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Another trade show has come and gone, leaving more questions in its wake about the role such shows play in fostering diamond sales. These uncertainties take their place alongside many other lingering questions about the direction the diamond trade is taking.
BaselWorld is the premier trade show for watches in the world, and probably Europe’s foremost jewelry show. According to exhibitors, the show met with lukewarm sales, an apt reflection of the state of demand in global markets. While sales were low for both watches and jewelry, diamonds and jewelry seemed to suffer worse than watches.
The introduction of smart watches and fitness wrist bands has taken a toll on watch sales, and has resulted declining Swiss watch exports. Watch companies, which made enormous marketing investments at the show, found themselves face to face with shifting consumer sentiment that has yet to be fully addressed.
There is a potential silver lining. The advent of smartphones stirred fears among watchmakers that consumers would no longer have a reason to buy their products. Suddenly smartwatches have created an opportunity for watch companies to find their way back to consumers’ wrists. This opportunity has not yet fully materialized into results, and is still in development.
However, fine jewelry, on the other hand, has not been given a “second wind” as demand for luxury jewelry in Europe continues to suffer, and diamond jewelry is no exception. The Basel trade fair also hosted a loose diamond section, where the mood was generally not good.
Not only were expectations low, but diamond sales suffered from poor positioning. They were situated in Hall 3, the most remote of the halls and therefore least exposed to foot traffic. In addition, the cost of booths is very high, which makes generating sales even more urgent.
Deconstructing the sales
Business, as stated, was not good. This luxury-oriented show is not a good fit for small goods or even 1-2 carat items. We have heard reports that even sales of larger goods, 20 carats and larger, were made only after prices were reduced. There is strong pressure on the prices of these exceptional goods, and insufficient demand drives these prices down.
There is an old Jewish saying, “If the cedars are on fire, what can the moss say?” The meaning is “if the mighty have succumbed, how shall the weak emerge unscathed?” Or in our case, if demand for 20 carats by consumers with the deepest pockets and often the best financial standing is softening, why should we expect demand for 2-carat diamonds to be any better?
Not everything was bad. Fancy color diamonds were in demand, especially pinks and yellows that are seeing a certain resurgence in demand.
For white diamonds, exhibitors that specialize in a specific niche or those that have an innovative approach had better sales than others. This, in my mind, is important. The supermarket approach is good for selling vegetables, but not specific items in a luxury market.
The picture is emerging that demand is for a low total value, mostly for mid-range polished for the US and Chinese markets. Most everything else is not moving. Those goods that are in demand are precisely the kind of goods that will face strong competition from lab-grown goods, because they do not benefit from the economy of rarity.
If the diamond industry had had the foresight to emphasize the economic value and rarity of the higher-end diamonds, today we may have seen demand for smaller goods as well as big ones because of the situation in the financial markets. People – investors, financial institutions and individuals – might have bought large stones especially today to spread out their financial holdings outside of the financial market and hedge against inflation.
BaselWorld, more than any other jewelry show, is very luxury-oriented. The top brands, those that often aren’t exhibited at any other show, have booths at this one. This fact, together with the setting and type of clientele in attendance make BaselWorld a high-end show, with many booths costing millions of dollars to create.
In terms of marketing, I must ask myself, is it appropriate for the diamond industry to offer mass quantities of loose one-carat diamonds at such a location? What is the message we are sending to high-end consumers that frequent this trade fair, if they see high-end diamond jewelry pieces in one booth and then loose diamonds in large quantities offered at wholesale prices in another booth? How difficult is it for a sophisticated consumer to understand the markups on luxury jewelry?
Doesn’t this behavior create discontent among consumers? Does it not lead to pressure to reduce jewelry prices? And if that is what happens, isn’t it clear to all that we are hurting our own business? Is it appropriate to offer luxury items next to their wholesale offered components? Is this not one of the reasons that the organizers of BaselWorld relocated loose diamonds from a spot adjacent to the main hall to one far behind it?
As stated after the previous trade show held in Hong Kong earlier this month, we are seeing the ill effects of the large rough diamond supplies in the first quarter of this year. Manufacturers have a need to move goods out of inventory to generate cash flow that pays for the rough and the manufacturing. At the Hong Kong show, this need appeared to drive prices down. This reflects an unhealthy situation for the trade.
With the exception of few specific items, this trend seems to have repeated itself at the Basel show. The diamond industry is still stuck with high inventories, fresh goods are on their way, the 30-60 day payment terms are due, and manufacturers are in need of cash.
Another point made after the Hong Kong show was that with polished goods offered by wholesalers at low prices, a low baseline is being set for future prices when the fresh supply arrives next month. We are seeing that that is the case still today.
As stated, all of the above arises before even addressing the need for restoring consumer faith in diamond jewelry, or generating a decent profit, let alone seriously increasing capital.
Considering the high cost of booths at the show, the pricing difficulty, and the concentrated competition, several questions must be asked once again. Selling diamonds at a trade show is often a focused effort that requires having the right goods for the buyers that attend a show. The effort required to come to a show with the cost of travel, hotels, shipping, insurance, marketing and the booth itself, as well as the time out of the office and the pre-show work, are all considerations which demand the presence of clear benefits.
And so, goods brought to a show could comprise around 20% of a wholesaler’s inventory. Let’s say that only 10% of that offering is sold at the show. Is that a success? What about the prices achieved?
To justify this effort, sales must exceed what might have been sold out of the office. This means either more diamonds or at higher prices, or both. Have the loose diamond exhibitors succeeded in doing that?
After the Hong Kong show we said that once the show is over, exhibitors should ask themselves these questions in order to determine if the show was a success. Were the right goods brought to the show? Were they priced correctly? Healthy trade is based on daily sales out of the office, not trade shows. Selling at a show is not the basis of trade and can only serve as an aid. Has the Basel show aided traders to improve business?
The sentiment we are hearing indicates that the answer is no. So much so that many are fed up with the Basel show, especially given the location of the loose diamonds hall and the associated costs. They are willing to give up their booths altogether. Clearly, if this is the case then they want to focus on better shows, and feel that had they stayed in their offices they would have done just as well.
Sadly, multi-item diamond companies will take these booths, according to exhibitors. They are giving up because the competition, costs and efforts are not yielding the necessary results. In their place we will see diamond “supermarkets” with hardly any niche.
One problem is that they will only increase competition and drive prices down. Another problem is that it will further exacerbate the issue of luxury versus quantity. Where is the long-term plan? How will this approach improve the market? Will we need to continually battle for every nickel and dime, when we should really focus on significantly increasing our capital?
As always, the focus should be on creating long-term value all along the diamond pipeline. The Basel show is not at fault. It is our responsibility to make the best of what is at hand. In my eyes, the secret to this success is to buy at reasonable costs, manufacture efficiently, offer polished with as much transparency as possible (including all irregularities) and to finance this process in a reasonable way that does not bind us to overarching aim of satisfying credit needs.
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.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.