A smiling host sits with a guest — the designer and face of a brand — discussing a line of jewelry. They talk about the exotic locale where the gemstone was mined. They discuss the intricacies of the workmanship, as the piece’s engravings are magnified to fill the entire television screen. The price is always easily visible on screen and, whenever an item gets sold, the number of still-available pieces remaining in the inventory flashes.
Welcome to the world of television shopping, where the small screen becomes a store window and everything is not only attractively presented, but also available 24 hours a day, seven days a week. The programs stream online, in case they were aired at an inconvenient time, or in case a shopper wants to go back and have another look. The hosts are expert salespeople, who have two to eight minutes to convince viewers to purchase featured items, using a full multimedia presentation. It’s little wonder that, with all the selling tools at their disposal, television shopping channels have turned into a multibillion-dollar industry.
Overall, the jewelry shopping channels have survived the worldwide recession better than brick-and-mortar jewelry retailers — recording annual single-digit sales increases, but still, increases. There was, however, one exception. Despite its 37 million viewers and its $162 million in revenues for the fiscal year that ended on June 30, 2009, Gems TV announced in March 2010 that it was closing its U.S. operation and in April filed for Chapter 11 bankruptcy. The company blamed the economy for its most-recent 31 percent annual sales decline. Gems TV Holding, the bankrupt company’s parent company, quickly bought up a $60 million stake in its competitor, Jewelry TV (JTV). And Lux TV, a new station that plans to launch in October 2010 and focus on a younger audience, will broadcast from studios purchased from Gems TV. Both facts are evidence that investors believe the potential payoff in home shopping for jewelry remains huge.
Dollars and Reach
QVC and HSN, originally the Home Shopping Network, together “make $9.5 billion total,” says Christopher Ellis, president and managing member at Consensus Advisors, a Boston-based investment banking firm that handled the Gems TV bankruptcy settlement. “Add half a billion for ShopNBC and Jewelry Television (JTV) made a little under $500 million. That’s over $10 billion total.” Overwhelmingly, QVC dominates the television shopping market, Ellis says, noting that “they’re three-quarters of the total.”
The public filings of QVC, HSN and ShopNBC confirm Ellis’ numbers. According to its most recent annual report, QVC’s earnings increased 1 percent in 2009 to $7.4 billion for the year, and its second-quarter revenues for 2010 increased 5 percent year-on-year to $1.8 billion. HSN net sales increased 3 percent to $2.0 billion in 2009, and ShopNBC reported $528 million net sales for fiscal 2009. Although JTV is a privately held company, public documents filed in relation to the Gems TV settlement indicate that JTV’s annual revenue peaked at $511 million in fiscal 2007, dropping to approximately $300 million in the 12 months that ended in January 2010.
How much of this money actually represents jewelry sales? “QVC does 25 percent to 30 percent of its business in jewelry,” says Ellis. “HSN is 15 percent to 20 percent and ShopNBC is 25 percent. These are all our estimates. So do the math. We’re fairly confident that jewelry television sales add up to about $2.5 billion to $3 billion a year. That sounds like a lot, but it’s just a small percentage of total jewelry sales. Even though the numbers look big, they’re not proportionately big,” he says, noting that overall jewelry sales in the U.S. are somewhere between $52 billion and $60 billion a year.
A Growing Segment
What’s interesting, however, is that this television jewelry segment actually is growing at a time when many independent jewelry retailers are struggling. “I think jewelry television is a very significant business,” says Leonard Polivy, vice president of the retail division at Gordon Brothers Group, a Boston-based international advisory, operating and financial services company. “I think if you go back in time and ask, ‘Is the internet going to be significant?’ some people shook their heads and said, ‘You’ll never sell diamonds on the internet.’ Then you look at Blue Nile today. They do $350 million a year. Home shopping is not going away.”
What’s more, the dollars that television shopping channels are pulling in tell only part of the story. The other part is its potential. “QVC worldwide is in 160 million households,” says Kim Babjak, a home shopping television expert and retail product placement expert who has worked with QVC, HSN, Walmart and Target, among others. “The volume of what QVC can do is unbelievable. QVC’s viewership at any given time is upward of 12 million to 16 million households, and it has a new viewer — meaning someone who has never seen QVC before — every 12 to 15 seconds.”
Other networks have similarly staggering numbers. “We’re in 95 million households, and our active customer base, meaning people who have bought from us in the past 12 months, is around 5 million people,” says John Bosco, the senior vice president of jewelry merchandising at HSN. Moreover, he continues,“15 percent of that comes from jewelry, and we’re looking into high single-digit growth” in that area.
ShopNBC’s customer base is slightly smaller, but it is growing more rapidly and the percentage of sales represented by jewelry is higher. “ShopNBC reaches 76 million homes, so we cast a wide net,” says Scott Garozzo, director of jewelry and gems at the network. “In terms of dollars, our new customers were up 23.7 percent for the first quarter of 2010. In the same time period, our gross margin improved 10 percent. And that’s jewelry specific. In 2009, 55 percent of our sales came from jewelry and watches.”
Demographics
There is no question that home shopping channels offer a unique shopping experience, but the obvious question is: Who, exactly, is buying this stuff? Not surprisingly, it’s predominantly women. “QVC’s target customer is female, over 35, with a household income over $35,000 a year,” says Consensus’s Ellis. “JTV would say its audience is older, maybe 45 to 55, and over 65, and disproportionately childless, with income over $100,000 a year. She has no post-graduate education and she browses from work. HSN data is that 83 percent of its 5 million best customers are women and I imagine its ‘5 million best’ represent 95 of its revenue. They’re 30 to 50 years old, and have above-average incomes. But the overriding theme here is female.”
At HSN, one defining factor is how the customer relates to fashion. “Eighty-five percent of our jewelry customers are female, and jewelry follows the demographics of the network,” says Bosco. “She’s between 35 and 55 years old, with an average income of $65,000 a year. And she’s the type of woman who knows what she wants. She’s not a trendsetter, but follows the trends.”
ShopNBC is targeting a similar mainstream market. “The best way to sum it up is, our customer is anywhere from Middle America to Madison Avenue,” says Garozzo. “There is no one, specific, targeted market. We’re opening up to a number of folks and we’ve lowered price points — not too far, but it broadens our appeal. We’re catering to consumers who want lower price points. Their average income is over $75,000, and they have a very fashion-forward taste. The best evidence of that is when you return from jewelry trade shows and get something quick to air that’s right from the shows, and she buys it.”
Ellis agrees. “If you look at the targeted customer, and giants of jewelry television, none of them target men, or believe they’re selling to men,” he says. “The nature of jewelry sold on TV is generally inexpensive, generally color, generally not diamond, because the medium of TV to sell sparkly objects is greatly enhanced if the sparkly object isn’t clear. So color is easier to sell. Color as a jewelry category exists because of TV, actually.”
As an example of a color product that has made a successful transition to television, Ellis cites tanzanite, originally introduced by Tiffany’s. “People start buying the stone because they like the story of thestone — and its color. And it’s affordable,” he says.
Self-Purchasers
There is also an element of self-indulgence with purchases made in television shopping. “You see a lot of female self-purchase on TV,” says Todd Wolleman, president of Color Craft, the manufacturer of Richard Palermo, who has a line available on HSN. “You don’t see a family counsel on it. It’s something she does for herself, so it’s usually the more moderately priced merchandise. A $20,000 diamond — that’s the sort of thing that a woman would expect a man to buy for her. That lends itself to a discussion. This is easier.”
On the whole, the women shopping on television are doing well financially and the jewelry purchase is a reward to themselves. “Ninety-eight percent of these households are women purchasing for themselves, except in the fourth quarter, which is the gift-giving season,” says Babjak. “The self-purchasers are mostly Caucasian, 30 years to 65 years old, upper-middle-class, stay-at-home moms and professional women. They’re probably getting a better value on television than in a store, and they don’t have to get in a car and go to Walmart.”
Polivy agrees that self-purchasing is a big part of the television experience, and also sees affluent, adult professional women as an important part of the market. “We look at who is buying,” he says. “We know that most of the women buy the product as a gift for themselves. Their average income is in excess of $35,000 a year, and some are in excess of $100,000 a year, because a lot of the women who are frequenting these television retailers are buying while they’re at work, browsing online at the office. And they’re also repeat buyers. Most of them buy about ten times a year, so they’re loyal. The average ticket is not that high, maybe $65 to $100, and it depends on which channels or websites they’re going to. QVC is a different price point than Gems TV was, and than JTV is. QVC and HSN attract a more affluent customer.”
As the market penetration of home shopping increases, the fashion jewelry emphasis that dominated its early history is expanding. “Because we offer such great values and have enormous purchasing power in the marketplace, our focus is less on costume jewelry at this time,” says Tim Matthews, president and chief executive officer (CEO) of JTV. “In fact, many of our customers enjoy shopping with us because they can purchase fine jewelry for about the same price that many retailers offer costume jewelry.”
Additionally, says Matthews, “we recently opened a new category that focuses on certified diamonds for engagement jewelry. It’s predominately an internet business. Another substantial part of our business is the sale of loose gemstones. Jewelry Television is the largest retailer of loose gemstones in the country. Lastly, we have recently entered into the jewelry-making segment of the industry. Branded as Jewel School, JTV is working to become the largest and most authoritative retailer of all things related to jewelry making. We are very excited about this new category and plan on launching a new initiative in the very near future.”
Trending Higher
Capturing the more affluent customer — with more fine jewelry, higher-priced items, designer names — is expected to play a larger role in the continuing evolution of home shopping channels. “I’ve studied the affluent luxury consumer, and I’ve written about the television shopping phenomenon,” says Pam Danziger, president of Unity Marketing, a consumer insights company specializing in luxury markets. “Television has been able to overcome the deficiencies of online shopping because it’s more personable. And there’s no question about it. Television does appeal to a high-end consumer. People have a perception that’s it’s only for trailer trash, but that’s absolutely wrong. Maybe it started as a discount outlet, but many luxury brands are moving successfully into television shopping. QVC may not have a lot of diamonds, but the affluent market is spending more on semiprecious stones and faux stones. Diamonds are a commodity, but colored stones have more of a fashion appeal, and faux is just fun. On QVC, they have tanzanite, and it’s pretty and blue, and it’s only $99, and for luxury consumers, that is pocket change. So they’re buying it.”
While some channels are moving into new product areas, the newest channel — Lux TV — is going after a different customer, the younger buyer. Steven Zale, president of Zalemark Holding Company, Inc., a partner in the defunct Gems TV, and now a partner in Lux TV, says, “We plan to expand to 18- to 35-year-olds, with modern and trending shows, and very smart pricing.’
Zale, whose company worked closely with Gems TV’s core management, says the company’s format and merchandising had improved in its final quarter before the decision was made to shut down. “We felt the channel could have been expanded, with better brands and other categories, such as women’s shoes and handbags,” says Zale. “At Lux TV, we will probably go into gentlemen’s jewelry and watches as well, though we’ll launch with only women’s jewelry for the first year.”
Quality Assurance
In many ways, the shopping channels were able to capitalize on the recession in the jewelry industry and attract more first-time television buyers because they carried the affordable, lower-priced merchandise that the times called for. But in order to keep these customers coming back once the recession ends, the goods have to live up to customers’ quality expectations. “Ultimately, we want to deliver a product with exceptional quality, because it’s all about brand loyalty,” says ShopNBC’s Garozzo. “It’s about how she feels about the purchase after the sale. So we only work with the best the industry has to offer. It starts with the buying teams. That’s our first line of defense.”
In fact, at some networks, the idea that a product may not be perceived as high-end will be enough to keep it off the airwaves completely. “If a QVC buyer sees your product at Walmart, they’ll kick you off immediately,” says Babjak. “QVC has the most stringent quality assurance in the retail industry. If you can get your product in through QVC, you can get your product in anywhere. They want the best quality at the lowest price. And this shows in the volume they do. They can do this because as a vendor, you have to give them the best price.”
“QVC is the 1,000-pound gorilla,” says Wolleman, president of Color Craft. “They’re the biggest, and they have burnished a real fine image, and it’s very challenging doing business with them due to their high standards.” It’s a “high-wire act,” he says, to get your product accepted by the show.
Product quality is a universal theme — and a priority — among shopping channels. “We systematically review every product we sell for quality issues, pruning inferior goods from our lineup,” says JTV’s Matthews. “In doing this, we are especially focused on products that have unusual return rates — indicating customer dissatisfaction — and we ask ourselves, ‘Why is this product not being accepted?’ We are listening carefully to our customers in this regard, and trying harder to meet their quality expectations.”
Even with all the quality-assurance standards in place, however, returns are an expected part of any business where you buy a product you can’t hold or touch. Most of the networks cite return rates of about 20 percent on average across the board. But Polivy suggests the actual return rates may approach 35 percent. “We don’t know the reason for the returns, but we think it’s true for every channel,” he says. “We know the typical customer is buying ten times a year, and at the high end of that, some of them are buying 20 to 35 times a year.” But that return rate means that someone who made 30 purchases probably returned ten items so really only bought 20 times. “We have no way of knowing that for sure,” says Polivy.
Convergence of Technology
Another critical element in this category of retail is the ability of television stations to use the internet and mobile platforms to enhance their sales pitches, make them available 24-7, and take the shopping experience away from the television set and move it onto a laptop or smart-phone screen.
“Part of what the television channels are doing is following up on the heels of the internet,” saysPaco Underhill, CEO and president of Envirosell, a consulting firm. Underhill’s most recent book is titled What Women Want. “Historically, the internet has only really sold luxury goods in the past two years. But if you start talking about being able to sell more upscale products, the futures are interrelated. We’re calling it convergence. It’s the ability of customers to use smart phones. So it’s not just the idea of someone shopping at home on television or on his or her computer. Now they can use their phones. I can be looking at QVC while I’m in Macy’s.”
The interrelationship of television, internet and smart phones is something that the networks understand intimately. “The typical show for a new product will involve a beautifully made-up and scripted host,” says Consensus’s Ellis. It’s like having your best salesperson seal the deal, Ellis goes on to say, as opposed to a store like Zales, “where you have 1,500 store managers, but only one of those guys is the best salesman.” And, he points out, the hosts are “doing a perfect sales job and they’re refreshing it and fine-tuning it and people see it happening.” And that, Ellis says, brings you “straight into the convergence of internet and cable, where people whose interests are piqued by the show will go on the internet and click and watch the same pitch on streaming video and they buy by clicking instead of picking the phone up. And when our cable boxes and browsers all become one, they feed each other. The television channels drive tremendous traffic to online shopping.”
How much traffic? According to the numbers, online shopping can be a significant amount of a TV station’s revenue. “Thirty percent of our HSN business comes from the internet,” says Bosco. “There’s a crossover, too. There are customers who watch the show and then go online and shop, and there are customers who shop the other way.”
Online sales numbers are even higher at other networks. ShopNBC’s Garozzo cites an internet penetration rate — the percent of orders captured from its website — of 40 percent, “which is an industry high. What’s important is that the customer shops differently now than they have in the past. They want to shop where they want to shop, and when they want to shop. They can watch us, and if they want to go online and make a purchase and be done, that’s great. In fact, we very much like when we have a multichannel consumer.”
Other stations are exploring the benefits of smart-phone technology. “JTV.com represents over 24 percent of our total sales and much of the category breakdown mirrors our broadcast sales,” says Matthews. “We have also embarked upon a very comprehensive and exciting mobile initiative that will provide our customers with a rich experience on their smart-phone devices. Within the next few months, you will see Jewelry Television available on all mobile devices, including iPhone and the Android operating systems.”
New technology is an integral part of Lux TV’s strategy. “The internet will be a big part of our focus, and we’ll use the television venue to drive traffic to our site,” says Zale. “We’re developing specific code for shopluxtv.com, along with live video streaming and automated shipping. We’ll be doing banner ads on other high-traffic sites, and using keywords and cross-promotion with brands. And we’ll reach out to blogs.”
Romancing the Stones
All the available technological advances are still used in the service of one primary objective, however, and that is selling jewelry. A critical part of the televised sales pitch is creating a story around the product that will draw the customer into the romance surrounding an item or a line. For a primarily female audience, whose main impetus for shopping is self-indulgence, a rich narrative told over two to eight minutes of airtime can be a huge motivation to buy.
“It’s all about product with a story and someone to tell that story,” says HSN’s Bosco. “At a brick-and-mortar store, they may or may not know the story behind the piece. With us, we try and bring someone who’s hands-on and who has touched that product. We’re telling a story to the customer and giving her a reason to buy.” It’s also, says Bosco, about taking the intimidation factor away for a woman who might not walk into a fine jewelry store because she finds it daunting. Another factor he stresses is the idea “of not waiting for someone else to buy you jewelry. We have sold some solitaires, but online only. I think solitaires cater to men, and our focus is selling to self-purchasing women.”
At ShopNBC, says Garozzo, “Our customer loves to hear the story behind the product. She wants something that’s unique, and she wants to be educated and engaged. And we can educate and romance the products and brands that we offer. It starts with an innovative concept that’s highly demonstrative on air.”
The Thrill of the Deal
According to Polivy, closing a sale is as much about thrill as it is about romance and indulgence. “Do I think shoppers think they’re getting heirloom jewelry on television?” he asks. “I hope that they don’t think when they’re buying something for $165 that they’re getting something they’ll have forever. I think they think they’re getting fashion. But they didn’t walk into a jewelry store to buy that piece of jewelry, because that item is not in a lot of jewelry stores. Other than going into a Pandora store and buying a silver charm, you’re not going to find a lot of under-$250 jewelry. Maybe you go to a JCPenney or a Walmart and find something. But I think the adrenaline is different when you hit ‘send.’ There’s nothing exciting about going into a JCPenney. This is more anonymous buying, too. We all know anonymous shoppers. They get an adrenaline rush from buying that might be missing in some other part of their life, and the home shopping networks won’t tell you about this, but the customers’ MasterCard bills will. They’ll feel fine buying ten times from HSN, but they would never walk into the same store ten times.”
Article from the Rapaport Magazine - October 2010. To subscribe click here.