Rapaport Magazine

Matt Runci

An Independent View

By Martin Rapaport

Matthew Runci
Photo: Irena Sapilak
Matthew A. Runci’s career in the jewelry industry spans four decades, during which time he served as chief executive officer (CEO) of Manufacturing Jewelers & Suppliers of America (MJSA) and then as president and CEO of Jewelers of America (JA), a position from which he retired at the end of 2012. His career is marked by a dedicationto responsible business practices, with a strong commitment to improving supply chain transparency and consumer confidence in the fine jewelry industry and its products.
   Under Runci’s leadership, JA developed comprehensive professional skills standards and certification for retail jewelry sales associates, managers and bench jewelers. In addition, he oversaw an active national government affairs program, focusing on legislative and regulatory matters that affect the jewelry industry. This included the establishment of JA’s Political Action Committee (JAPAC), the only political action committee that specifically supports the fine jewelry industry.
   During his earlier career, Runci taught international relations at the University of Virginia and College of New Rochelle. He holds a PhD from the University of Virginia and a Bachelor of Arts (BA) degree from Boston College, as well as membership in Phi Beta Kappa. He served in the U.S. Army from 1968 through 1970.
   He continues to serve the industry assecretary of the board of directors of the Diamond Development Initiative (DDI) and as a consultant, author and guest lecturer.
   In an exclusive interview with Martin Rapaport, Runci discusses some of his views on the industry.

MARTIN RAPAPORT: What changes are you seeing in the industry?
MATT RUNCI: The competition is always changing for independent jewelers. When I came into the industry in 1979, all the retailers were worried about catalog showrooms. Back in the 1940s and 1950s, independent jewelers were complaining about the so-called credit jewelers, the mall stores. Today, everybody’s concerned with the internet and how to fit social media into their marketing schemes to expand their market presence and reach the younger demographic sectors.
   Overall, as an industry, independent jewelers have been slow to adapt. In part, I think that’s because the industry is largely made up of people and businesses that have been around for a very long time. That’s a wonderful thing in one sense because you like to see those family names endure. The fact that you have a second, third or fourth generation operating a business is something to be proud of.
   But there is a downside to that long history because these same businesses can find it difficult to change, adapt and innovate. In part it’s because they’re small businesses and in part because they are family owned so all they know is their own experience.
   I think the big challenge for this industry is to find ways to bring more new thinking to the table for individual businesses to consider and new business strategies for them to implement. The ways of conducting business and serving customers and increasing sales are always changing. That change is going to continue — perhaps even at an accelerated rate — and it’s inevitable. Independent businesses need to be well plugged in to compete with all of the market forces out there. They need to understand what is going on, where their opportunities are, what is holding them back. They need to accept the changes and work with them to compete and succeed.
   The question isn’t whether the market challenges and changes we are experiencing today are going to continue for another five years or another ten years or whether they’re going to end tomorrow because, even if they end tomorrow, there will be other challenges and changes to replace them.
   One of the new developments in the current retail marketplace is the number of watch brands and jewelry brands that are opening their own retail stores. At the same time, those brands are continuing to distribute their products through privately owned independent retailers. That’s an intriguing interaction of forces in the marketplace. If you are the independent jeweler, for example, and you have relied heavily on those major brands to be a significant part of your business, and especially if you have a limited number of those brands in your store, and, all of a sudden, across the street there appears an ABC Watch Company or ABC Jewelry Store, well, then, what do you do now? You will continue to offer better service to your customers, you will continue to rely on two or three or four generations of tradition and reputation and use that as part of your marketing, you will probably adjust your merchandise mix a bit, but will that be enough?
   This is the kind of unexpected change that can come upon an independent retailer and it is the kind of change that demands a response.

RAPAPORT: What should most concern the independent jeweler?
RUNCI: I think the greatest concern to our industry is not simply the share shift that is going on between various channels, but the forces behind that shift. The smart jewelers I know are saying what most concerns them are the young customers — the kids, and I really mean kids — who are going to the general merchandise stores at the malls. And that’s where they pick up their ideas about style, trends, things their friends have, things they want, things they plan to buy. That’s also where they are picking up their information about jewelry and that’s where they are going to buy that first piece of jewelry because that’s the shopping and social experience they know and are comfortable with.
   So one of the big challenges is how the industry collectively reaches out to youth to connect with them in such a way that younger customers — the customers of the future — begin to think about going into a jewelry store to look at jewelry rather than shopping for jewelry in the same stores where they shop for such products as clothes, shoes and accessories.
   Some jewelers I talk to are really worried about this because they’ve done research in their own communities and they know the kids aren’t coming into their stores. They’re going to the mall or to the Gap or Abercrombie & Fitch or they’re going to some big-box store where their friends go and that’s where they connect with products they want and buy.
   As this demographic group matures as customers, the jewelry store experience probably isn’t part of their thinking until they shop for that diamond engagement ring. By then, they are older — probably in their mid-twenties or older — and their thought patterns, their preferences, their likes and their dislikes are pretty well formed. If the jeweler has not been a part of their buying experience before then, it’s harder to capture their attention at this age and it’s risky to assume that if you sell them the engagement ring, they will be your customers for generations into the future. That’s the old model. I think jewelers need to find ways to connect with young customers in their communities and on the internet in a way that’s fun, exciting and parallels the experience that they get in other shopping outlets. If they don’t, jewelers are basically settling for a smaller share of the market than they could otherwise have.

RAPAPORT: Is there a danger that those younger customers will never shop in jewelry stores and that they’ll buy all their jewelry from big-box retailers, even when they become adults, instead of their independent neighborhood jewelers?
RUNCI: Yes, that’s a possibility. But the good news is that all of those sales are still jewelry sales and the total is growing. The consensus is that U.S. jewelry sales amount to about $60 billion a year. So at least we are in a market that is strong and growing. I don’t mean to diminish the significance of that fact, but individual retailers aren’t really focused on total market sales. They are looking at their community and their share of the business done in that community because, at the end of the day, that’s the number that determines whether they are ultimately successful.

RAPAPORT: Do you think 30 years from now there will still be a lot of independent jewelers out there and will they have the same market share?
RUNCI: From what I have seen, from what I’ve heard and from what I know about the market, I would say that some independents are probably in a better position to survive than others and some are more at risk.

RAPAPORT: So what does a jeweler need to do to be in that “better position” and stay out of that “at-risk” category?
RUNCI: They need to continue to provide their customers with what customers want and to do it in a way that the customers enjoy coming back for more. Some of it is about demographics — knowing who your customer is. Some of it is about being clever with your marketing dollars, however limited they may be, and how you use those dollars to reach the customer base you need to attract for future growth and not just the customer base that you currently have. And some of it, of course, is about product — covering all the price points, all the styles, all the trends. For independent jewelers to be competitive in a marketplace — and the formula is a bit different in areas where big-box stores are prevalent — they need to offer something that’s different and unique from what their customers can get anywhere else.
   Another part of being in a better position is service, and some of that difference is a retailer’s personality and its connection with the customer, the experience customers have when they come into the store. Here is where you see the importance of having a well-trained, well-educated, well-informed and highly motivated sales team. They are the ones who really make that connection with the customer, in comparison with the experience a customer might have in a big-box store where he is basically left on his own to self-select merchandise. In those purchases, customers buy what they think they want, only to maybe find out later it wasn’t really what best suited them.
   And, of course, today, success is absolutely about finding ways to communicate with customers online and through social media and not just rely on the fact that they should come to you because you have been on Main Street for x number of generations and years. That will get you so far for so long, but probably not enough for the future.
   Most fundamentally, I think the challenge for independent jewelers is figuring out how to fit their brick-and-mortar stores into a much broader business enterprise so that their internet presence and their social media presence is actually the core of their business and their store is simply their actual presence in a physical place. Success is about integrating those things so closely that customers feel almost as good about buying on your online site as they do about coming into your store. There are going to be some pluses about coming into the store that will keep them returning but there also should be things about your website that keep them coming back.

RAPAPORT: Clicks and bricks?
RUNCI: The independent jewelers are really challenged in this regard because they don’t have the expertise in the internet and online area that they would like to — and that they absolutely need. And I believe an area of potentially huge value in the industry would be a way of bringing in people who have worked in other industries to show them how small businesses can establish a click-and-brick connection and presence that is seamless and effective. While there are some differences with our industry in terms of the products we have and the personal dimension of our marketing, there are also lots of things that we can learn from what other industries are doing.
   If independent jewelers simply rely on the business that walks by each day — which was the prevailing business model of the past — I think they can still survive, depending on where they are located and at what level of the market they are competing and their merchandise mix. But the headwinds will only get stronger and stronger for those guys.

RAPAPORT: The independent retailer has got a pretty challenging situation with all these different competitors: the internet, big box, chain stores, et cetera. Is there any more he can do to assure he is successful?
RUNCI: I think the real key for the future will be a more focused, consolidated effort at training and education because the independent mom-and-pop retailer can only afford maybe one trade show a year. And maybe they’ve got two days or three days at that show. And they’ll shop the show and look for products and maybe that will leave them a half-day to attend a couple of seminars.
   How can they possibly, with the time and resources that are available to them in that window, plug into some of this really important information and education they need? They can’t. So they kind of nibble at the basket and they take what they can get in a little bite. And maybe the next year they’ll learn something else in a one-hour seminar someplace else. I don’t think that’s going to cut it and it isn’t their fault. It’s the fault of all of us for not having found more effective ways to really bring people together to learn in a way that is efficient, accessible and cost effective.

RAPAPORT: What kind of specific training and education do you think the independent jewelers need to learn to survive and prosper in the years ahead?
RUNCI: There is a lot of gemological education available and I think that’s taken care of. I think JA does a wonderful job with the responsible business practice information. And Jewelers Vigilance Committee (JVC) does a wonderful job with the legal information.
   What independent jewelers are not getting is real business savvy. They need to hear from business people who are experienced and successful in other industries and who can talk to retail jewelers as retailers rather than as jewelers. They need to hear about consumer research, about general merchandising strategies, about store design issues, internet issues and using social media as a sales and marketing tool.
   I think the industry needs to get serious minds together to think about how to establish an educational outreach with a focus on business expertise that is accessible at a low cost to anybody in the industry who wants it. It’s almost like a business university for jewelers, but without a formal curriculum or a formal degree, because it’s information you can put to work in your store, in your business, day after day.
   Now you’re not going to bring 10,000 independent jewelers to a business conference but you can take that knowledge and information that would be shared at a conference and filter it and apply it to the independent jeweler. That’s where trade associations and organizations come in. They could perform a real service by filtering and resizing the message and the experience that you hear at business conferences into bite-sized morsels that an independent business can eat and digest.
   That would be of real value. It would give independent jewelers the business and marketing tools and knowledge that otherwise are only going to be available to the large guys with the deep pockets. 

A Profile of Independent Jewelers
   The independent jewelers segment of the marketplace, consisting of approximately 24,000 locations, sold an estimated 43 percent of all fine jewelry and watches in the U.S. in 2011, according to the “2011 Cost of Doing Business Report for the Retail Jeweler.” The report is produced by Jewelers of America (JA), an association representing approximately 33 percent of those retailers.
   The vast majority of JA members — 89.6 percent — consider themselves family businesses. The report revealed that the number of sole proprietorships among retailers has declined “significantly” to 4.2 percent of respondents and the number of partnerships to 2.1 percent. In other report highlights, for the first time in three years, independent jewelers reported an increase in annual sales.
   The Cost of Doing Business Report is produced every other year by JA for use by its members in benchmarking their operations against their peers in the industry. The report was based on 204 responses and 2010 data from the retailers.

Here are the highlights.
Diamond jewelry – 31 percent
Repairs – 12 percent
Diamonds, loose – 10 percent
Colored stone jewelry – 9 percent
Fashion jewelry – 8 percent
Karat gold jewelry – 8 percent
Estate/Antique – 7 percent
Other – 4 percent
Timepieces – 4 percent
All other fine jewelry – 3 percent
Cultured pearls – 2 percent
Appraisals – 1 percent
Platinum – 1 percent

Freestanding – 39.6 percent
Strip Mall – 27.1 percent
Downtown – 18.8 percent
Mall – 8.3 percent
Other – 6.3 percent

Rent – 73 percent
Own – 10 Percent
Mix – 17 percent

Average 2010 sales growth – 6.9 percent
Average number of full-time or full-time-equivalent employees – 6.1
Payroll as a percentage of sales – 19 percent
Average number of stores – 1
Median store size – 1,871 square feet
Average net sales per store – $1,077,670
Average cost of goods sold – 50.9 percent
Average gross margin – 49.1 percent 

Article from the Rapaport Magazine - June 2013. To subscribe click here.

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