Consumer appetite for jewellery is at an all time high and it is forecast to increase year on year by a compound of 5-6%, according to Forbes. However beneath those impressive growth figures a number of seismic shifts are occurring, in both consumer behaviour and the industry itself, which look set to transform the sector by the end of the decade. Those that will thrive off these challenges are the players that are agile enough to adapt to and pre-empt these changes. Predicting the future is notoriously difficult but in the case of fine jewellery we do have an interesting precursor, the apparel and fashion industry. Many commentators have asserted that over the past three decades the fashion industry has acted as a reliable indicator for the trends that will later emerge within the adjacent and often closely related jewellery sector. The first clear example we can see from this comparison is the growth of globalised trade and international brands. Up until the 1980s the fashion industry was largely controlled by national players in each major economy. Today however ‘borderless’ global labels dominate from North American to Europe and the Far East. We have seen some early indications that the jewellery industry is starting to head in that direction.
As recently as 2014 the 10 biggest jewellery groups combined controlled just 12% of the global market and only two, Tiffany & Co and Cartier, found their way into Interbrand’s top 100 global brand ranking. De Beers only opened their first retail outlet in China, the world’s second largest and fastest growing economy, as recently as 2011. The firm inference is that this will begin to change rapidly over the coming years, with brands such as Swarovski, Harry Winston and De Beers often tipped to be front runners. Many industry experts foresee a raft of M&A (merger and acquisition) activity swallowing up significant numbers of local and regional brands into larger conglomerates. Indeed MacKinsey & Company “project that the ten largest jewellery houses will double their market share by 2020, primarily by acquiring local players.” The logical run through from this will be the entry of private-equity players in significant numbers, as was the case in the apparel industry in the 1990s and 2000s. MacKinsey also point to the fact that in 2014 the fashion industry is about ten times the size of the jewellery sector in terms of annual sales but the average M&A deal value in fashion was around $12 billion versus $700 million for jewellery, a figure some twenty times lower. Interestingly the average deal value in jewellery has risen by a compound annual rate of 9% between 1997 and 2012, contrasting to around 5% for fashion.
Within the watch market branded items already account for over 60% of sales, whereas branded jewellery only constitutes 20% of its sector but this has more than doubled over the past decade and some experts believe it could reach 50% by the end of the decade. This can be explained by a number of factors, not least the desire within the burgeoning emerging markets in Asia for branded goods that are viewed as aspiration investments that provide a visual demonstration of their new found wealth. An interesting point of cross over between the fashion and jewellery industries is the fact that, in contrast to the past, much of the future growth within jewellery may actually come from players that were traditionally solely fashion retailers, such as Dior and Louis Vuitton, who are now eagerly advertising their jewellery collections. Within the realm of ecommerce, online fashion sales have grown from roughly 1% of the market in 2003 to almost 20% in 2015. Estimates of jewellery sales in 2015 by Forbes.com suggested only around 5% were online but they predicted a doubling of that figure to more than 10% by 2020. When variations across the market are fully considered, it is clear that the mid market will see the fastest growth in internet business and will likely cross 15% by the end of the decade.
One of the key advantages of a developed online presence will be its value in conveying information, building brand awareness and identity and developing customer relationships. A recent survey conducted by MacKinsey suggested that as many as 70% of luxury customers engage in online research prior to making a purchase face to face and as many as 50% use social media as a source of guidance. The fashion industry has also shortened the time to market for new products and the time it takes for those products to be delivered to their customers. This also serves to keep a brand’s offering fresh, with some bringing out new ranges as frequently as once a month. This started within the affordable clothing brands in the 1990s and these “flash programmes” rapidly grew across the spectrum in the years that followed. Figures from the United Kingdom suggest that items sold in this way now account for 25% of total fashion sales and it they are becoming increasingly commonplace in emerging markets. In China ‘fast fashion’ only accounts for around 5% of the market at present but the number of Western brands opening in the country is expanding by 60% per year, indicating the clear direction of travel.
There are conflicting views on how far this trend will translate into the jewellery sector although it clearly has already penetrated the fashion jewellery market, with brands such as the German Beeline adding hundreds of new products every month in an industry where two or three collections per year was the norm. The digital world is clearly having a profound effect on the speed at which consumer preferences are mapped and translated into products. Many retail brands across all sectors use algorithms to track social media comments that may indicate future consumer trends and tastes as they emerge real time. Some stores also now have a fast feedback system that enables employees at the point of sale to enter customer comments into the system, enabling them to map the collective hearsay that can give a brand a slight edge over its competitors. It is clear that the world around us is changing apace and the jewellery industry must and will be sculpted by this. It is the businesses that are the most dynamic, forward thinking, visionary and adaptable that will reap the rewards of this brave new world.
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