A Recession like No Other, but the Industry will Bounce Back-Impact of Covid-19

In the world economic history, nothing is comparable to the crisis led by Covid-19. As medical professionals, governments, businesses and civilians are trying to fight this unknown animal, the economy across the board is in doldrums. Consulting firms are writing long papers on the impact this deadly virus is having on businesses in various sectors. Economists have been called upon to talk on recessions. But as human lives are at stake, everything has taken a backseat, even economies. While the pandemic has led to a loss of jobs and posed the question of survival for many, luxury, jewellery in particular will have absolutely no priority in the minds of consumers. Though this may be true, if you take a good look at history, you may also find that precious adornments have braved wars, famines and plagues, still appreciating in value. Yes, people may not walk in herds to your store once the lockdown is over and there could even be a distinct shift in what they buy and how they buy, but will they stop buying jewellery altogether? The simple answer is ‘no’.

Impact on centers of luxury
On February 22nd, when the virus began to spread continuously in the country, Giovanni Ferraris was still going about his business normally, running around for delivering export orders. “But some shipments were stalled due to flights being cancelled. We finally decided to shutdown our business on March 12. There was an outpour of well wishes from clients. But things have escalated quite drastically with the whole world going into lockdown. There is no business. We are only maintaining our relationship with customers,” he says. His establishment has been exporting handcrafted jewellery from its factory in Alessandria in Northern Italy for 35 years. For heritage brand Antonini that is headquartered in Milan, the hub of luxury, things are no different. “We haven’t been able to travel abroad for any of the trunk shows and boutique events. So many jewellery fairs have been cancelled and above all, the Couture Show in Las Vegas was extremely important for us. We have been in lockdown for several days now. We are worried about the industry’s impoverishment and the probable loss of jobs, especially among small artisan businesses,” says Sergio Antonini who now carries on the history of the brand as its creative director.

The U.S. retail industry witnessed a great holiday season and it was all geared up for even better sales during Spring. Much like other countries, shopping malls and nonessential stores have gone into a complete lockdown and the measures taken in cities like New York are far more stringent. “As we saw trillions erased from global markets in a matter of days, the commodity prices have been slow to counteract. Gold for instance has been quietly tickling near its multiyear high of $1700, yet nowhere near the almost $2000 threshold of 2008/2009. Unfortunately, much of the jewellery business in the United States is very layered like the rings of the proverbial onion, each representing a supplier, vendor, middleman, broker, or retailer. Today those razor thin margins are cutting everyone’s fingers and the bleeding will not stop soon. We are still hopeful for a joyous holiday season as the world will be ready to celebrate together,” says Vin Lee of Grand Metropolitan, a multinational luxury goods holding company founded in Beverly Hills, CA in 2000.

Why Covid-19 led recession is different?
Expert economists say that the Covid-19 driven recession is extremely different. Every downturn has some commonalities, however each one of them is unique. With Great Depression, excessive consumerism led by a massive boom, led to an economic downturn. There were certain factors that prevailed in the system for years that eventually led to a slump in the case of Great Depression that began in 1929 and almost lasted till late 30s in several countries. GDP in the U.S. was halved during that time from $105 billion to $57 billion. Though there are a lot of numbers thrown around as to what the exact impact of Covid-19 will be on economies, they are all still conjectures. Mark Zandi, Chief Economist at Moody’s said to Wall Street Journal, “This is a natural disaster. There’s nothing in the Great Depression that is analogous to what we’re experiencing now.”

As with the recession that occurred between 2007-2009, which is often referred to as the Great Recession, the problem again was far more structural – banks took excessive risks in lending loans to people and all of a sudden people couldn’t pay their mortgages back, they were out of jobs and establishments like Lehman Brothers went down. With Covid-19, businesses were functioning and in some cases were even doing extremely well, until they completely came to a standstill. The economy is mute today due to a health crisis, which is far different from previous recessions. “During 2008 it was like a slow moving fog that rolled throughout the planet. Much of the jewellery market especially at the haute couture and fine jewellery levels were some of the last to feel the tightening from the consumer. And they were also the last to recover. It is true that many of the largest brands were so burdened with debt and high rents that it was a slow and painful process. But companies were still able to operate, many attempting to pivot into brokering gold as it skyrocketed near $2000. Today, all those shops are boarded up and locked down. There isn’t a slow reduction in cash flow or a softening of the market. It came to a quick and deafening grinding halt in a matter of days,” adds Vin. The diamond industry in India went through a rough patch in 2008-2009, as majority of the diamonds were exported to the U.S. However, the situation is different. “IN 2008, there was a financial crisis, which began in the U.S. and spread to all other countries. At that time the only difference was that the economy had not come to a standstill, the way it has, today. At that time, people did not experience a lockdown. Buying and spending were pretty much a regular activity. The economy, worldwide was moving, albeit at a slower pace. There was a correction in prices – for both rough and polished diamonds. Since demand was lower, polished diamonds had to be sold at the cost at which rough diamonds were bought. Prices fell and stabilized at a new low. The loss was the difference between these two prices. Today, everything is at a standstill. There is no demand at all. The transactions are totally nil,” adds Vipul Shah of Asian Star.

Sooner or later the industry will bounce back
Studies indicate that economy will bounce back from Covid-19 in a V-shaped recovery, meaning if the economy crashed because of a mass lockdown, once people are free from the lockdown, there will be a surge in buying, and hence the economy will pick up. “Being an optimist, I think most jewellers will be okay if they have been hard at work on building relationships. We are not just in the business of celebrating special occasions and moments, but many of us have close relationships with our customers. For several years, it’s been about outreach, not about waiting for customers to visit us. Birthdays, anniversaries, engagements and probably a lot of future babies in 9 months will be celebrated this year and for years to come. It might even mean more with the togetherness that we all experienced. Today that might mean Facetime, Zoom or another virtual experience, but I think we will recover from this pandemic. It will not be immediate and the hard work has already begun,” says John A. Green, President & CEO, Lux Bond & Green.
Unlike past recessions, which started off in main economic centers and had a trickle down effect on the rest of the world, Covid-19 has affected all and sundry and hence the world will be more connected. “The jewellery and the desire of people to adorn themselves with beauty has survived wars and pestilence since the time of man’s appearance on earth. This time will be the same but sure will be in a different way from the past. Also, recovery will be quicker because now the world is connected together. I think for the next 6 months, the conditions will worsen, but it all depends on the virus and whether or not they have found a cure or a vaccine that ensures people feel safe to go on with their lives as before. I think first signal of sales will be coming from Far East, because that was the first market to shut down, and also the reaction of this market will be faster than Europe,” says Ferraris.

Today, the digital world is far more robust with brands being armed with the ability to make sales online more effectively and social media was not as active as it is today. “The Italian industry for sure will bounce back because Italian jewellery is really important in the world and women love jewels. Maybe the small Italian companies have to develop new ways to sell, through digital channels. Even though they can reach out to consumers through e-commerce, their marketing has to be emotional. One year could be enough,” says Sergio. If past recessions have taught us anything, it is to continue to provide excellent service after the lockdown is over and care for your customers. “Don’t get ahead of yourself and listen to our customers. Service, not just extraordinary service but what are we offering the customers to make them feel comfortable shopping with Lux Bond & Green will be paramount,” adds Green. If there is no second wave, he believes that his industry will recover in 12-18 months. “As for the recovery of the larger global luxury market, I believe you will see a bigger pie by the end of this year but it will be serviced by a fewer players. Not to be indelicate but these incidents tend to weed out the under financed and more poorly positioned operations in the luxury industry. We anticipate doubling our portfolio in several market segments by the end of 2021 as a result of fallout from Covid-19,” adds Vin.

Shah remains cautiously optimistic. “Some reasonable opening may take place in June, July, August and thereafter, demand will first come from Far East. Exporters will face a bigger challenge, because every economy will take its own time to open up. China has opened up, Hong Kong is opening gradually. Japan and Korea will also open up in due course of time. U.S. and European nations will have to open up with time. Exports will be slow in moving up, domestic demand will increase more easily as compared to export,” he adds.

What they said

Being an optimist, I think most jewellers will be okay if they have been hard at work on building relationships. We are not just in the business of celebrating special occasions and moments, but many of us have close relationships with our customers. For several years, it’s been about outreach, not about waiting for customers to visit us. Birthdays, anniversaries, engagements and probably a lot of future babies in 9 months will be celebrated this year and for years to come John A. Green, President & CEO, Lux Bond & Green (U.S.)

The jewellery and the desire of people to adorn themselves with beauty has survived wars and pestilence since the time of man’s appearance on earth. This time will be the same but sure will be in a different way from the past. Also, recovery will be quicker because now the world is connected together. I think for the next 6 months, the conditions will worsen, but it all depends on the virus and whether or not they have found a cure or a vaccine Giovanni Ferraris, President, Giovanni Ferraris Gioielli (Italy)

The Italian industry for sure will bounce back because Italian jewellery is really important in the world and women love jewels. Maybe the small Italian companies have to develop new ways to sell, through digital channels. Even though they can reach out to consumers through e-commerce, their marketing has to be emotional. One year could be enough Sergio Antonini, Creative Director, Antonini (Italy)

As for the recovery of the larger global luxury market, I believe you will see a bigger pie by the end of this year but it will be serviced by a fewer players. Not to be indelicate but these incidents tend to weed out the under financed and more poorly positioned operations in the luxury industry. We anticipate doubling our portfolio in several market segments by the end of 2021 as a result of fallout from Covid-19 Vin Lee, CEO, Grand Metropolitan (U.S.)

Some reasonable opening may take place in June, July, August and thereafter, demand will first come from Far East. Exporters will face a bigger challenge, because every economy will take its own time to open up. China has opened up, Hong Kong is opening gradually. Japan and Korea will also open up in due course of time. The U.S. and European nations will have to open up with time. Exports will be slow in moving up, domestic demand will increase more easily as compared to export Vipul Shah, CEO & Managing Director, Asian Star (India)

It’s possible that we see a bout of revenge shopping given consumers are going stir crazy. I believe that retailers and vendors should be careful to avoid falling into the trap of believing “everything” will go online and that will be the new normal or permanent shift in consumer behaviors. Most data around luxury indicates anywhere from 80-85% of consumers prefer to purchase in brick and mortar. I don’t anticipate that permanently changing. We still crave the experience and the human contact when it comes to luxury purchases, and that isn’t going away. Sherry Smith, Director of Business Development, Edge Retail Academy (U.S.)

We remain positive. We expect that most people will just look forward to returning their regular routines and enjoying outings they used to take for granted. While during this unprecedented time people might turn to online retailers as their only option, we feel that many will quickly realize the importance of the inperson shopping experience and be excited to return to their favorite stores. Cristiana Vigano, Vice President, Vhernier (Italy)

Consumers will probably want a simpler, more streamlined lifestyle, after spending an increased amount of time in the digital sphere and realizing that they can enjoy life just fine without all the indulgences they may have had before this pandemic. I don’t think labgrown would be an answer to surviving any recession—at all. Jewellery is not expendable like fashion/accessory. It’s designed to be passed on to the future. Of course the market will shrink, but brands will just have to adjust accordingly. Mio Harutaka, Designer (Japan)