National Jeweler

We're all too familiar with the following scenarios: heaps of tangled cheap chains packed haphazardly in worn display cases throughout America's mall jewelers and fly-by-night pushcart kiosks; new jewelry store employees, left to their own devices, "practicing" selling gold, while senior sales associates look for that one-carat engagement ring sale to make their "nut" for the month; jewelry boxes overflowing with poorly constructed, kinked Omega-style necklaces and boring, run-of-the-mill gold jewelry. It's no wonder the average mall or Main Street jeweler has such little enthusiasm for selling gold.

Retailers are screaming about shrinking margins, poor sales growth, declining foot traffic and the poaching of "traditional" jewelry sales by online retailers like Amazon.com, eBay and Blue Nile. Yet there are jewelers who have changed their operating models and now embrace selling gold and selling it well. Manufacturers, designers, wholesalers and retailers have much to learn from them.

The commoditization of gold

Over the last four decades, the U.S. retail landscape has experienced massive changes, from Main Street to the town malls, to strip malls of identical stores built every five to seven miles, to groupings of "big box" stores at major intersections and interstate exits.

Retailers like J.C. Penney, Kohl's, Wal-Mart and Sears have sustained enormous growth through much of this change and, in doing so, have added a multitude of jewelry cases to their new and existing stores, filling them mostly with inexpensive 10-karat gold jewelry, often with little chips of nearly industrial-grade diamonds and lab-enhanced, poorly-colored gems.

The size of the total U.S. retail market for gold and stone jewelry, where the primary value is found in the gold, not the stones, has subsequently exploded. Female consumers who previously purchased costume jewelry now trade-up to buy "real" jewelry.

To meet this new demand from the mass merchants and Kohl's-like department stores, Italian jewelry manufacturers developed computerized, faster, more efficient gold chain "knitting" machines capable of making miles of "elegant" new necklaces and bracelets. Moreover, CAD/CAM technology allowed designers to make more complicated jewelry at a fraction of the cost. It wasn't long before the once difficult-to-make sophisticated look of a gold Omega-style necklace became an affordable piece of everyday jewelry for American women.

Compounding the influx of inexpensive jewelry into the United States, the Italians sold much of their older machinery to low-cost labor markets like India, Turkey and the Far East, where the old machines were quickly uncrated and put back into parallel production, creating adverse consequences for the Italian jewelry manufacturers.

Gold jewelry sales were further stimulated when gold went from its short-lived peak of $850 in January 1980 to touching "bottom" at $255.95 in March 2002 (source: Kitco Bullion Dealers, www.kitco.com).

Gold sales suffer as luxury arena expands

The rise of competitive jewelry marketing and discretionary income products aimed at the affluent and near-affluent female consumer was the final piece of the puzzle in gold's commoditization.

Classic Swiss mechanical timepiece brands came back into vogue, first with the collectors market and then at the retail counter, with ad spending levels jumping to unprecedented levels.

Billions of dollars worth of merchandise flooded the pages of Departures, InStyle, Vanity Fair and Town & Country magazines. New ads broke for $1,500 nylon Prada handbags, $500 Jimmy Choo sling-back shoes, picture-taking cell phones and all sorts of new discretionary income products to compete for a share of the American woman's must-have list and, of course, her Coach wallet.

Moreover, just as De Beers' Diamond Promotion Service was kicking into higher gear, and the Platinum Guild began to give the hard gray metal some real traction in the consumer's mind, the World Gold Council (WGC) shifted its focus away from the jewelry sector to the metal's investment aspects.

That's not to say gold jewelry was not being promoted. Unfortunately for gold's image, mass merchants and low-to-midtier department stores in their weekly circulars were advertising it at 50 percent, 60 percent and sometimes even 75 percent off (a discounting practice several state attorneys general had something to say about a few years later).

The WGC didn't return to its gold jewelry advocate role in the United States until the launch of its "Gold Fashioned Girls" national magazine and trade print campaign in 2000, and then only with a $3 million ad budget.

"It was wonderful to have the World Gold Council come back into the jewelry -promotion business with a dramatic campaign like Gold Fashioned Girls," says Kris Chronister, vice president of marketing for Andin International and Jewelry. com. "Unfortunately, its follow-up 'Speak Gold' initiative, given the tiny funding support from the World Gold Council's gold mining members, especially with the price of gold nearly doubling in the last three years, was like hunting for elephants with pop guns."

Growing demand for new gold designs

But today there's good news for the U.S. gold jewelry business.

"Gold's growing popularity in the fashion world and the availability of many new gold jewelry designs drove strong sales this past holiday season," says John Calnon, the WGC's U.S. managing director. "Leading U.S. retailers are meeting a growing consumer demand for innovative gold jewelry based on extensive consumer research insights like those found in the World Gold Council's 'Gold Expressions Collection' [which was developed in cooperation with the Vicenza Fair to help stimulate Italy's desperately sagging gold jewelry production]."

Sixty-nine Italian designers produced 430 pieces of fresh, affordable gold jewelry to spark interest in the metal and re-energize the critical but stagnating middle of the gold design spectrum commonly found in most U.S. retail stores. Gold's most frequently cited purchase drivers--affection, expressiveness, individuality and love (between couples, a mother and her children, friends)--were key elements designers were asked to articulate in the pieces. The designs capture both self-purchase and gift-giving motivations and resonate with an "everyday special" sensibility.

"In spite of the weak dollar and the rising price of gold, we experienced double-digit growth with our gold jewelry in 2004 and so far in 2005, particularly with our Marco Bicego and Roberto Coin product," says Harvey Rovinsky, owner of Bernie Robbins Fine Jewelry in New Jersey and Pennsylvania.

When selecting a new gold line to carry, Rovinsky looks for great beauty, product design and real craftsmanship; superior service in supporting his account; responsiveness to stocking issues; margin pricing of at least keystone; and promotional spending by the manufacturer to support the brand, both nationally and with his logo in local co-op advertising.

John Green, president and CEO of Lux Bond and Green in Connecticut and Massachusetts, echoes Rovinsky's thoughts and results.

"Italian gold has been under ferocious pressure from the strong euro and better product from Third World countries," Green says. "Because of the beauty of the designs and the Italian's willingness to work with us, we've been able to maintain and grow our business. Bicego and Coin have been excellent designer brands for us. In the last 10 years, we've doubled our 18-karat gold inventory and proportionally reduced our 14-karat offerings with great success."

Multicolored gold gaining interest

In addition to gold jewelry designers Bicego and Coin, Green also offers a mix of beautiful, "generic" yellow, white and rose gold pieces.

"We treat gold as both a color accessory for our fashion-forward clients and as a precious metal for our more traditional customers," Green says. "The black gold and the 'blue jean' gold jewelry from Jarretiere generates a lot of interest in our stores. It has been a good niche product that helps distinguish us from the competition."

Christina Termine, exclusive U.S. sales agent for Jarretiere, the Italian-made jewelry with the French name meaning "garter" says, "Our retail clients report that colored gold lines are selling well because [consumers] don't look like the 80s style of high- polished yellow gold. [Colored gold] has a soft hue because it's a spun gold."

Colored golds appeal to both the fashion-conscious women in their early 30s who are just starting to build their fine jewelry collections and to the more affluent women in their mid-to-late 40s.

"She buys two and three pieces at a time, or she splurges on one very expensive piece," says Termine.

At this year's Baselworld and Couture Jewellery Collection & Conference, Jarretiere is introducing "Taffeta," a new, pale gold line that features a soft green-colored gold with prismatic flashes of pink and blue.

"Our sales were up 35 percent in 2004, and we fully expect to beat that in 2005," says Termine. "The only hard part for us is to find retailers willing to take a chance. Once they have it in the store, it doesn't take long before they're on automatic reorder for their best-selling pieces. We're bending over backwards to accommodate some very imaginative special orders. Today, you not only have to have innovative product, but you have to back up your sales with a can-do attitude, if at all possible."