turn is the most important key to profitability.

Whatever it is that’s not turning. Get rid of it. Don’t acquiesce. Identify these products with special tags in your showcase. Provide an incentive to your sales team to focus special attention on these problem children.

The next step in this process is to look at what is selling and make sure you have enough of it. There are many products in your showcases that sell day-in and day-out. Your inventory analysis along with your sales data reports will show you over the year how much of these items you’ve sold. Establishing an average sales rate will help you determine what inventory level is needed to support the particular style. This process applied to each merchandise category will produce positive results.

In every product category, you will find hangers-on products. A trend that started and then fizzled. These hangers-on can be an entire segment of your inventory or just a couple of styles bought for whatever reason. The point is you need to identify and get them. out of your inventory.

The steps outlined above will enable you to be ready later for the coming holiday season and more importantly for determining what product lines need your attention at the many shows in Las Vegas.

Preparation for ordering at the shows is key.

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