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Shutting Down Confidence
Editorial
Oct 11, 2013 5:00 AM
By Avi Krawitz
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RAPAPORT... The U.S. government shutdown that began on October 1 could not have come at a worse time for retailers. While the impasse continues, the all-important Thanksgiving weekend is fast approaching – a time when retailers could do with every sense of stability at their disposal. Rather, with each passing day, retailers will need to work that much harder to counter the accompanying uncertainty in order to lure consumers to spend in their stores this holiday season.
Already, confidence has dropped. For the week that ended October 6, Gallup reported that confidence in the economy fell by its second largest margin since the 2008 Lehman Brothers crisis. Perhaps more significantly, the poll indicated that two-thirds of Americans now believe the economy is getting worse. Their outlook is low.
The shutdown has resulted from an impasse over the funding of the Affordable Care Act (Obamacare). Simultaneously, heated negotiations are underway to raise the debt ceiling before the October 17 deadline, a debate that is now being revisited for the third time in the past two to three years.
Granted, while Gallup noted that previous so-called fiscal cliff debates have also been accompanied by a slump in confidence, followed by a subsequent rise when a solution was found, this time may be different given the additional healthcare deadlock.
Analysts have responded sternly with a string of warnings about the potential negative impact of the shutdown. Standards & Poor’s estimated that the U.S. gross domestic product (GDP) will decrease by 0.3 percent each week the shutdown continues. Similarly, Bank of America lowered its third and fourth quarter GDP forecasts on the expectation that a prolonged shutdown would result in decreased government spending and significant spillovers into the private sector.
Investors appear cautious as well. The Dow Jones Industrial Average has declined so far in October, and is down 2.6 percent for the month to date as of press time.
The National Retail Federation (NRF) added that the shutdown has already adversely affected consumer spending and depressed consumer confidence. “For retailers – who represent the sector of the American economy most closely tied to consumer attitudes – these numbers are deeply disturbing,” said Matthew Shay, NRF’s president and CEO. “Moreover, since the very modest growth the U.S. economy has experienced following the 2008 recession has been attributed to the willingness of the American consumer to keep shopping, a lasting decline in consumer confidence is likely to translate into increased unemployment and slower growth in coming months.”
That’s not to say that it’s all “doom and gloom.” Retail has improved steadily in the past few years. In fact, the U.S. continues to be a bright spot for the global diamond and jewelry industry, with demand there compensating for weaknesses in other trading and consumer centers.
While the latest data has not been published – due to the shutdown – the U.S. has shown steady increases in both its diamond trade statistics and its jewelry store sales so far this year. Jewelry store sales have increased 10 percent year on year to $17.26 billion in the first seven months of 2013, outperforming most other retail categories. Part of the increase resulted from price increases implemented by jewelers, with the consumer price index (CPI) for jewelry up 3 percent in the first eight months of the year. But, the data encouragingly points to an increase in sales volume too.
Polished diamond imports and exports, meanwhile, are up by 12 percent and 13 percent respectively year on year through the seven months of published data. Net polished imports – the excess of imports over exports for the period, or the amount of polished absorbed by the country – rose 8 percent to $2.16 billion.
More importantly, anecdotal reports tell a similar story. Certainly, conversations within the trade and among U.S. jewelers, have pointed to rising confidence within the sector throughout the year. While demand in the growth markets of India and China has been cautious, it has been that old war horse, the U.S., which has upheld the market with its stable, albeit not booming, trade. As a result, expectations within the industry for the holiday season have increased the closer it gets.
But it’s a cautious dynamic. Diamond dealers who supply U.S. jewelers note that retailers are delaying their end-of-year inventory purchases more and more each year. That may be a good thing from the jewelers’ business point of view. It may be a sign that they are managing their inventory more carefully and being prudent by holding on to the right goods and not tying up their capital in dead inventory.
However, the wait is also a hedge against uncertainty. U.S. jewelers, who are well aware of the liquidity issues in the cutting centers, may sense a weakness in polished trading and hold off on buying until the absolute last minute, in case diamond prices drop. They may also be willing to wait out the government shutdown, should it have a lasting impact on the economy, and consumer confidence.
At press time on Thursday, House Republicans were readying to meet with President Obama to break the deadlock and it seemed that a deal may be reached in the coming days. However, whether or not a solution is found, jewelers will need to plan for the possibility of lingering uncertainty.
And they’ll have to bear in mind that the competition to win over customers is all the more fierce when consumer confidence declines. If anything, the shutdown and fiscal deadlock serves as a reminder for jewelers that they need to think outside the box to differentiate their product from their competitors.
Ultimately, the demand is there and consumers will surely be looking at diamond jewelry this holiday season, as they consistently have done in the past. After all, an estimated one-third of an average jeweler’s annual sales are conducted in November-December. But it will take the right merchandising to lure them in.
Pam Danziger, of Unity Marketing, stressed the point in a report published this week. She noted that specialty independent retailers have the tools, skills and attitudes to meet the challenges facing them if they market wisely, connect with customers and deliver a truly exceptional shopping experience in their store. “In today’s retailing market, success is not about the merchandise, but the merchandising, or how you sell it,” Danziger added.
That message may have grown in relevance in the past two weeks of the shutdown.
As a result, while the political wrangling in Washington resonates to consumers throughout the U.S., retailers are left to provide their own assurances for the market. At the end of the day, consumers are looking for someone to engage them and the job will be left to retailers – as it inevitably should. Whatever the political and economic circumstance come Thanksgiving, jewelers will need to go the extra mile this holiday season.
The writer can be contacted at avi@diamonds.net.
Follow Avi on Twitter: @AviKrawitz
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.
Copyright © 2013 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.
Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags:
Avi Krawitz, congress, diamonds, government shutdown, Jewelry, Obamacare, Rapaport
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