Familiar with the relationship status ‘It’s Complicated’?
That is a good two word description of the diamond jewelry holiday selling season so far. As you may recall, diamond jewelry sales were sluggish during the 2017 holiday season, but ended with a last-minute rush by consumers. That happened during the last two weeks of December.
Is that what will happen again this year? Maybe. What we do know is that at this point, sales seem lackluster. Mumbai-based wholesalers and traders selling in the US or to American buyers are reporting a slowdown in business. In the past, business peaked in December. This year, they are reporting that that the majority of their holiday business is probably behind them. This year business peaked in mid-November.
This is not to say that there was high consumer demand in November. Not at all. It means that retailers stocked up late (not in October), and since then are waiting for consumers to buy. With limited consumer purchases, retailers are not rushing to replenish their inventory. They are acting cautiously.
Because they are not seeing large orders, Indian manufacturers are not working at full capacity. This explains the decline in rough diamond purchases on the one hand, and the limited rise in polished diamond inventories on the other. From that perspective, they are limiting their expenses, because they are not generating a cash flow that justifies large purchases of rough diamonds or sitting on a large inventory.
So what is it that complicates matters? By all accounts, American consumers are interested in diamond jewelry. They say so in every survey. The missing link is in the type of jewelry. At this point in time, American consumers are not buying high-end items like they did in the past. They are buying fashion jewelry set with diamonds. They are buying fine jewelry set with diamonds. And in both cases, they are buying lower cost diamonds. They are either of low quality and color set in low-cost jewelry, or very nice smaller diamonds set in fine jewelry. By smaller we are looking at goods below 0.40-carats. Thirds (0.30-0.39-carats) at best, but often even smaller, such as melee.
One trader who specializes in these goods had a very positive view of the holiday season. These diamonds are of great make, at least Very Good. Some of these demands are by jewelers who have semi-mounts on hand set with side stones just waiting for a customer to make an order and decide on the center stone. This begs the question: once a potential consumer walks into the store, what center stones will retailers show them?
The answer to that question is not complicated. They’ll show diamonds they have on memo. From a trader’s perspective, a diamond provided on consignment is not a sure sell at all, and they are right. If retailers don’t make a sell, the stone is sent back to the trader who provided it. The upside for the retailer is obvious, if they don’t own the stone, they are not risking their capital. From a wholesaler’s perspective, a diamond provided on memo is higher priced – they add the cost of money into the equation.
From a retailer’s perspective, it is also a way to avoid getting stuck with a diamond that won’t sell and may linger for many months in their safe with no buyer.
American and US-based wholesalers reflect this mixed bag. According to these traders, they don’t have meaningful sales, and providing goods on memo has promise because of the upside of larger margins, but they have no idea at this point if it will materialize. The level-headed ones among these traders are actually optimistic. They expect a good pick up in demand to start this week, running through to the last few days before Christmas. That is a very narrow window of opportunity.
Currently, most of the demand is for oval-shaped diamonds, some rounds, and here and there cushion-shaped diamonds. All goods must be excellent make.
With limited sales of diamond jewelry by specialty jewelers, reports of near empty stores with very limited traffic, and consumers who are refusing to leave deposits on a diamond or any other commitment, some traders are worried. It is not surprising that there is concern in the US market that come January, a number of traders may close shop. Companies that are already distressed, but trying to make it through the holidays in the hope of generating some cash, may call it quits after the holidays.
Our fear is that this is not limited to traders, but may be true for retailers as well.
* 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.