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Baby Boomers
Jul 24, 2002 11:30 AM
By Martin Rapaport
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With all eyes on the rapidly declining and highly volatile stock markets, it is hard to focus attention on the demographics of diamond demand and long-term strategic thinking. There is no getting away from the fact that the purchase of luxury products in general — and jewelry in particular — is highly sensitive to consumers’ perception of their wealth. The wealth effect has always played an important role in encouraging the development of diamond jewelry demand. Naturally, the wealth effect works in both directions. Declining stock markets create a negative wealth effect. There is legitimate concern in the diamond industry about the impact this may have on diamond demand as we move towards the holiday season.
While short-term events and their impact on the psychological mindset of diamond consumers are important, long-term demographic factors may play a more vital role in defining diamond demand and may have a greater influence on demand than the more obvious short-term gyrations of the equity markets. Diamond demand is fundamentally based on the desire of consumers to give and receive a gift. In the mind of a consumer, the gift of diamond jewelry is much more than a mere financial transaction. A balanced understanding of diamond demand must consider the long-term fundamentals driving consumer demand.
Consumers might buy more or less expensive diamond jewelry based on how wealthy they feel they are today, but most do not buy diamonds merely because they feel temporarily rich. Why, when and where people buy diamonds has a lot to do with who they are, how old they are, the occasions they wish to celebrate, and a host of other demographic factors. The role of the jewelry industry and jewelry retailers is to optimize the level of demand that exists in any particular market scenario. While it is easier to sell in times of prosperity, we must recognize that the fundamental forces driving diamond demand are not based on the Dow Jones Index. Women want diamonds under all market conditions, and our job is to help them get diamonds irrespective of the economic climate.
Boomers
The U.S. baby boom started about 55 years ago when soldiers returning from World War II got married, settled down and had babies. A significant increase in the U.S. population took place between the years 1946 to 1964. Today, about 38 percent of the adult U.S. population is between the ages of 38 to 54.
The Baby Boomers are important for many reasons. Their numbers as a percentage of the population has always ensured their strong impact on the social norms and economy of the United States. We would not have had a sixties generation and the resultant period of social change had it not been for the fact that a high percentage of the population was in their youth and sought to change the norms of U.S. society. The Baby Boomers also have had a strong impact on the U.S. economy, fueling everything from housing booms to exceptional demand for consumer products. Anyone seeking to understand U.S. cosumer demand must consider the continuing impact of the Baby Boomers on the economy.
The fact that the Baby Boomers are now in their forties has important ramifications for the diamond industry. The 35 to 44 and 45 to 54 age groups are very important because these are the peak years of consumer affluence and jewelry expenditure. People in their late forties and early fifties have more money to spend than any other age group. The children are out of the house and most are out of college. Income levels are peaking as expenses are falling, resulting in very high levels of disposable income. The net result is that they have more money than any other age group to spend on themselves and each other. It is no coincidence that consumers in the 45 to 54 age group spend more money on diamond jewelry than any other age group and that they buy more expensive pieces of jewelry.
Good News
The good news for the jewelry industry and the U.S. economy is that the 45 to 54 age group will grow steadily over the next ten years as the Baby Boomer population ages. We are going to have a growing population of potential diamond jewelry consumers — customers who are at their peak years of money-earning power and who have the disposable income available for jewelry purchases. These are consumers who are predisposed, socially and economically, to buy diamond jewelry if, and only if, we are predisposed to sell to them.
It is important to recognize that the Baby Boomers are not necessarily rich. They are people at all levels of income who are entering the relatively comfortable years of their lives. Years when they may wish to celebrate the durability of their marriage, their success in life and their maturity. Many realize that this is their last chance to buy jewelry before they settle in and prepare for retirement. The notion of jewelry as a keeper of memories and a celebration of life’s past accomplishments becomes increasingly attractive as the years advance.
The value of diamond jewelry to many of these consumers is not reflected in the cost of the jewelry — or whether or not they got a good deal — but rather in the symbolism of the gift and its potential to commemorate. While the mature consumer does not want to buy a flimsy or inexpensive piece of jewelry, many do not want to spend a fortune either. They want something that can reflect the meaningfulness of their life together and their life experiences. The jewelry must be relatively substantial and it must be affordable.
Now, many in the diamond industry are captivated by the demand for engagement rings and the bridal category of jewelry products. This, is of course, a most important sector of diamond demand and it also expected to grow strongly in the years ahead. The notion that diamonds are the ultimate gift of commitment for a young couple is extremely well accepted. Some 80 percent of brides receive a diamond engagement ring and will continue to do so. While we must never take any existing business for granted, and we should continue to develop bridal demand, one gets the sense that too many of us are crowding into the bridal category and ignoring other opportunities for growing diamond demand in other areas. Why are there no other areas of diamond jewelry demand as strong as the bridal sector?
The challenge for the diamond industry is to move on and create demand for new diamond jewelry product categories. Bridal is good, but we already have it. What about the Baby Boomers? Are we not capable of developing new marketing programs and new product categories that will position diamond jewelry as a key element in their gift-giving life cycle? Demographics can point the way and research can identify the opportunities, but it is up to us — the people in the diamond and jewelry industry — to take advantage of the opportunities that are given to us.
The lesson to be learned from the Baby Boomer demographic is rather simple. The consumers are there. The money is there. The predisposition to give meaningful gifts is there. Where are we?
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Tags:
Consumers, Economy, Jewelry, Luxury Products, United States
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