Strategic Options in a Shaky 2012 Economy

Mr. Jan Brassem
February 21, 2012 — 1,567 views  
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Because of 2011’s whopping economic headlines--soft economy, unemployment, limited bank credit and a falling sky, or so it seemed--creating a jewelry strategy for 2012 will be more than just an exercise in good business. The U.S. jeweler has been designing these--for better or worse--for years.

With last year’s decidedly mixed economic scene, a handful of shrewd independent jewelers held their own, and in some cases even grew more than expected. Will they be as prescient as they were last year? Only time will tell.

Let’s review some of the trends that more or less commandeered some of the jeweler’s bottom line. None of these by itself should come as a surprise. On the other hand, in the aggregate these persistent trends, kind of an economic mess, could paint a troubling picture for 2012.

- Competition from Web-based retailers: Online shopping flourished, especially this holiday season, as Internet retailers reported a blockbuster sales increase of 15 percent. They greatly outpaced total retail sales, which grew ‘only’ 3.8 percent, according to a leading shopping center trade association.

- A projected “zombie” 2012 economy: Robert Prince, an investment officer at Bridgewater Associates, the world’s largest hedge fund, projects at least a decade of anemic growth and high unemployment for the U.S. economy. The "zombie" economy, says Prince, will remain that way until the U.S. works through its mountains of debt.

- Tech product competition: Intel Corp.'s crusade to redefine the personal computer sector is entering a crucial phase, as a new breed of sleek shiny portables jostle with tablet-style devices, smartphones and jewelry for consumer attention. A host of these new tech products, called Ultra Books, will almost certainly siphon the already strained consumer’s disposable income, leaving less for jewelry.

- Social networking: Unless the jeweler was using the high-speed, ever-changing social networking and mobile tools, (Facebook, twitter, blogs and a gaggle of others), they have harvested fewer benefits than their consumer product competitors. Maximizing social networking programs takes persistence, agility, effort and numerous ‘touch-points’. Few jewelers maximized their potential last year.

- Weak bank credit: 92 US banks failed in 2011, well below the previous two years' totals. So the era of troubled banks could be over. But...don’t bet on it. With an anthology of new government regulations and a wounded European economy, banks will be cautious in making loans. Don’t plan on their help when an opportunity--or a cash-squeeze--comes along.

- Gold prices: Where is it heading? Some say maybe $5,000. But don’t bet on that either. Investors, however, do appear to have that golden glint back in their eyes as they prepare for another big year in the bullion market. Last year--as analysts were eyeing a global recovery--there was talk that gold may reach its peak of $1,600/ oz. But the worsening global economic landscape put gold back at the top of “buy” lists. In a research report, Wall Street icon Goldman Sachs projected a gold price around $1,800/oz to $1,900/oz. However, your guess is as good as theirs.

- Consumer uncertainty: Finally, with US unemployment at its current level, with the oscillations of consumer confidence and with national elections just months away, no one, especially the U.S. consumer, has a clear view of his or her financial future. They’re in a basic ‘wait and see’condition.

By any measure, over the past few years or so, the independent jeweler has had his or her share of challenges. Considering the current landscape, the burdens will--most likely--continue. Should it be time to look at a proverbial ‘box’ and start thinking ‘outside’ of it?

Let’s assume that John Doe, (a fictional fellow), has been managing his jewelry store for decades. When his dad bequeathed him the store, the jewelry business was vibrant and exciting. Now, with the advent of higher gold prices, competition from high-tech consumer gadgets, jewelry discounters, and who knows what else, the U.S. jewelry industry has lost much of its luster. Is it time for John to consider merging, or even selling, the store? Let’s take a look at that strategy. If John has that mindset, here are some of his very limited options.

- Merge with another store: The personal benefits to John in merging with another jewelry store--or Web retailer--are profound. Not only are there financial, (better supplier arrangements, less financial risk, economies of scale, and all that), and management, (a team environment, less stress, sounding boards, you get the picture), benefits in joining forces with another jeweler, but John also will be exposed to new landscapes and opportunities. Dare I say it; there will be an ocean of difference in his life. A merger is the best way for John to conserve his store’s assets and goodwill that has been developed by him and his dad over decades, generations.

- Associate with a roll-up program: An industry roll-up is where many--five or more--industry players--like John’s store--combine to produce one large organization. It is almost the same as a merger but on a larger scale and takes more management expertise. Many industries have had successful roll-ups. Printing, roofing, Internet Services, Waste Management are prime examples. These industries had fragmented structures, continual cash requirements and faced competitive pressures. After venture capital financing, all are now healthy and prospering.

- Liquidate: The rather unpleasant option is for John to liquidate. Not only does his store loose the goodwill that he and his dad developed over the years, but there is a chance that John will receive less than what his inventory and other assets are worth. Firms that can assist John in closing his store abound (tread lightly with these).

Without a doubt, ‘thinking outside the box’ has made some managers wealthy--even great--and has led others out from the pressures of managing a store in a difficult environment. It could be time for John to take a deep breath and change lanes.

Mr. Jan Brassem

MainBrace Partners

Recognized as a skilled and successful global marketing and M&A leader with 20+ years of C-level experience in the luxury consumer products market.