This is where the jewellery industry should be heading! Check out this report on the $300,000 watch that doesn’t tell the time! The string of comments also makes great reading! While I laughed at the whole thing, I was struck by the fact that a watchmaker had taken away the basic utility that makes us call the thing a watch and still sold it at this astronomical price. What the watchmaker did was to create a piece of jewellery with no utility value (unless you think a $300K gadget that tells you whether it is day or night does have utility value!). The term ‘watch’ in this case, is merely a categorization of the piece of jewellery – the way we distinguish pendants, rings, bracelets etc.
I strongly recommend that jewellery companies start hiring marketing crew from the big brand watch companies. Those guys seem to know what the game is all about.
It’s interesting that luxury brand LVMH has just agreed to acquire Hublot, the Swiss watchmaker for something like $300 million at a time when everyone else is nervously looking at the tanking US market and wondering how much of the rest of the world it will drag down with it. LVMH’s statement exudes confidence. It thinks Hublot, which has most of its sales in Europe, can withstand a downturn in financial markets and offer potential growth in Asia.
What bothers me is that I don’t think LVMH would even have considered acquiring another jewellery brand. That’s because other than the bejewelled kind, watches have very little intrinsic value and sell purely on the perceived values the brand offers. The jewellery industry for the most part, is still stuck with the old concept of luxury lying in intrinsic value.
After all these years, most people in the jewellery industry don’t seem to have cottoned on to the fact that intrinsic value itself, is a perceived concept – an illusion if you will. And the perceptions or illusions that built up the concept of intrinsic value in traditional materials like gold and diamonds, are based on ideas that are literally thousands of years old. Anchored to intrinsic value, jewellery doesn’t have anything to offer a huge proportion of today’s luxury consumers.
These consumers dominate the demographics even in the emerging markets and jewellery might be missing the bus there as well. At this year’s Baselworld watch and jewellery show, some of the most prominent buyers were from Russia and the Middle East. They were weighed down with cash and they had eyes only for the big watch brands.
It appears that luxury as an entire category may be about to take a hit just like a lot of other goods and services. Up to now, conventional wisdom dictated that an almost sure-shot way of surviving the crunch in the US market was to trade up in the kind of diamonds and jewellery one dealt in. The high end, the buzz went, was not affected by the sub-prime mess. Indian diamond dealers and export production jewellery manufacturers have, as a result of this reasoning, all been busily trying to move their operations upmarket.
It might all be to no avail. This report suggests that because of their middle class roots, a majority of America’s wealthy are focussed on getting value for their money. They are going online to save money! According to the report, they spent $65 billion online – and saved a staggering $35 billion by having avoided brick-and-mortar establishments! The luxury goods and services they bought online ranged “from hiring a private jet to buying a Burberry raincoat or a music system from Bang & Olufsen”. But going online isn’t the end to one’s troubles. Tiffany and Blue Nile have been downgraded by Merrill Lynch due to the fact that it foresees reduced spending on big ticket items like jewellery.
On top of all this, here comes this report suggesting that luxury real estate in the US might finally be cracking. High or low, there doesn’t seem to be a safe end to run to for shelter.
There’s an interesting dynamic going on in the world gold and diamond markets. India and the US seem to be exchanging appetites! The Indians seem turned off by gold while the US and other markets are jumping with both feet into buying the yellow metal because of the fading US dollar and the high price of energy. And Indians are still enthusiastic diamond buyers while the US seems not to want sparklers!
The reason for this is that the traditional bond between investments and the country’s social and religious fabric has come undone. The traditional investment vehicle has been high-karat gold jewellery and elder family women – mothers and mothers-in-law – have usually made the purchase decision.
Given the high price of gold today, the decision to buy gold in India now also includes male family members and the metal is viewed more as a pure investment than as a socio-religious symbol. Most Indians think the price of gold today is too high and not sustainable in the long run. They don’t want to buy gold now. Most jewellery for social and religious occasions is now fabricated from gold that has been recycled from old family jewellery.
With sagging exports to the US, the Indian diamond industry is pinning much of its hopes on the domestic market while the US consumer, with the subprime crisis and an economy sliding into recession, doesn’t seem to have the stomach for diamonds.
This is a significant happening. A community of ‘tribals’ – some of the earliest indigenous Indian ethnic groups who have a special protected status under Indian law – has banned the gifting of gold at weddings.
In social terms, in a country that considers gold a sacred metal, the statement of the panch (five-member community council) calling the gifting of gold a ‘social evil’ is truly astonishing. The panch’s decision was rooted in solid common sense, however. As their official statement noted, the buying of gold (especially at today’s unbelievable prices) for social occasions like weddings and funerals has had the community’s poorest, a subprime category that no Indian banks will lend to, turn to money lenders who charge usurious interest rates. This has lead to almost permanent indebtedness in this group.
That the panch would rather have the money spent on such things as “children’s education and other developmental works,” is truly enlightened. It signals a fundamental change in the way even traditional Indian communities think. It could have far-reaching consequences on gold demand and prices.
Here’s something interesting. While the global diamond industry agrees that a great deal of its woes rest with the huge polished diamond inventories languishing in safes all over the world, at a breakfast presentation sponsored by the Israeli Diamond Institute (IDI) today at the Baselworld watch and jewellery show, three young scions of prominent Israeli diamond dealing firms outlined how carrying large inventory was an essential part of their business model.
Nathan Korn of Korn Diamonds, Amihai Zivan Sussholz of Yahalomei Espeka International (YEI) and Lior Eshed of Gemstar-Eshed Diam each made presentations on how their respective companies have developed niches and prospered. Korn specializes in cutting fancy diamond shapes for the watch industry, with each stone cut perfectly to size in a non-standard shape so as to fit perfectly into watch bezels and faces. The firm’s diamond cutters and setters work side by side to ensure that perfect fit. YEI does that too, but also cuts a wider range of fancy shapes. Gemstar-Eshed does just extremely large diamonds — three carats and up. (more…)
Hello from Basel, where I just attended a pre-show press conference by the management of the Baselworld watch and jewellery show. Speakers at the press conference revealed that there is a clear trend within the global gem and jewellery towards focussing on the emerging markets, particularly in Asia and the Middle East. You can read the report I’ve put up about this here. What I’d like to discuss here though, is something that Jacques Duchene, the president of the exhibitors’ committee said.
To begin with, he said he was very pleased that the new law governing the protection of intellectual property would give Swiss customs authorities the mandate to confiscate any industrially manufactured products that might be imported into or transit through Switzerland that they determined were forgeries. While commending the federation of the Swiss Watch Industry (FH) for having been the moving force behind the new law, Duchene listed a number of international seizures and confiscations that had taken place through FH prodding.
Last year in Italy, a consignment of 80,000 forged watches from China was seized at the port of Gioia Tauro, another load of 100,000 imitation watches was seized in Prato, and 200,000 Chinese-made forged watches were seized in Rome.
Duchene then listed some seizures made in Mexico. In an operation involving 300 police and security agents, 20,890 forged watches were seized from Tepito and Mexico City last year. This year, in another operation, police confiscated 90,786 forged watches in Mexico City. The police also seized weapons and drugs, “underlining once more the direct involvement of organised crime and industrial production in the forger of goods,” Duchene said. (more…)
