On Consolidation, Growth & Bank Credit in U.S. Jewelry Industry

01/07/2016 14:40

Rapaport News' Avi Krawitz interviewed recently appointed president of the Jewelers Board of Trade (JBT) Tony Capuano, who discussed the health of the U.S. jewelry market, bank lending, Millennials and the JBT itself. Capuano noted the continuing trend toward consolidation and declining numbers of retailers in the U.S. jewelry market. "The industry continues to contract and consolidate. There are still 29,000 jewelry companies across the U.S., of which about 21,000 are retailers. Our data shows 700 retailers left the industry in the 12 months to the end of the first quarter. There’s no reason to expect the pattern will change materially in the next few years. The baby boomer generation of jewelers is getting older and doesn’t have a succession plan. They just close their doors, liquidate inventory and go out of business. Bankruptcies are significantly down compared with 10 years ago. So it’s more a question of people retiring and winding down their businesses." He also notes the significant role played by mergers. "Those acquired companies have not been replaced by new entrants. I think manufacturing operations are not being established in the U.S. because of cost considerations. That’s been the trend for many years."

As concerns growth, Capuano notes that "diamond jewelry sales have grown at the expense of other types of jewelry. The dollar value of purchases of non-diamond jewelry is much lower relative to the price of diamonds. I think Millennials are spending money on diamonds when they do decide to marry. JBT doesn’t gather price statistics but I’d say the average price of engagement rings has gone up significantly over the past decade." Another challenge to growth is the steadily declining number of bank lenders to the industry, along with stricter conditions imposed on lending practices. Needed liquidity remains an issue because lenders, "always fear the inventory may not be there or the value of inventory is not what banks are led to believe," though they are developing more ways to monitor inventory. 

In general, transparency remains the key issue. "Banks are looking for transparency and communication. Jewelry companies that can offer a higher level of accounting quality, with audited financial statements, have a better chance of securing credit. Banks also want easy-to-understand ownership charts. The simpler they are, the easier it is for banks to understand the company. When things are very complicated the banks might feel they’re missing something. In the current environment, transparency and KYC are critical to securing financing in all industries. Diamonds and precious metals financing is considered higher risk as they’re portable products with concentrated value. It’s very important that banks do their due diligence, which is true in all industries but particularly for diamonds."