2001 Was No Gem

With a recession and unprecedented terrorist attacks that shook consumer confidence, 2001 should have been a lousy year for independent jewelers whose business is the very essence of discretionary spending.

And for some jewelers, it was.

But for those who survived, or in some cases thrived, 2001 was just another year in an increasingly competitive industry.

“It was tough for a while, but we just had to work harder to make our sales,” said Jim Cash, owner of Diamond Center at Fort Smith.

And, he said, he had to settle for a slimmer profit margin to keep the diamonds moving out of his 18-year-old store.

The announcement earlier this month that Wal-Mart and Sam’s Club stores would be carrying Keepsake brand diamond jewelry is the latest competitive development for independents who already are facing down the ever-expanding chains and Internet dealers.

Cash, one of three independent retailers in the state who carry the Keepsake line, said he’ll sell his current Keepsake inventory and then stop carrying the 72-year-old brand.

“Since it’s going into a discount house, it’s going to cheapen it,” he said.

Losing a well-known line to competition from Bentonville-based Wal-Mart is ironic for Cash, who grew up in the jewelry business. His father used to lease jewelry display space in Wal-Mart stores before the giant discounter decided to go into the jewelry business directly.

“He started Sam [Walton] in the jewelry business,” Cash said.

Keepsake “is definitely a step up for Wal-Mart jewelry: a little better, a little nicer-made jewelry, a little more expensive,” said Tom Thornton, co-owner of Tola Diamonds & Jewelry on Maumelle Boulevard, a 20-year-old jewelry wholesaler and retailer.

“Wal-Mart’s jewelry business has really grown, and every time they do that, they put a small jewelry store out of business.”

Those small jewelry stores are Thornton’s primary customers, and “our business is definitely down from what it used to be,” he said.

While the number of outlets for fine jewelry has grown, the number of independent jewelry stores continues to dwindle, in Arkansas as elsewhere.

Recent casualties include two of the three Croft Jewelers stores, Kirkland Jewelers of Little Rock, Newton Jewelers at Conway and Diamonds Forever of Little Rock.

“Last fall really hurt everybody after the bombing,” Thornton said. “The jewelry business was zero for September and October, and it really hurt a lot of stores in Arkansas. The independents have really been squeezed more and more.”

Those that leave the business, either through retirement or because they can’t make a go of it, are not often replaced by new retailers, said Thornton, who founded his business with partner Larry Byers 20 years ago.

“In the ’80s, there were new jewelry stores going in. Today you see very few new ones start. They might expand to a second store,” he said.

The return on equity, 10-15 percent in a good year, just isn’t enough to lure many new retailers into a cyclical business with high front-end costs, Thornton said.

Even before September 11, small retailers were being hurt by their inability to offer in-store credit. It’s a service that is standard at large jewelry chains such as Zales and its subsidiaries, Gordon’s and Bailey Banks & Biddle, or Friedman’s, a lower-priced jewelry chain that is expanding in Arkansas.

“Most small retailers cannot afford to carry their own paper. It’s not just the jewelry business, it’s anybody,” Thornton said.

Being able to offer financing is important, especially in the mid- and lower-price points, which is where the jewelry market is growing, he said.

“More and more people are wearing more and more jewelry than ever before,” Thornton said.

There are, of course, jewelry customers who wouldn’t be caught dead in a Wal-Mart diamond and are willing and able to pay for the cachet of a diamond from one of the state’s hallmark stores — like the heavily advertised Sissy’s Log Cabin at Pine Bluff or Underwood’s Fine Jewelers, a Fayetteville fixture for more than 40 years.

But competition is pressuring the margins even on higher-end jewelry.

“I don’t think a lot of people are buying diamonds over the Internet, but they are using the Internet to get themselves educated,” Thornton said. “And they can use the prices advertised on the Internet to beat up the independent retailer.”

Many small jewelry retailers still create custom jewelry in their stores, but most jewelry is sold off the shelf. And an increasing percentage of it is being manufactured overseas.

Thornton’s company, for example, used to employ five full-time jewelers who physically fabricated the jewelry Thornton wholesaled to independent retailers.

Now he employs only one and imports most of his finished goods from China, India, Hong Kong and Thailand.

“It’s gotten too expensive to make labor-intensive items in the U.S.,” he said. “Anything that has more than a couple of stones will be fabricated overseas where labor is $2.50 a week [while in the U.S.] we pay people $2.50 a stone.

“There’s five guys who used to work for me who are all doing something else because they couldn’t find work in the jewelry business here anymore.”