**OT**
August 5, 1999
Buyers of High-End Baubles
Stay Loyal to Independent Stores
By SARAH HALE and KEVIN HELLIKER
Staff Reporters of THE WALL STREET JOURNAL
TROY, Mich. -- For decades, Douglas Schubot's high-end jewelry store here
faced no competition from national jewelers.
Then came Tiffany & Co., and after that, Bailey, Banks & Biddle. Saks Fifth
Avenue also moved into the area and soon set about doubling the size of its
jewelry offering. Then last winter Cartier Inc. set up shop. All are in a mall
across the street from 82-year-old Jules R. Schubot Jewellers/Gemologists,
founded by Douglas's late father. "We're surrounded," says Mr. Schubot.
To any small retailer struggling in the shadows of invading national chains,
his plight would look familiar. What isn't familiar, though, is his response.
Surveying a landscape teeming with new competitors, he shrugs.
"Schubot is here," he says, raising his hand above his head. "And places like
Tiffany and the department stores are here." His hand falls to the level of his
waist.
Glittering Prize
War looms over the high-end-jewelry market for the usual reason: expansion
of chains. But the usual dread among independents such as Schubot is failing
to develop. Are they naive? After all, in other retail segments -- hardware,
apparel, groceries, drugs, toys, general merchandise -- the lowly independent
has failed to thwart, slow or in many cases survive the invasion of chains.
Is high-end jewelry different? Its independent retailers believe so, and their
collective dominance in this era of chains may be evidence unto itself. In how
many other retailing segments do independents still control nearly 80% of the
market? "We're like the last of the Mohicans," Mr. Schubot says.
But here comes the challenge. Tiffany, having doubled its stores in five years
to 36, plans to double them again. Cartier is adding stores briskly. Bailey,
Banks & Biddle, the upscale sister to the Zales chain (both are owned by Zale
Corp.), plans to double in size to 250 stores. A 22-store Florida chain called
Mayor's Jewelers, owned by Jan Bell Marketing, is plotting to go national by
opening as many as 10 new stores a year.
And now Neiman Marcus department-store chain is launching a new jewelry
concept called The Galleries of Neiman Marcus, with three stores already
opened. "We think there is a great niche for a national high-end jeweler," says
Stephen Magner, the Neiman Marcus vice president in charge of the new
chain.
Older Shoppers
Of course, jewelry is hot. Like sales of other luxury items -- furs, expensive
cars and vacations -- jewelry sales are growing at double-digit rates, thanks to
the booming economy and powerful stock market. Of the $40 billion a year
Americans spend on jewelry, a large but unspecifiable percentage is sold at
high-end stores -- those whose highest-priced items cost at least $5,000, and
sometimes millions.
But here's the real reason for mounting competition: The future looks even
brighter. Most retailers market to the young. But jewelry sells most heavily to
people between 55 and 64, and guess which demographic group is marching
headlong into that category? Even now, the baby boomers are discovering that
there's nothing like a diamond to compensate for slowly fading physical
beauty. Consumers between 45 and 54 spend twice as much on jewelry as
those under 25.
Adding shine to the picture is that baby-boomer women aren't waiting for
men to take the jewelry-buying initiative. "It just makes me feel good," says
Lyn Bivins, owner of a Chicago marketing consulting firm called Lyn Bivins
Perspectives. At 50, she spends about 50% more a year on jewelry than she
did at 45. About four times a year, she drops $2,000 or so on maintenance
items: earrings, plus cuff links for her husband.
And that is on top of her husband's gifts, such as the $6,000 black pearls for
her recent birthday and the $20,000 diamond ring for their 20th wedding
anniversary.
Not Very Price-Sensitive
The outcome of the battle for such customers isn't predictable. But it's safe to
say that independents will stand a better-than-usual chance. Take price.
Usually, economies of scale allow chains to sell for less, and that is how they
steal market share. But price shopping isn't a big factor in high-end jewelry
because the product is supposed to be unique; Tiffany, for instance, designs
most of its own jewelry.
When jewelry customers do think about price, their impression often is that
chains charge more. "There's a sense I'm getting a better value at independent
stores," Ms. Bivins says. "I distrust the markups at places like Tiffany's."
Tiffany denies that its famous blue box carries with it any extra cost. "There
is not and never should be a premium associated with the blue box," says
Tiffany Chief Executive Michael Kowalski.
In other retail segments, independents often find themselves at a marketing
disadvantage. Big chains can afford national advertising, and their
expenditures never stop. By now, chains such as Wal-Mart and Tiffany are
cultural icons famous for being famous. When entering a new market, they
hardly need to advertise, because their arrival is treated as news.
But in their local markets, many independents are just as famous as Tiffany,
thanks to shrewd marketing. In Phoenix, Al Molina has sat on 17 civic boards
and gains news coverage of himself an average of once a month in the Arizona
Republic, such as when he brought to Phoenix the world's 12th-largest
diamond. "You establish an aggressive advertising budget and become a
personality," he says.
It also helps that many independents are decades old. Tom Tivol is the third
generation of his family to appear in advertisements for Tivol, an 89-year-old
jewelry store in Kansas City, Mo. "It would be very difficult for a New York
player to hurt us," says Mr. Tivol, 50. Indeed, Tiffany in 1985 opened a store
near Tivol on Kansas City's Country Club Plaza, and in a very rare failure
closed it and left town about a year later.
Tiffany's Mr. Kowalski says that the company opened too large a store in
Kansas City, but that since then, executives have "learned how to present
ourselves effectively."
In fact, Tiffany is on a roll. Even while doubling in size the past five years, it
has maintained double-digit growth in stores open more than a year. Its annual
profit growth has exceeded 20% for five years, and in the quarter ended April
30, its profit was up 45% from a year before. Tiffany stock has been on the
rise for years, doubling already in 1999. The company intends to keep
expanding at a rate of three to five stores a year.
But some high-end independents -- assuming a snobby attitude toward Tiffany
-- dismiss its success as deriving from a market below theirs. After all, more
than 25% of Tiffany sales comes from nonjewelry items, such as $25 wine
glasses -- inexpensive gifts that come in expensive-looking boxes. The average
transaction at Tiffany is less than $275. It's more than $20,000 at Molina Fine
Jewelry in Phoenix, according to Mr. Molina. "We're not really competing
with Tiffany," says Mr. Molina, whose store is located within a few miles of
Tiffany.
Tiffany makes no apology for selling $950 as well as $950,000 engagement
rings. "We've always had a very democratic vision of what some people might
call luxury retailing," Mr. Kowalski says.
Question of Service
As in other retail segments, independent jewelers claim to have the edge in
service. Mr. Molina offers visitors to his store a warm face towel, a cold
drink and the opportunity to slip a million-dollar ring on their finger, just for
the thrill of it. Mr. Schubot's son, Brian, recently flew across the country to
show an item to a customer. And all independents say they frequently
purchase items with a particular customer in mind.
"Sydell will call me and say, 'Lois, I have something you'd love,' " says Lois
Shaevsky, a 60-year-old Detroit-area civic leader, referring to the senior Mr.
Schubot's wife, Sydell Schubot. "And Sydell knows what would look best on
me."
Chain officials say their service is just as fine. "We offer a level of product
expertise and customer-service ability that can compete objectively with
anyone in the world," says Tiffany's Mr. Kowalski.
It may turn out that the deciding issue is trust. Few buyers know how to
appraise a diamond, and since each diamond is unique, price comparisons
aren't possible. "In the upper end, confidence in the person you're buying
from is key," says James Porte, president of the Jewelry Marketing Institute.
"That's more important than buying something at a good price and then
finding out it's not what you thought you paid for."
Whose assessments are more credible, a chain's or an independent's?
Consider the results of a poll of two Chicago executives: Sue Wilson, who says
"you can never have too much" jewelry, and Arlene Sheskin, who says she
craves jewelry the way other people crave cookies.
Is it Real?
Ms. Wilson makes her purchases at an independent called Browning & Sons
Jewelers because the proprietor "will tell us what it would cost [elsewhere]
and what she'll offer. It's always a good deal."
But Ms. Sheskin purchases only at Neiman or Tiffany because she doesn't trust
the quality at independents, thinking, "How do I know this is real?"
Part of the idea behind Neiman Marcus's initiative is that its name already
inspires trust. "Many of our customers at The Galleries of Neiman Marcus
have been our apparel customers, and they like what we do," says Mr.
Magner.
It isn't likely to get nasty, this battle. Insults aren't likely to fly in a market
this rarefied, and in fact many independents are quick to praise the likes of
Tiffany as "too exquisite" to be called a chain.
Still, some tension is developing. A Schubot customer visiting the new Cartier
store across the street asked a Cartier salesperson for directions to Schubot,
just to see what the response would be. "The salesperson said he'd never heard
of Schubot," says Mr. Schubot, visibly annoyed. Making it all the more
irritating is that his store carries Cartier watches. After Tiffany opened its
nearby store a few years ago, Mr. Schubot stopped carrying its giftware.
While declining to disclose financial results, Mr. Schubot says his sales are
growing as briskly as ever, despite his many new competitors. But the
69-year-old merchant admits to some concerns. Noting that for years he and
his wife attended social events almost nightly to build up the business, he
worries that Brian, his 36-year-old son and heir apparent, doesn't do enough
of that.
Brian, aware that almost 13% of jewelry sales these days are taking place on
home-shopping networks or the Internet, is focusing his efforts elsewhere:
He's busily launching a Web site to feature photos of the store and product, as
well as online purchasing options. |
