Diamond Prices are Sliding, and that is A Warning Sign

In the past few months, we have witnessed polished diamond prices decline. They are sliding downward at a slow pace, with an occasional small rise before sliding again. So far this year, overall polished diamond prices lost 2.9%, according to Mercury Diamond Global Tracker™ (MDGT™). The majority of the decline took place in the third quarter of the year – 1.3%.

Moderate price declines are not usually a source of great concern. What should worry the industry are the forces pushing polished diamond prices downward, the long-term trend, and the implications they may have on the industry at large.

Current Price Drivers

A number of market forces are driving prices down. Chief among them is a decline in consumer interest in diamonds. It’s not that consumers in the US, China, India or Japan are less inclined to buy diamonds, although some argue that this is precisely the issue. However, the data we have points to a shift in preferences. Consumers prefer smaller goods. Although we have mentioned this repeatedly in our recently published price analysis reports, it’s worth taking a closer look.

Some fashion trends are driven by changing times, events, and retail offerings. Some trends are driven by economic forces. As diamond offerings range the entire diamond gamut, and no major events took place lately to drive changes in jewelry trends, we are left with economic forces. In this case, the high prices of diamonds. Yes, prices have been declining, but that is a response to changes in demand. What we are seeing is that despite the ongoing price decline, the sweet spot has not been found yet.

So, while consumers in the American, Chinese, Indian and Japanese markets remain interested in diamonds, they are choosing smaller goods, because that fits their budgets. In the US this is a clear trend; in the rest of the leading diamond consumer markets, it is a little less pronounced, but the strong US dollar against local currencies makes diamond prices even pricier in local currencies, impacting consumer demand.

Now, let’s add to that another market dynamic – lab-grown diamonds. When the diamond industry hears how the LGD producers and retailers market this item, what worries and angers them most is the claim that LGD are “the ethical choice.” However, what resonates most for the consumer is a different promise altogether – “same, but costs much less.” Yes, this is an economic choice. Consumers want diamonds  at an affordable price. LGD makes good on that promise.

When consumers demand lower prices, prices come down. Have no doubt about that. What is worrying about this is that consumers have an easy alternative. LGD delivers lower prices, and consumers, little by little, are buying into it.

With diamonds being pricey and the diamond industry failing to explain to consumers why prices are as they are, consumers are being pushed straight into the open and awaiting arms of lab grown. Yes, the long-term outcome may be that the diamond industry is actively driving consumers away.

This outcome does not need to be a must. First, polished diamond prices will continue to decline if consumer interest is for lower cost diamonds (or abandon diamonds for the alternative). Second, the diamond industry is failing to create marketing that enhances and elevates diamonds. Diamonds are considered a luxury item in popular culture, but when it gets to economics, the reality is that most diamonds are not bought as a luxury item. In most places, they are not sold as an exclusive luxury item. Therefore, it is no wonder that consumers do not understand why diamonds are priced so high.

If marketing elevated diamonds as a truly luxurious item, and stores sold them as being very rare and unique, consumers would hear that they are buying something very special. This is what all of us in the diamond and jewelry industry must act to make happen. We should all contribute to this effort, because it will impact each and every one of us.

If you need inspiration, look no further than how high-end diamonds are sold. Large, D/flawless and fancy color diamonds are sold precisely as outlined here. And because of that, they sell well, meaning they generate nice margins. More importantly, not only are they sold as unique and special items, they are also bought as unique and special items. And buyers than cherish these purchases. They not only invest from a financial stand point, but make an emotional investment as well. And that is the kind of consumer we need.

The question that must be posed to us all is this: What kind of future do we want, one where we squabble for rough diamonds and then sell diamonds like mass consumer products with no standing and suffer from thin margins in return? Or do we want to buy rough with confidence, and then sell an exclusive product with an uplifting experience and reap the rewards in the form of handsome margins? That is the choice ahead of us.

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a Professional qualified adviser.