Even during difficult times, many people turn toward jewelry — as a retail category, it continued to outperform others throughout a global pandemic and, now, war in Europe and inflation.
Despite a slight drop in U.S. sales, Pandora (PANDY) recently reported its third straight quarter of revenue last week. Sales for the Danish jewelry maker reached 5.66 billion Danish kronor or $771.8 million USD.
"A lot of analysts tell us "why don't you close out all your stores and go online only?"," Pandora Chief Executive Officer Alexander Lacik told TheStreet in an exclusive interview. "And I say ' we could but it's a really bad idea.' 60% of my customers are guys who are buying jewelry and, I'm sorry, but they need the help."
Lacik talked to TheStreet about everything from jewelry trends and the price of silver to investing in brick-and-mortar. The interview has been edited for length and clarity.
TheStreet: Why do major world events seem to rarely hurt jewelry sales?
Lacik: Jewelry is a discretionary category. It's not something you need no matter how much we may insist that you do. In any discretionary category, it's up to [the brand] to convince people that you have something interesting. When the pandemic hit, a number of companies stopped their marketing efforts, reduced their store presence and essentially went into hibernation mode. In this category, that's almost like signaling to the customer that you're not as interesting as the opposition.
We kept launching new initiatives, we kept investing in our stores and increased our investments in marketing. We kept motivating people to come to Pandora and so even if you had all this macro noise we still managed to drive growth.
TheStreet: During the pandemic, some put off trips and invested in jewelry. Others are currently cutting back on discretionary spending due to inflation. How do you navigate different customer bases shaving more or less money to spend?
We see ourselves as affordable luxury. If you look at the jewelry market, you have what you call costume jewelry or the stuff that you buy at H&M (HNNMY) . At the other end, you have the Cartiers and the Tiffany's which are both very exclusive. We play to the mass consumer and that is the reason we're the biggest jewelry company in the world.
Since the crisis of 2008-2009, this category [jewelry] has outstripped GDP growth by a factor of two at the global level. It's a very healthy category and it's even more pronounced in the eastern parts of the world where you're playing the middle of the market and have this kind of middle-income growth. As more and more people get out of poverty and move up the ladder, the macro trends for jewelry are very positive.
TheStreet: Do buying trends differ in different global markets?
When you look at what we sell and what proportion of the assortment moves, it's is very similar. They're not major shifts. A typical debate we have is 'oh, this is a gold market so you can't do that here.' Every market that Pandora entered was a gold market but if you aspire to buy gold, it is much more expensive. Gold is 100 times the price of silver and so if you want to have affordability play you simply cannot operate.
We have a little bit of a gold assortment but it's tiny. We plate — that's another technique that we can do and still keep it at reasonable pricing. That's very popular, across the globe.
Earrings as a category is much bigger in the U.S. than anywhere else in the world. Certain lines and collaborations, such as Harry Potter, have been very popular worldwide while others have not. Star Wars sold well with a very niche client but on the other hand, they were super loyal.
Diamond consumption in the U.S. is also much higher due to the culture around engagement. If you're getting engaged or married in the U.S., it always has to be a diamond. That is not at all the case in Europe.
TheStreet: How are inflation and supply chain disruption affecting this industry?
We watch the cost of silver carefully. When the interest rate goes up, the price of silver goes down in what is a strange positive for us. Silver also has a very low melting point so the amount of energy you need to form jewelry is very low/
We air-freight everything because the weight of the volume is tiny. So all the issues that you had around container freight going up tenfold, we didn't get much of that.. There's a little bit of freight, of course, that's been impacted but when you look at store leases when the economy has been tough they haven't been going up. If anything we've been trying to negotiate them down or get some relief. Staff cost so far has also been more or less at historic averages.
With lab-created diamonds, we also focus on CO2 emissions. That's part of the global charge we have as a company. Our aim is to be carbon-neutral by 2040 and eliminate half of all the CO2 by 2030. A large part of this is now to come from working with recycled silver and gold.
TheStreet: What stands behind the decision to invest so heavily in brick-and-mortar locations?
A lot of analysts tell us "why don't you close out all your stores and go online only?" And I say "we could but it's a really bad idea." 60% of my customers are guys who are buying jewelry and, I'm sorry, they need the help. I can safely say that. The other 40% is women who actually like to touch and see whether they liked the style. The other factor is that when you play into the mass market, distribution and access to the brand is critically important.
Our stores are not huge and they don't have an awful lot of stuff but the people coming in are looking for that experience. That's why I always say that the people who work in Pandora are not retail staff but salespeople.
I'm a big believer in the brick-and-mortar aspect of what we do and in fact we're looking to expand our global footprint in the years to come.
