Most retailers experienced the toll of dwindling consumer confidence, supply chain disruptions in China, and economic uncertainty in 2022.
This translated to job cuts at H&M, Missguided’s collapse, Best Buy store closures, and Revlon filing for bankruptcy.
But for Pandora, the self-titled world's biggest jewelry brand, 2022 was a record-breaking year.
The Danish jewelry maker, known for its charm bracelets, reported record-high revenue of DKK 26.5 billion ($3.8 billion) for the year-end, sending its shares up more than 10% when it posted its earnings on Feb. 8.
Despite continued macroeconomic and geographical tensions, Pandora’s CEO Alexander Lacik remains optimistic about the year ahead.
The brand’s initial guidance for 2023 is -3% to 3% organic growth, with Lacik predicting that the “most likely outcome is the midpoint in that range”.
“For the first time, in my career, I am saying that flat is okay,” Lacik said, with the caveat that “if the backdrop is the marketplace in which I conduct my business is shrinking, that actually means that even if I'm flat, I'm actually growing my market share.”
Looking to next year, Lacik added: “We have a well-oiled machine, we understand the triggers of our business.” Speaking exclusively to Fortune, he revealed the three C’s (or rather, “tangible revenue drivers”) that will help Pandora grow amid economic uncertainty: Charms, collaborations and concept stores.
Charms: The gift that keeps on giving
For Pandora its charms are the gift that keeps on giving, making up around 70% of its earnings.
Lacik estimates that Pandora annually sells 10 million charm bracelets—which then need embellishing with Pandora’s charms, creating a recurring revenue stream.
For every joyous occasion in life, be it a 21st birthday, an engagement or a trip to New York, Pandora has packaged these moments in the form of charms for its bracelet wearers.
Unsurprisingly, being able to look at your wrist and remember a happier time is universally appealing, transcending language or cultural barriers.
It’s why, as Lacik claims, half of Pandora’s customers are returning customers.
The remainder of those buying charms are purchasing a gift for loved ones—and Lacik thinks that a recession may boost this trend.
“People don't stop gifting just because times are tough,” Lacik insists while adding that consumers instead hold back on expensive purchases.
It’s why Pandora’s positioning as an “affordable luxury” (a charm will set you back around $60) is increasingly appealing as a “small splurge” during economic hardship.
“So it could actually be positive for us that people don't spend money elsewhere,” he adds.
Of course, Lacik’s optimism will be tested by economic uncertainty. In 2019, China was Pandora’s fourth largest market, with a turnover of around DKK 2 billion annually. At the time, Pandora even had aspirations to triple sales there, but “since then everything has gone down the toilet”, Lacik laments while pointing to the pandemic.
Today, it’s not not clear whether China, which has experienced three years of strict COVID-19 restrictions, will truly open up and become another booming market for Pandora.
Collaborations: Teamwork makes the dream work
Since Lacik took the helm at Pandora, it’s been ramping up collaborations with other brands.
Last year saw the launch of its first Marvel X Pandora collection, enticing new superhero fans to the brand.
It was a huge success. By the end of 2022, the 14-carat gold-plated Marvel Iron Man was the fourth best-selling charm in Pandora’s history, the Marvel Infinity 14-carat gold-plated ring was in the top three best-seller rings of all time and the collaboration brought in 2.4% of total revenue.
Lacik says he was inspired by his previous employers P&G and Reckitt Benckiser, which, he says, have enjoyed fruitful partnerships in the past: “I'm not smart. I'm just reapplying the playbook from an industry that's more developed and more mature than this industry.”
Importantly, Pandora isn’t partnering with the highest bidder. Lacik says he has formulated a strategy to determine whether a potential collaboration will go from a one-off meeting into something that consumers see on shelves.
There are four boxes that all potential partnerships must tick during the research phase: The idea has got to have a broad appeal, the price point has to work, the type of characters must resonate with both customers and the brand, and the character can’t be a one-off.
Lacik gives the example of one “concept [that] scored really, really well” in market research, but in the brand’s “universe of characters” only one character stood out—and unfortunately, to make an entire collection one star player won’t do, so this unnamed brand didn’t make the cut.
When it comes to collaborations, he says, there should also be the element of surprise, to excite customers and entice them to part with their hard-earned cash.
“The connection between [the] two brands should not be something people expected, because if they expect it's not going to do anything to enhance the brand,” Lacik adds.
Concept stores: Retail isn’t dead, not least in a recession
Last year, Pandora opened 88 new concept stores, of which 32 were opened in the U.S., and 130 new shop-in-shops, which added around DKK 1.3 billion ($187 million) to Pandora’s revenue.
“And probably we have a similar ambition level for 2023,” Lacik asserts.
Still, he is very insistent that Pandora is not a “retailer” in the traditional sense—and that’s part of the reason why its stores are successful.
“We have retailing as part of our brand. But we're not a retailer,” he repeats. “I could lose half the volume in any given store and I would still probably be profitable. Show me any other retailer that can lose 20% of volume and still remain profitable.”
Instead, Pandora brick-and-mortar retailing is, for Lacik, a little luxury that adds to the brand's presence. Lacik says that people come in to try jewelry on for fit and to see what they’ve been looking at online looks like in real life.
But Lacik says one of the strongest pulls for physical retail is to serve the 50% of Pandora customers who are men buying jewelry for the women in their life. “Since I'm a man myself, I don't find this next statement to be controversial: Men need help, it's as simple as that.”
While online shopping is predominately a self-aided experience, stores are a sales-aided experience.
That’s why Lacik doesn’t care if the number of transactions are higher online than in-store. “Where the transaction falls in my book, purely from a financial standpoint, doesn't really matter. The final, gross profit that I generate at the bottom of the p&l is the same.”
It’s the “magic” before consumers make a purchase that matters more to Lacik—and he firmly believes this happens when customers are interacted with, shown a brand experience, and hooked to the brand in-store, as well as online.
So for those who think that an upcoming recession could spell the death knell to the high street, Lacik has one message: “The traditional physical store experience is very alive and well, thank you.”
