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Diamonds Driving Growth as Consolidation Continues
The Five Minute Interview: Tony Capuano
Jun 30, 2016 9:55 AM
By Avi Krawitz
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RAPAPORT... The U.S. jewelry market continues to consolidate but there are also areas of growth, according to Tony Capuano, who on April 1 became president of the Jewelers Board of Trade (JBT). In his first interview with Rapaport News since taking on the role, Capuano discusses jewelry market conditions, the opportunities they present the industry and JBT, as well as the attitude of the banking sector where he spent a career lending to the jewelry trade.
Rapaport News: How is the U.S. jewelry market?
Capuano (pictured, courtesy JBT): 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. We need to train the next generation of jewelers. While there are organizations working to educate young people about diamonds and jewelry, bringing them in has been a challenge.
Rapaport News: What else is influencing consolidation?
Capuano: Bankruptcies are significantly down compared with 10 years ago. So it’s more a question of people retiring and winding down their businesses. The industry is also consolidating because of mergers, both at the retail level and among manufacturers. Those acquired companies have not been replaced by new entrants.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.
Rapaport News: Has that left us with a generation gap where you have Baby Boomer jewelers selling to Millennial consumers?
Capuano: Yes, and their buying philosophies are different. I think retailers are starting to understand Millennials better – using technology, social media, online reviewing of inventory, to make themselves more congruent with Millennials and how they buy. It’s a challenge for a Baby Boomer retailer to really understand that. They’re going to have to adapt in order to succeed in a very competitive landscape.
Rapaport News: How do you explain the conflicting reports whereby the U.S. is considered the strongest growth market – at least for diamonds – but consolidation is taking place?
Capuano: Growth has come but from a lower base. Our data supports the fact 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.
Based on our sampling, the industry is moving along steadily. Rating upgrades we announced last year exceeded downgrades by about 10 percent. This year, the gap has narrowed to about 2 percent, implying a bit of a slowdown in some of the metrics that we gather.
Rapaport News: Is there a similar decline in bank credit to the jewelry industry?
Capuano: The number of banks extending credit to the jewelry industry has contracted over the past 10 to 15 years. As the industry contracted there are naturally fewer lending opportunities. A couple of smaller banks have entered the market in very limited ways, providing financing on a one-off basis. I hope that continues because the industry needs liquidity.
Rapaport News: Why are the banks skeptical about lending to the diamond and jewelry industries?
Capuano: There’s always a fear the inventory may not be there or the value of inventory is not what banks are led to believe. That means your principal collateral is accounts receivables, and the reliance on inventory is declining. Banks have developed ways of checking inventory – for instance, getting more frequent reporting or conducting, inventory appraisals in order to get comfortable with making an advance against inventory.
Rapaport News: Banks need to be compliant with regulations and are insisting on greater compliance from their clients through programs such as know-your-customer (KYC). Does that pose a problem for jewelers?
Capuano: 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.
Rapaport News: What is the mandate of JBT?
Capuano: JBT was formed in 1884 as a not for profit organization providing credit information and ratings, collection services, and later marketing services to the jewelry industry. We provide payment ratings on a large percentage of jewelry companies in the U.S. and list approximately 29,000 companies in the JBT red book – a directory of wholesalers, manufacturers and retailers.
We have between 2,100 and 2,200 active members providing their trade data which we collect and aggregate to come up with a payment rating on companies. Our traditional strength has been in our wholesale and manufacturer members as they’re the ones selling to the retail community. They’re the ones interested in the rating of a retailer so they can be sure their customer has the ability to pay.
We also provide collection services on behalf of wholesalers. Our third mandate is marketing. We provide a broad range of lists such as of jewelers with the top rating in a particular state. We also marry the census data with ours to come up with more customized lists.
Rapaport News: What are your goals for JBT in your new position?
Capuano: We want to further penetrate our market - let people know what JBT does and the value we offer in terms of collections and our marketing reach.
In the long term, we’d like to develop more services so more retailers become full-fledged members or buy products from us. We have several products specifically for retailers. So, penetrating the retailer market is a priority because it presents an opportunity for us to increase our revenue and broaden our products and services.
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Tags:
Avi Krawitz, diamonds, jbt, jewelers board of trade, Jewelry, Rapaport
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