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Pandora: The beginning of the end?

Pandora Australia recently announced its latest round of account closures as it seeks to reduce its retail distribution. 

The company sent emails to the affected independent stockists in the second week of June and then immediately attempted to allay the fears of its remaining stockists.

An email signed by Mikael Kruse Jensen, managing director Pandora Australia, explained: “As we continue with our strategy towards branded retail excellence, we have taken the decision to close a number of wholesales accounts. The choice of whether to have Pandora concept stores and work with multi-branded partners [independent stockists] depends on a number factors including location and market needs. We appreciate that this decision may be difficult to understand for some of you, however we have made the decision to strengthen the experience we provide consumers and position Pandora well for the future.”

Jensen’s email continued: “It is important to note that this announcement does not change the nature of our relation and will have no impact on your account. All accounts affected by the closure have already been notified.”

The problem for Pandora is that no one believes a word of it!

There’s an inherent belief that the company is on track to adopt a vertically integrated business model, thereby eventually dispensing with all independent retailers; its product will only be sold in company-owned stores. More than 1,000 Pandora stockists have been closed internationally over recent years; 450 US and 130 Canadian accounts in 2016 alone.

In addition, it has been buying back concept stores (franchisees) in England, and it recently reached agreement with Ireland’s BJ FitzPatrick Holdings to acquire its store network.

Ruthless management

It’s cold comfort for Australian and New Zealand independent stockists who managed to survive the latest dumping because they’re fully aware that Pandora has closed well over 250 accounts since 2011.

While the company would not confirm the number of account closures in the latest round, it’s believed to be as many as 100.

Further, the way it goes about its retail rationalisation is ruthless, leaving many jewellery retailers in the lurch.

Having spoken to jewellers who recently had their accounts closed, they say it’s not so much that they were given 60 days notice – in accordance with their licensing contract – it’s more that all backorders were immediately cancelled.

A local jeweller who may have been a Pandora stockist for say, 5–10 years, would have existing customer orders in the system waiting to be filled, and their customers might have been waiting a few weeks, only now to find that their purchase will not be honoured.

It’s one thing to close an account with 60 days notice in accordance with a contractual agreement, but to immediately cancel all backorders is nonsensical. It flies in the face of the so-called “Pandora experience” given that it’s the local jeweller’s customer who is inconvenienced.

Pandora public relations material often talks about “customer experience” and the buzz term is rolled out in various interviews with Pandora management, however it only seems relevant if it benefits head office.

A more sensible approach, surely, would be to advise a jeweller that their account was being closed and, while no more stock could be purchased, all backorders would be honoured as most would be on order for specific customers, often gift purchases. However, the email to stores was quite clear: “Pandora will not provide replenishment stock and all pending orders will be cancelled.”

So much for the Pandora customer experience!

With a management style like this, would you believe there is any longevity in doing business with Pandora?

I hardly think so, which is why so many can now see the writing on the wall and are actively planning for life without the brand. One industry expert said that within two years no independents would have Pandora.

Indeed, many of the remaining independent stockists are now quietly working in the background to dump the Danes before being dumped themselves; for them, it’s undoubtedly the beginning of the end for Pandora.

Unwanted product

Independent stockists have little say in how many ‘range drops’ they must take each year and nor do they have choice of product that must be stocked. It’s not a new issue however; one retailer told me that their store is increasingly forced to accept design styles unsuitable for their market.

“Some of the Pandora styles are great for the capital cities with large Asian communities but in regional and rural Australia, many of these designs are not popular,” the retailer said.

There seems little sense in forcing unwanted product into the wholesale channel because it will eventually cause problems down the track. Coupled with a tight credit policy - stockists must pay invoices within 14 days – these strict requirements to accept ‘stock packs’ means that retailers will often have unsellable product.

Retailers have complained that when they try to deal with these non-sensical policies they are stonewalled. Two words that continually pop up when discussing Pandora management are ‘arrogant’ and ‘conceited’.

There is little or no flexibility and if you want Pandora then you comply with firm policies or you don’t have the brand. Speak to stockists and they’ll tell you this attitude has been in place for some time however; it has gotten worse in recent years.

Independent stockists are faced with 8-10 range drops each year, regardless of whether they need stock or not.

Such policies are good for head office sell-in (wholesaler to retailer) but they do not take into account sell-through (retailer to consumer) and this can be a major concern. This practice bloats the retail stock channels and is perhaps why Pandora’s problems extend further than the recent account closures.

It’s no secret that its sales have been in decline for some time, and international stock market analysts have been closely monitoring management decisions.

One industry expert told me that not only have Pandora’s Australian and New Zealand sales declined by 15-20 per cent across the board, the company’s current sell-in allocation to retailers is “very optimistic given they appear to be based on the volume highs of two years ago.”

He said the requirement on stockists to accept larger orders “are way in excess of current demand by the end consumer. This excess stock is clogging up the channel.”

While sales have been in decline compulsory stock orders have not reduced to take into account reduced consumer demand. Worse, even when some of the product is not suitable for certain markets it means the stockist must pay Pandora in 14 days for stock it knows it cannot sell. 

One retailer told me that their Pandora sales were down by 23 per cent over the past 12 months.

Channel stuffing

If channel stuffing with compulsory stock packs is going on with no concern for sell-through to the consumer, then it’s potentially a ticking time bomb.

I have seen this before, the Swiss watch brands turned channel stuffing into an art form!

Many high profile watch brands acted with the same arrogance towards the retail channel, ‘forcing’ unrealistic sales targets and budgets on international distributors and specialist watch retailers. If you did not accept the targets the Swiss watch brands gave you, you would lose the distribution rights so local wholesalers accepted the ‘excess’ product but shifted into the grey market channels.

And then the Swiss were left wondering why their luxury brands were turning up in Costco!

Artificially stuffing a sales channel achieves nothing; every attempt to circumvent the market will result in the opposite outcome for which you hoped; start with the wrong intention and you’ll get the wrong result.

A cynic would suggest that these business practices are devised by senior management of listed companies who rarely deal with people on the coalface. Worse, they are less to do with consumer demand and more likely designed to reach the expectations of the financial market analysts and to achieve annual management bonuses.

You only have to look at the state of the Swiss market today to witness the outcome of fanciful and overly optimistic sales targets aided and abetted by forceful management practices. 

Whether Pandora is headed in the same direction is anyone’s guess, but one thing is for sure, the continuing account closures would not be happening if everything were rosy, such as they were 2-3 years ago.

A box of problems

The Financial Times reported in January that, “Danish-listed shares in fashion jewellery chain Pandora tumbled 15 per cent after it forecast margins would slip from 2018 onwards. It will miss its full year earnings before interest, taxation, depreciation and amortisation margin guidance of 38 per cent by a smidgen. On top of that, its new margin target will be lower still: 35 per cent from now on, compared to the 37.3 per cent it expects to achieve for the 2017 financial year.”

While only last month Bloomberg reported, “Pandora appears to be losing the confidence of key analysts and investors. Shares in the world’s biggest jewellery maker, which is based in Copenhagen, slumped more than 8 per cent at one point, dragging it down to its lowest market value since February 2015.

“Investors started selling on advice from Carnegie, which slashed its share-price target by 43 per cent and said clients should brace themselves for a Pandora “profit warning.” Carnegie based its prediction on “poor” first-quarter numbers, as well as concerns the company is doing badly in Italy and clear signs of a contraction in store productivity. The brokerage’s downgrade followed similar moves by analysts at JPMorgan and HSBC.”

The short sellers have been circling the company for some time and Bloomberg reported in March that “short interest is rising as hedge funds have more money”, and that the “hedge funds have been on the winning side of bets against jewellery maker Pandora.”

If the channel stuffing exists and is as bad as some local industry experts suggest – and the “clogging up of retail arteries”, as one described it, is worsening - then the ‘shorts’ may have a field day with the Danish behemoth.

Only time will tell whether the solution to some of Pandora’s larger challenges – including a sharp decline in Chinese demand – can be assisted by continuing to reduce the number of independent stockists.

Online competition

The company’s bet is that Pandora is a destination purchase; customers will travel to its company-owned stores as it reduces its retail footprint. Alternatively customers will shop online when there are no local retail outlets in their area, and that’s not an unreasonable position given that the UK’s Professional Jeweller reported two years ago, “Pandora’s own online store is now the biggest retailer of its jewellery in the UK.”

Pandora president for Western Europe, Peter Andersen, revealed that the official online store was, “by a considerable margin”, the company’s largest retailer in the UK.

That would not have been music to the ears of Pandora’s 180+ UK franchise owners at the time, given that the business model means they are competing against the very company to which they pay franchise fees.

Local industry sources told me that the Australian franchisees, or ‘concept stores’ as Pandora calls them, are also feeling the pinch. According to knowledgeable sources, they too have experienced a sales decline of around 15 per cent, suggesting the fall has more to do with the brand and its product rather than the incompetence of independent stockists.

Market analysts have observed that 57 per cent of its revenue still comes from charms and while the Pandora Phenomenon, as I first called it in 2009, radically changed the international jewellery market, the party would always end.

“And there's another, more fundamental, issue for Pandora: its styles — on trend just a few years ago — have become stale. The company acknowledged as much at its capital markets day in January. Without novelty, there's little reason for luxury consumers to open their wallets,” Bloomberg reported in May.

By continuing to reduce the number of retail stockists and hoping that the brand loyalty is so strong that customers will travel to buy, or will shop online, then Pandora must have faith that a reduced retail footprint will not cause further sales decline.

Of course, that depends in part on the strength of its product offer, but it also belies one important factor: the impulse purchase.

Wide distribution enhances the chance of impulse purchases and inexpensive jewellery can often be exactly that, especially when it comes to gift purchases.

One would hope that Pandora has ‘done the numbers’ in that regard; because there is no doubt that, historically, thousands of independent jewellers around the world have been instrumental and influential in the success of building ‘Brand Pandora’ into the industry changing phenomenon that it became.

There may never be anything like it again.

It’s just a shame that the lasting impression for those who helped build the brand will be ‘arrogant’ and ‘conceited’; and if remaining stockists have concluded that it’s time to plan for life without Pandora, and are working to dump the Danes before discovering that they’ve been dumped like so many before them, then Pandora only has itself to blame.

Then again, the Denmark HQ might not care one iota if its ultimate aim is to be the world’s largest vertical jewellery company.

Regardless of the outcome it has certainly been one hell of a ride!


More reading:
Pandora to close accounts
Pandora closes 100 more stores
For Pandora, arrogance is a two-edged sword

The Pandora Phenomenon
Birth of brand Pandora


Coleby Nicholson

Former Publisher • Jeweller Magazine

Coleby Nicholson launched Jeweller in 1996 and was also publisher and managing editor from 2006 to 2019. He has covered the jewellery industry for more than 20 years and specialises in business-to-business aspects of the industry.

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