Diamonds in the time of COVID-19
- What's the current impact of COVID-19 on the jewellery business in the U.S.?
After a record breaking holiday season, the jewellery industry was ready for a robust engagement season this Spring. Unfortunately in a matter of weeks we went from hopefully and inspired to a complete shutdown. In the U.S. the majority of the shopping malls have been completely (albeit temporarily) shuttered to any business locking out the majority of consumers. The restrictions across America have become so stringent that people have been limited to only "essential" business aka grocery and medicine leaving the communities vacant ghost towns.
Many luxury brands, particularly in apparel like Zara and Gucci, have been able to convert a small work force to PPE providers hand stitching medical masks for the consumer. Companies such as Prada and Beverly Hills own Bijan have taken the opportunity to brand their efforts to capitalize on their equity within the luxury market. Our contemporaries Kering and LVMH have begun acting as international purveyors for Chinese manufacturers to medical facilities all over the globe, buy tens of millions of masks to be deployed to those worst effected.
Finlay Fine Jewelers is headquartered in the U.S. Our efforts along with Signet Jewelers and hundreds of others have been to keep our staff and vendors safe and protected financially. While the United States Government continues to prop up various efforts to get monies to the population in the form of $1200 per adult, they have also set up $350 billion as loans to small businesses that may be converted into forgivable grants. These amounts will do little to protect the delicate balance of financed and memo-ed inventories, fixed overhead and employment costs that the 20,000 independent American jewelers incur on a daily basis. Without cash-flow to support these complex machinations I cannot imagine how many will be able to survive through to the next holiday season.
Signet brands have done an exemplary job of engaging with customers digitally as they have employed staff to work from home and reach out to their clientele. Social media has been invaluable as a tool in our industry to give customers better service. While Finlay has slowly been building up its portfolio of jewelry brands for the last two decades, this intercourse will speed the transition towards our digital platform much faster than previously planned for. Lichtenstein's has been created on par with LVMH's 24S.com as host to all of our luxury and jewelry brands. But the consumer still have to be ready to spend.
As we saw trillions erased from global markets in a matter of days, the commodity prices have been slow to counteract. Gold for instance has been quietly tickling near its multiyear high of $1700, yet nowhere near the almost $2000 threshold of 2008/2009. Unfortunately, much of the jewellery business in the United States is very layered like the rings of the proverbial onion, each representing a supplier, vendor, middle man, broker, or retailer. Today those razor thin margins are cutting everyone's fingers and the bleeding will not stop soon. We are still hopefully for a joyous holiday season as the world will be ready to celebrate together.
- So, is the recession caused by COVID-19, similar to that of the 2008-09 crisis? If so how? If not, how is it different?
The contrast is impressive. During 2008 it was like a slow moving fog that rolled throughout the planet. Much of the jewellery market especially at the haute couture and fine jewellery levels were some of the last to feel the tightening from the consumer. And they were also the last to recover. It is true that many of the largest brands (several of which we now own and operate) were so laden with debt and high rents that it was a slow and painful process. But companies were still able to operate, many attempting to pivot into brokering gold as it skyrocketed near $2000.
Today, all those shops are boarded up and locked down. There isn't a slow reduction in cash flow or a softening of the market. It came to a quick and deafening grinding halt in a matter of days. And it is changing life as we know it. There is so much fear on the streets that people wont leave their homes for food or medicine, they certainly aren't going to shop for a new watch and upgrade their engagement ring. Now the fortunate news was that the United States just came off of a historically high holiday season and the economy had never been more robust with the lowest unemployment in history. So the mechanics are not broken, but we do need to get to a place where everyone can go back to work.
In 2008, there was a lot of blame to go around for the crisis. It really was purely man-made. Both people and businesses were hyper-extended financially and living on credit that dried up. Society came back with a vengeance. But it was not without many casualties in our industries. Through and including Finlay Enterprises, we own and operate many of the largest fine jeweler brands in North America as a result of their bankruptcies expedited by the crisis.
- When do you see the luxury market recovering globally?
When this first started, we were told that it would be a two week pause or interruption in our lives. I felt confident that no one in our industry should be at risk in losing their position or income. That even a month off during the March-April periods, which is traditionally a slower time in the jewellery business, would be easily overcome.
As I stated privately, it was approximately 5% of our annual employment costs. So most jewelers should be financially equipped to glide through that kind of business disruption without furloughing anyone. Now granted if operations continue to be suspended for many more months there will be hard decisions to be made.
Finlay Fine Jewelers in particular values every relationship we have and will continue to pay everyone until further notice. If we aren't there for our employees when they need us most, they wont be there for us when this is over. Signet Jewelers along with Macy's, J.C. Penney, and Bloomingdale's have furloughed their employees in the wake of closing thousands of locations. There are literally thousands of the most talented people in the luxury market sitting at home fearful of what the future holds. Rick Borchert of Hobson & Co., specializing in search for the jewellery industry, has already begun working towards staffing for the impending recovery. He knows that top talent will be invaluable when we get back to work in advance of the holiday season.
As for the recovery of the larger global luxury market, I believe you will see a bigger pie by the end of this year but it will be serviced by fewer players. Not to be indelicate but these incidents tend to weed out the under-financed and more poorly positioned operations in the luxury industry. We anticipate doubling our portfolio in several market segments by the end of 2021 as a result of fallout from COVID-19.