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Oct 5, 2001 11:07 AM   By Martin Rapaport
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By Martin Rapaport

The terrible terrorist attacks of September 11 leave us numb and in shock. The sheer horror of it all is beyond our comprehension. Who among us has not had a nightmare or two as our minds replay the images of destruction and we attempt to accept the unacceptable? We mourn the great loss of life and our hearts go out to the families of the victims. Let us take a moment to remember our friend Bob Speisman, a man so full of life — a friendly, kind and wonderful person — who always had a good word and a smile for everyone.

Given the emotional impact of this great horror it seems almost banal to go on with an analysis of the impact this tragedy has had on the diamond markets. Certainly, we can understand why the U.S. jewelry business came to a complete halt following the attack. Who could think of diamonds? Who could think of conspicuous consumption at a time like that? But go on we must. We must resume our lives and force ourselves to return to normalcy. Now more than ever we must promote America’s need to celebrate happiness and the joys of life. To do anything less would be to grant victory to the terrorists who have sought to destroy the very spirit of America. Make no mistake; this was not merely an attack on our people, our buildings and our financial markets. This was an attack on our way of life, our values of freedom and our ability to live meaningful and happy lives.

The terrorist attacks have had profound psychological and economic impact on Americans. While the initial reaction — shock and economic paralysis — is over, they have been replaced by an overall uncomfortable feeling of fear and uncertainty about the future. On a personal level Americans fear for their safety. Many are afraid to travel and everyone is concerned about the possibility of more attacks as America begins a war against international terrorism.

Economic Impact

The economic impact of the attacks was devastating. They came at a time when the U.S. economy was on the brink of recession and particularly vulnerable. Following the attack, the Dow Jones industrial average plummeted 14.3 percent, the biggest weekly fall since the Great Depression. Stock market losses during the first week of trading after the attack reached $1.38 trillion (a trillion is a thousand billion) and 145,000 job cuts were announced. Unemployment claims reached their highest level since 1992 last week and more job cuts are in the works. Analysts predict that annual corporate profits for the S&P 500 firms will be off by 25 percent to 30 percent from the previous year.

Tiffany & Company has just issued an advisory indicating that it expects net sales to decline 10 percent for the third quarter ending October 31. Comparable U.S. store sales declined 19 percent during August-September, including a 36 percent decline since September 11. The decline in comparable U.S. store sales for the last week of September was only 19 percent with improving store traffic in many regions. Tiffany expects a low double-digit decline in comparable U.S. store sales for their fourth quarter and modest earnings growth for its full year.

The sharp drop in consumer confidence following the attack should come as no surprise. The attacks pushed the U.S. into recession. American’s have not only lost huge amounts of their wealth in the stock market but the level of unemployment is so high that many are fearful for their jobs. Furthermore, no one knows how much worse the situation can get. Too much has happened too fast. Consumer uncertainty has reached all time highs. People are afraid for their safety, afraid for their jobs and afraid for their money. A monumental change in the psyche of the American consumer is taking place. This does not necessarily mean that consumers will stop buying jewelry, but it does mean that we will have to appreciate and accept the changes taking place in the mind of the American consumer if we are to sell them jewelry in the near-to-medium term future.

Global demand has also been greatly affected by the attacks in America. Stock markets around the world plunged following the attacks in recognition of the fact that the U.S. economy is the breadbasket of international economic development. Simply put, if American consumers do not buy foreign products, then foreign economies that rely on exports to the U.S. are in danger. Economic development and local consumer demand in many foreign countries are under pressure and will likely remain so until there is a resumption of demand from America. The global economy has become overly reliant on the U.S. following the collapse of the Far East markets a decade ago. While there are a few minor exceptions, consumer driven economies likely to support diamond demand are reliant on exports to the U.S. There is nothing on the horizon to indicate that foreign diamond demand will replace any decline in U.S. consumer demand for diamonds.

U.S. Government Intervention

The economic problems generated by the attacks have mobilized the U.S. government to take decisive action. A strong consensus has developed that monetary policy alone (i.e. adjusting interest rates) cannot solve the extensive economic problems the U.S. now confronts. President Bush and Congress are working on a large fiscal package that will put some $50 to $75 billion into the U.S. economy. This is in addition to some $40 billion that will be spent repairing damage and implementing greater security. The net result is that there is a fairly good chance that the U.S. government will spend us out of the problem. In other words the U.S. government will put enough money into the economy so that a serious recession can be avoided. While the implementation and outcome of U.S. fiscal policy are far from certain, it is worth noting that the U.S. stock markets surged significantly this Wednesday and that will have a positive impact on consumer confidence and wealth.

It is worthwhile noting that Washington is preparing the American people for a long, drawn-out confrontation with international terrorism. The U.S. government’s resolve to increase government’s expenditure is based on the realization that we are fighting a new kind of terrorist war that includes economic warfare. There will be ups and downs in the battle against terrorism and in the stock markets. All of us should get used to significantly higher levels of volatility in everything from consumer confidence to jewelry sales to diamond prices. A direct result of the September 11 attacks is that we are now living in a much more complex and volatile environment.

Positive Consumer Attitudes

While it is too early to be overly optimistic there are indications that consumer demand for jewelry this season may not be as bad as many fear. In fact, the cataclysmic events of September 11 may have created a new consumer psychology that may be very supportive of jewelry purchases this holiday season.

America is a vast country with a very diverse population. Her people form a relatively loosely knit society reflecting a broad array of cultures and societies. People move often, grown children often live far away from parents and for many, marriage is optional. The events of September 11 have shaken up America. They have encouraged many Americans to rethink their values. More than anything else, the attacks have brought Americans closer together and made people stop and think about their lives and their loved ones. This need to connect and express closeness ties in very closely with the notion of gifting jewelry.

While flashy displays of jewelry as an item of conspicuous consumption might be strongly out of favor in the current climate, meaningful gifts of jewelry as a symbol of love, affection and commitment may very well meet strong demand from individuals that seek to communicate their feelings at this time of great uncertainty.

Initial reports indicate that the number of marriages are increasing and this too ties in well with the new mood of America. It is important to note that in spite of economic uncertainty, bridal jewelry is doing well and will continue to do well. There may be some lowering of price points, but overall there is little reason to expect that fewer people will get married and that those who get married will not buy diamond engagement rings and wedding bands.

A September 28 research report by MVI Marketing indicates that 17 percent of consumer respondents felt that fine jewelry was a better gift this season in the wake of recent tragedies. Thirty-nine percent said they would consider a gift of jewelry for the holiday season and 67 percent of consumers plan to spend the same or more than they did last year.

Furthermore, recent discussions with jewelers and wholesalers indicate that retail jewelry sales are bouncing back nicely and exceeding their expectations.

The lesson here for jewelers is that in spite of all the concerns and difficulties, jewelry sales will continue and probably be much stronger than the current level of expectations. People will continue to fall in love, get married, celebrate anniversaries and other life-cycle events that call for the gift of fine jewelry.

Spirit of America

While this article points out the negative aspects of the current market, it is important for us to recognize that a strong feeling of unity, purpose and patriotism will soon come to replace the current mood of fear and uncertainty. The terrorists were able to kill, blow up buildings and attack our markets, but they will never be able to destroy the spirit that makes America great.

Jewelers must recognize that they are on the front lines. Our battle against terrorism is the battle to return to normalcy. The battle to help people regain their confidence and desire to express and experience happiness.

While things may seem very tough and disheartening just now, there is very good reason to believe that once we get over this difficult period the new mood of America will be extremely positive and powerful. Patriotism takes on many forms. The best response to the brutal terrorism that sought to destroy our spirit is to get on with our lives — indeed, to celebrate our lives. Every time an American celebrates something — be it a holiday, an anniversary or simply a gift of love to someone dear — that celebration is testimony to the spirit of America.


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Tags: Consumers, Economy, Government, Jewelry, Tiffany
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