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OtherMar 05, 2015
Industry sees spike in business discontinuances
The JBT’s data shows a 32 percent increase in the number of companies that exited the industry in 2014. Dione Kenyon shares several plausible explanations for the spike.
Warwick, R.I.--Aging owners lacking a next generation waiting in the wings, the falling price of gold and a slow economic recovery contributed to the increased number of jewelry business that merged with another company or simply decided to close up shop in 2014.
According to Jewelers Board of Trade data for 2014, the number of businesses that ceased operations, consolidated or went bankrupt (recorded collectively by the JBT as business discontinuances) reached 1,010 in the United States and Canada last year, a 32 percent increase from 2013.
In the U.S. alone, there were 973 business discontinuances, including 612 retail jewelers who ceased operations, a 29 percent change from the previous year.
Though it has recorded bankruptcies for years, the JBT only began tracking non-bankruptcy business discontinuances--companies that ceased operations or consolidated due to a sale or merger--in 2009, during the most recent recession.
JBT President Dione Kenyon said while the number of business discontinuances recorded last year is an increase from the past couple of years, it is not the highest she has seen in the six years the JBT has kept tabs on this category.
There were 2,077 business discontinuances in 2009 and 2,012 the following year. That number fell to 943 in 2011 and has been sliding since, until last year’s spike.
Kenyon said there are a number of reasons why so many companies in the jewelry industry are opting to close up shop now, even though they weathered the worst of the recession.
To begin with, even though the economy is recovering it is doing so slowly--the U.S. is recording only 2 to 3 percent GDP growth each year--and many simply aren’t finding it worth it to stay open.
As jewelers, manufacturers and wholesalers would attest to, and many have expressed to National Jeweler, business is difficult these days. They have to work twice as hard to produce half the results.
Jewelers, for example, have to update their marketing, their stores and their inventory and grapple with thinning margins on top of the other concerns they have confronted for years, such as the risk of robbery and commodity prices.
“Our business contains a lot more in the way of risk than your typical independent small business,” Kenyon said. “It just makes the whole question of staying open that much more challenging. This is a high-risk business.”
There’s also demographic shifts--many in the industry
are baby boomers who are nearing retirement age without a next generation waiting to take over--and the falling price of gold. For jewelers, running a store based on “we buy gold” is no longer enough to keep a business afloat.
Kenyon said all these factors are feeding into a sort of “leveling out,” a wave of contractions, though she adds that it is not “severe” when compared with what the industry witnessed in the darkest days of the recession. “It doesn’t mean the industry is going bust, but there are things that are conspiring to make it contract.”
While the number of companies that ceased operations or consolidated increased year-over-year, bankruptcies actually continued their downward slide. Bankruptcies dropped by 20 percent year-over-year in the U.S. and were down 13 percent when including Canada, JBT data shows.
The bankruptcy tally has been falling for years, Kenyon said.
Companies used to file Chapter 11 and reorganize but recovering is not as easy today. There’s less bank financing available and, as mentioned above, business is more difficult, making it hard to map out a plan for how a company is going to make a comeback. As a result, there are fewer companies filing for bankruptcies and more companies ending up in the ceased operations category.
“(Before), there was something on the other side that made it worth it to spend the money to file for bankruptcy,” she said. “Now people just sort of say, ‘Hang it up. Here’s the keys, close the doors.’”
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