The Las Vegas trade shows ended and the general sentiment in the diamond sector is not positive. It is true that business was better than last year, but that is of little consolation as 2015 was not a good year for the industry. Our benchmark should be 2013, before the current crisis. Business did indeed improve compared to last year, but it continues to be slow, limited in scope and prices are mostly.
There is some good news. Some items sold well - one carat certified rounds in HIJ colors and SI clarities – commonly referred to as American goods. There was some business in smaller goods as well, but limited in scope. As for larger goods, 3 carats and larger, traders were forced to reduce prices in order to close deals.
In all, prices remained largely unchanged but I fear that the pressure to reduce prices is strong enough to cause wholesalers to cave in. This is very bad news considering that prices of rough diamonds have increased in the past few months. The opposing forces of rising rough diamond prices and declining polished diamonds are especially alarming in light of the following: In the first quarter of 2016 rough diamond prices increased and the currently selling polished diamonds were made of those rough diamonds.
You may remember that I warned of this outcome several times in January, February, and thereafter. No crystal ball was necessary in order to foresee this direction. We knew, like many diamond manufacturers, what was selling and what the demands were, and we realized that, in terms of rough diamond supply, there were very specific needs. Instead, we got a flood of run of mine supply – the miners provided the entire range of goods from their mines and offered it to the market. In response, many manufacturers purchased practically everything.
After the Hong Kong show in March, we witnessed the declining prices of larger goods – 3-carat and larger. It was clear then that there is some demand for these goods, but only at lower prices. This may require an adjustment to the price of rough that leads to the production of these goods.
The power of brands
Overall, many jewelry manufacturers and wholesalers did not do a lot of business at the show. Even the guiding light of any show, gaining new clients, did not pan out for many. The jewelry exhibition halls of the JCK show were very quiet and at times seemed almost deserted. Those that notably did do business were the higher-end jewelry exhibitors, mostly at the Couture show at the Wynn, and (to a somewhat lesser degree) Luxury by JCK.
They did well because they appeal to a segment of society that is less price point sensitive and because they are recognized. Thus, recognized brands generated strong business. This was true for jewelry brands, high-end designer brands, strong watch brands and even diamond brands such as Forevermark.
Is this a sign of things to come? Is consumer confidence closing in on well-known brands at the expense of non-branded items? This is what happens with almost all consumer items: cars, electronics, cosmetics, mobile phones. If this is where we are headed, that is fine, as long as consumers acknowledge that they will pay a premium price for the diamonds.
In fact, this is more than fine, this is very good. It will force consolidation in the market (I already pointed out the problems of fragmentation in the diamond midstream), systematic and wide scale marketing programs that can only increase consumer demand, differentiate natural diamonds from lab-grown as well as improve manufacturers’ and wholesalers’ margins. If that is the trend, so be it, that is great.
Furthermore, it works well with the need to form a separate wealth preservation track. If consumers find interest in branded diamond jewelry, it can only increase interest in the category of diamonds for wealth preservation.
Diamonds are rare
After nearly ten years since generic diamond marketing has stopped, leading diamond producers have announced a new one: “Real is rare. Real is a diamond.” The new campaign will replace the iconic “A diamond is forever” and I hope it does well. The diamond producers did well and deserve our collective kudos for their efforts. I especially like it because it emphasizes one of the most basic tenets of diamonds: their rarity.
Wherever I turn, I remind, repeat, and restate that diamonds, natural diamonds, are very rare. This needs to be hammered in. Consumers must appreciate the rarity of diamonds. If the turn towards branding becomes stronger, then consumers will learn to appreciate the quality of rarity embodied in natural diamonds, that is part of the power of a successful brand.
Further backing by a marketing line that emphasizes that diamonds are rare can only support and further promote all natural diamonds: those sold in unbranded jewelry, branded diamonds and branded diamond jewelry. As stated in past articles on the economy of rarity, this will also support interest in high-end white diamonds as a store of value.
Taking it from here
The last rough diamond cycle was smaller than previous ones. The rough diamond market is cooling. That is an important development at a time when demand for diamonds is cooling too. In such a market, polished diamond prices typically decline. We at Mercury already see that happening with the larger goods.
As an industry, we need to collectively repeat the message that diamonds are rare and insist on full transparency and disclosure of every aspect of our diamonds: 4Cs, comments, fluorescence, make and all other components that compose a diamond irregularities. Then, and only then, will consumer confidence be such that will encourage them to purchase a diamond as an asset, knowing the full price history for diamonds of the same characteristics. Only at such time, will high-end diamond owners be comfortable enough to consider the available information and decide if they are ready to sell their diamond or keep it, just like any other asset in their portfolio.
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.