Friday, January 11, 2008

Employment Peril for Designers Or Not!!

Designers, brace yourself. This year will be a bumpy ride.

Tiffany & Co. just released its sales data for the month of November and December. Its US same store sales fell 2% according to the Wall Street Journal.

Tiffany's sales figures are a benchmark for luxury goods market. Jewelry represents the one of the highest elasticity (in microeconomic terms) products. This means that the demand for jewelry is highly sensitive to the price or willingness to pay. With a downturn expected, if willingness to pay decreases by 1% , the demand for jewelry lowers by a much greater percentage. The direct effect of reduced demand is in the sales numbers. Taking Tiffany's a high end jewelry brand moving into mass jewelry as an example we can fairly assume that the overall luxury product market should not be doing well either.

If a company chooses to cut costs, then laying off designers will certainly be item on the table. So, what kind of companies will be more prone to cutting costs. We believe that companies which sell low end jewelry and compete on cost are prone to slashing costs. Thus, if you work at one of this type of companies that you should be scared about your job.

If a company chooses to be more efficient by doing more with the same and in a better way, then it may not have to slash jobs after all. They may ask designers to be more thorough in their designs. They may ask product management to consider product lines more carefully... and the list goes on. A company that competes on quality of design has higher gross margins and is more likely to fall under this category.

Do yourself a favor? Estimate the gross margins of your firm and compare it with the Zales or Kay jewelers!!

Does the lowering of sales mean that companies will hire less jewelry designers? It could be true but let us dissect the issue analytically. Low demand usually means higher backlog of stale inventory which means higher discounts for consumers. More competition with the new collections. Lesser price quotes on the fresh products and hence reduction in profitability of the company.

Some companies react by cutting costs while others manage to be more efficient.

If a company chooses to cut costs, then laying off employees including designers will certainly be first thing on the table. So, what kind of companies will be more prone to cutting costs. We believe that companies which sell low end jewelry and compete on cost are prone to slashing costs. Thus, if you work at one of this type of companies that you should be scared about your job.

Do not forget... for a company like Tiffany there are only a couple of designers (labels) that work. The first few in the list to be chucked off are the out sourced manufacturers. The designers that work for those manufacturers would get lesser work (usually commission based) and hence lesser money. Usually all companies big and small have a few in-house and more outsourced/ freelance designers... they are usually the lesser affected people.

Independent designers are actually the ones who would really have to take the blow. Reason... safer jewelry buying habits will encourage the 'back to basics' kind of designs for which bigger players and direct manufacturers can provide better value/worth.

What will change however is the material and design... less comprehensive 'big diamond' look will be replaced by 'spread out color'. More bizarre forms and catchy patterns etc will happen over classic look. Expensive material will be replaced by simpler look alikes or wannabes materials. More variety will start so costume and imitation jewelry will be more into vogue than ever before. Synthetics may come in big but I highly doubt that considering it is still a big price as compared to lesser precious but real stones.

Combination of materials will definitely be in. More emphasis on other accessories will start taking over gradually and we will be back to earring-ring basics. Let us not forget the season as well though... that takes us to the more vivid color palatte and more variety of everyday jewelry. Designers do not get laid off under such circumstances rather their work only gets tougher and lesser money for them considering usually a percentage is paid for the design. Since lesser expensive jewelry comes in so volume of sales shoots up ... more designs required and hence more designers.

So in conclusion... designers brace up for more work less pay...
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