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US: A Great Past, But Will it Hold the Future of Diamonds?

US: A Great Past, But Will it Hold the Future of Diamonds?

The US consumer market is the key market for the diamond industry, responsible for about 40% of global demand by value. However, although the US is the leading market, it is a very stable one, for better or for worse. While stability in a business is valuable, it is difficult to generate a drive for growth in a stable environment.

It was for the US market that De Beers commissioned an ad agency to come up with its first marketing plan, which gave birth to “a diamond is forever,” considered the most successful slogan in advertising history. With the help of this slogan, as well as print, radio, and TV advertising, diamonds became a must in every woman’s jewelry collection. More importantly, it became an almost-must for any engagement ring to be set with a diamond. Till this day, the bridal market represents more than 40% of demand by value of diamonds in the US consumer market.

The growth path started post-World War Two. During the war, the American economy was focused on supporting the war effort. Released from this economic burden, the American economy mushroomed, the size of the working class decreased, and the middle class expanded as the cost of leaving decreased, access to more consumer goods increased, and discretionary income rose. With this growth, access to diamond jewelry was no longer limited to royalty and the wealthy, but to practically anyone.

The end of the war created three strong demographic events: a sharp rise in the number of marriages, a downturn in the average age to wed, and a sharp rise in the number of births. This was the baby boomer generation. In the short-term, the rise in weddings naturally pushed up demand for engagement rings and the diamonds set in them, but the baby boomers were responsible for the long-term change – a rise in the size of the population and a continued expansion of the consumer market, and with it an expansion in demand for diamonds.

Well into their middle ages, baby boomers continued to push demand for diamond jewelry as they got married, and when they celebrated life events, reached the top of their earning ability, when their children graduated from college, and today, as their children are getting married. They were an excellent driver of diamond jewelry sales. However, when you look at the US demographic, baby boomers are past their earning prime, and are decreasing their expenditures. Who is there to replace them as top spenders? From that standpoint, the US consumer market is at a worrisome point. The Y and X generations are not big spenders like the baby boomers, and millennials have never really been exposed to De Beers’ “a diamond is forever”.

Changes in American culture are possibly even driving consumers away from diamonds. 20- and 30-somethings are not getting married as much as the baby boomers. With fewer weddings, a large driver to buy diamond jewelry shrinks in a noticeable way. With fewer and delayed weddings, there are fewer wedding anniversaries, and this causes a further dent in diamond jewelry buying. This change also results in having children at a later stage in life, and in turn delays many life occasion celebrations, and the purchasing of large presents, such as diamond jewelry, to celebrate these occasions. These changes are also reflected in a delay in building equity. University tuition debt is rising, leading to less discretionary spending during the first ten years out of college.

One aspect of the cultural change in the US in recent years includes a move away from buying “stuff” to spending on experiences – at the expense of buying a nicer car, a house, a second house, and diamond jewelry. A closer look at sentiment regarding diamonds specifically unveils another layer of sentiment impacting demand for diamonds. The focus of the diamond proposition was always emotional - that was how diamonds were sold to the public. Digging into current sentiments about diamonds, we find that many ask themselves why they need a diamond. Others feel that a diamond does not necessarily symbolize enduring love. There is also a growing sentiment that is largely focused on value, saying that diamond prices are inflated and that they don’t maintain their value.

As stated in the past, trying to battle wide-ranging social norms is not an option for the diamond industry. What we can change is the perception of diamonds, specifically diamonds of great value, and this is where price transparency comes into play. Selling diamonds as a component in jewelry will probably continue forever, or at least for the foreseeable future. But I doubt that this will become an important growth opportunity. Look at the most recent results of Signet, the largest diamond jewelry retailer in the US and parent company of Jared, Kay and Zale: in the first quarter of 2017, overall same-store-sales fell 11.5%. Sales at Jared declined 10.3%, at Zale they declined 10.9%, and at Kay they fell 1.5%. Sales by their regional chains dropped 21.4%. These results follow a difficult 2016 for this retailer, considered one of the best operations in the business.

Clearly there is a need for change. We need to move to another way of thinking about diamonds and who we sell them to. A new proposition is needed - not a one that replaces the current proposition of diamonds set in jewelry to symbolize love, but one that will co-exist with it. A proposition that takes into account that consumers are smart, and treats them accordingly. We must provide them with the ability to both consider the data quickly, without diving too deep into it, but at the same time give them the option to consider data about individual diamonds at great depth. Even if they don’t look too closely at the expanded data, they will feel confident knowing that the information is available should they want to consider it. Knowing that there are additional, easily available data provides peace of mind.

If we in the diamond industry open ourselves up to this new reality, than we have a golden opportunity. In the past, I have mentioned changes in other industries: taxi services, for example. We all stood and waited in line for a taxi, sometimes for long periods, sometimes only to see a cab drive by and not stop for whatever frustrating reason. We have all suspected at some point that the driver was taking us on a roundabout route to push up the cost of the fare. We may have run into drivers who didn’t clean their cabs, or who had one of many other issues. Along came Gett, Uber, Lyft and others, and addressed these concerns. We know when their cars are about to arrive, that they’ll take the most efficient route, that the cars are clean, etc. These companies have simplified the process, and have built multibillion-dollar business by doing so. We see this happening in other industries as well, where sudden and unexpected changes by outsiders swept consumers off their feet, revolutionized service, and (this is the most important part) killed many traditional players. We need to learn these lessons and avoid the pitfalls, because unless we make the change, the change may be forced upon us. Let us not react too late.

Opening up to consumers, addressing their concerns, and providing them with the information they want when they want it, are the basics for consumer business today. This is especially true in the US. That is why I’m suggesting the industry makes a change now, before it is too late. And that is why I developed a price list based on transaction prices, the Mercury Diamond™ Price List. It provides not only wholesale polished diamond prices, but a basis for retail prices as well. Why a basis? Because all along the diamond pipeline we add value to diamonds. Retailers included. Therefore, each retailer can choose to sell their diamond jewelry at a price appropriate to them – because of location, trust, brand, service, availability, design, jewelry materials, etc.

We should provide consumers with the ability to assess, analyze and understand what the value of the diamond in question is prior to making a purchase. This way, if they want to understand what it may cost to replace the diamond with a different one, know what the replacement value of a given diamond is, upgrade or simply sell the diamond at a later date, they have all the information on hand, and are empowered by it. Transparency of prices empowers consumers by providing a basis for making an informed decision on how much to pay for a diamond.

It seems to me that the US is an aging market that needs to be reinvented, and the reinvention should be done by us. We must reach consumers from a different angle, and at the heart of this new approach is the need to be transparent in origin, process, and price. We can rejuvenate the US consumer market and turn it again into a growth market. This requires bravery on our part, and openness to great change. We will need to provide a transaction-based price list, offer historic price trends, and go deep on education, especially about irregularities, because consumers do not understand why two diamonds with the same 4Cs have different prices. Clarifying these issues may just be the change we need.

 

       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. 

 

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