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Understanding Seasonality in Diamond Sales

Understanding Seasonality in Diamond Sales

In our last article, I identified the primary consumers of diamond jewelry today. I noted that more than 50% of diamond jewelry pieces are destined to be worn by a married woman, and that income is the single most important variable when determining diamond consumers. I also outlined how branding is—and will continue to be—a critical marketing tool to establish diamonds as a premium luxury item for the next generation of consumers.

Aside from factors like age, gender, and income, there are other cultural and geographical differences between people around the world that can help us understand how different consumers use and purchase diamonds and diamond jewelry. By analyzing some of these differences, we can better understand where the industry may be headed.

The Big 6

According to research from Bain & Co., the six largest diamond-consuming regions account for 86% of global retail jewelry purchases, which exceeded $81B for the first time ever in 2014. The Big 6 diamond-buying regions are the United States, China & Hong Kong, India, Japan, the European Union, and the Persian Gulf. 

The United States has long been the diamond consumption center of the world. In 2014, the USA accounted for 42% of all diamond jewelry sales, according to De Beers. However, the market share in the United States was considerably higher before the recession of 2009 when industry sales plummeted to just over $50B, much of it due to declining demand in the USA. 

Since 2009, U.S. consumers have returned to their love affair with diamonds and sales have improved steadily year over year ever since. According to De Beers, diamond jewelry sales in the U.S. have increased by an average of 5% each year from 2009-2014, despite the fact that jewelry-focused advertising has been declining over the same time period. 

The most recent research suggests that diamond jewelry sales in the past year have shifted to lower cost items, set with smaller or lower value diamonds. This has resulted in the current crisis in the diamond pipeline. Even before the crisis, sales of diamond jewelry had still not recovered to pre-crisis levels. This suggests that there may still be room for further growth in the United States.

China has been a key driver of global growth across many industries, including diamonds. From less than 5% of diamond consumption in 2006, China & Hong Kong are expected to exceed 15% in 2015, according to research from Diamond Shades. 

Even more impressive are the gains made in India. This nation of nearly 1.3B people has a long tradition of gold jewelry manufacturing and consumption, especially around the marriage “season” in October and November. However, diamonds have rapidly gained in popularity over the past decade. This is due primarily to the preeminence of the Indian diamond manufacturing industry and the increasing income of the nation as a whole.

Japan on the other hand, while still a significant player in the industry, has seen negative consumption growth since pre-crisis levels. Similarly, the EU has had relatively flat diamond sales for over a decade.

Most of the sales growth witnessed since the financial crisis has come from the United States, China, and India. A closer look reveals some very different trends. 

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Source: Diamond Shades

A Closer Look

Combined, sales in China and India are nearly $20B annually. This compares to approximately $34B in the United States. However, the current population of the U.S. is just 12% of the combined total of China and India, including Hong Kong. Based on current population data, this implies that U.S. consumption is over $100 per person annually, while consumption from China, India, and Hong Kong is less than $8 per person each year. 

While much is made in the media about the growing middle class in these developing countries, the reality is that diamond jewelry is not yet a luxury available to the majority of citizens in either nation. As incomes in these countries continue to grow, more and more people will be looking to buy diamonds.

Pullback in China

Some of the growing momentum from China has been deterred by policy changes which were implemented over one and a half years ago against corruption. The government has instructed public officials to behave modestly, while taking legal measures against high ranking officials. These have "contributed" to the slowdown in the growing trend of luxury consumption. 

These rules have had an immediate impact on diamond jewelry consumption in the country. The “gift-giving” culture has come to an end. Much of the middle class has shunned the outward appearance of wealth. The growing trend of Chinese consumers purchasing diamond engagement rings has stalled. 

“Recycling” in Japan

In Japan, as the population ages and the economy continues to languish, many people are getting rid of unneeded things to focus on a simpler life, a concept known locally as “danshari.” According to Bloomberg, the market for used goods in Japan has increased by 10% annually since 2009. This has led to a huge market for recycled diamond jewelry, most of which is being exported to buyers in China.

Diamonds over gold in India

In India, the rupee has been steadily weakening against the U.S. dollar since mid-2011, making diamonds denominated in U.S. dollars more expensive in the local Indian markets. However, weak gold prices in the world’s number one gold consumption nation have helped spur diamond sales as consumers rush to acquire jewelry at what they perceive to be good value for money. Based on the mass availability of smaller inexpensive diamonds manufactured in India, the country is now the largest consumer of diamonds in the world, in terms of individual pieces, according to Diamond Shades.

The unique characteristics of each of these major diamond-buying regions have an impact on how diamonds are sold around the world and the seasonality of global retail sales.

Seasonal Diamond Buying

Monthly diamond sales in the United States have shown similar trends for many years. December and the Christmas shopping season are by far the most important diamond jewelry selling seasons of the year, and can be responsible for a significant portion of annual profits for many retailers. Interestingly, December is also a strong month for engagement ring sales, as many men choose to propose to their partners during the holiday season.

Diamond jewelry sales show smaller peaks in February, May, and November corresponding to Valentine’s Day, Mother’s Day, and U.S. Thanksgiving (Black Friday and Cyber Monday) respectively. Based on current sales this year in the U.S., many retail specialists, including De Beers, are predicting a positive Christmas sales season for the industry. 

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In India, where the majority of polished diamonds in the world are manufactured, polishing factories close during the Diwali holiday in October and November, often for several weeks. Sales of polished diamonds are often brisk leading up to the holiday, as manufacturers want to avoid sitting with significant quantities of diamonds in their safes for long periods. Additionally, the Diwali holiday itself is often a strong time for jewelry retailers who need to replenish stocks.

While the U.S. wedding season ranges from June to October, it peaks in the summer months of June, July and August. That said, weddings take place throughout the year. However, in India, monsoon rains and stifling summer temperatures lead to two very pronounced wedding seasons. The main peak takes place over November and December, with another smaller peak in the spring months of April and May.

As diamond gift giving and adornment becomes more prevalent in India, the wedding season takes on increased importance to retailers and polished diamond suppliers. 

In China, the key sales season for diamond jewelry revolves around the Chinese lunar new year, which typically begins in late January to early or mid-February, and can last as long as 23 days. In 2015, New Year sales were curtailed considerably compared to previous years owing to the new regulations.

The Muslim holy month of Ramadan, which lasts 30 days and takes place in June and July, has become a significant diamond jewelry selling period, not just in the Muslim world, but in the UK and other parts of Europe as well. Wealthy people from the Middle East are increasingly coming to Europe to buy jewelry leading up to the holiday. According to Euromonitor International, Saudi visitors to the UK were up 22% in the pre-Ramadan rush of 2012. Average prices during the period exceeded £1,900; double the month prior.

Impact on Diamond Retailers

The unique regional and cultural differences in the global economy present challenges to retailers. They must navigate these complex differences to attract and retain their customers. The entire industry has become more sophisticated in terms of inventory management to account for the expected peaks and valleys in retail sales across the globe.

This becomes even more important as research has identified a rapidly changing trend in the retail landscape of the U.S. According to De Beers, the diamond industry in the U.S. is still dominated by small independent jewelers who serve local markets. The proportion of independent store locations across the country rose slightly from 52% in 2007 to 54% in 2015. However, the proportion of sales to these independents fell sharply, from 56% in 2007 to 35% in 2015. 

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Department store and chain locations were the big winners in this shift, as larger locations used their scale and buying power to generate higher sales despite a small decline in the overall number of storefronts.

This has important potential ramifications for emerging markets like China and India, which have also historically been served mostly by small retailers in local markets. Consolidation has been rapid in these countries, and large retailers are increasingly gaining market share at the expense of smaller single owner locations. In China, Chow Tai Fook has become a household name and is now the world’s largest diamond jewelry retailer without having attempted to expand into international markets.

E-commerce purchases have also been steadily increasing for years, and this trend shows no signs of abating. This is especially true among the mobile-friendly millennial generation of consumers.

It is clear that the needs and demands of consumers across the globe are changing rapidly, and that the trends that exist today may not exist tomorrow. The industry, which has historically been very resistant to change, must continue to adapt to the needs of the customer, or risk making itself redundant. 

The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.

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