(IDEX Online News) – Diamonds have until now, primarily been sold worldwide as an emotional symbol – a statement on the relationship between men and women.

 

In India, however, diamonds have not really been able to sell purely on the basis of emotional drivers. They have had to also to evoke their rarity and value purely in economic terms. Diamonds – at least the larger, more significant ones have also had to rely on their ability to store, transmit and most importantly retain economic value.

 

In all the years that it dominated the global market and even now, mining giant De Beers has steadfastly refused to promote and market diamonds on anything other than purely emotional grounds. De Beers must be given credit for triggering the current nationwide demand for diamonds in India. It did so by creating and strongly promoting a raft of diamond jewelry brands, each of which stood for a separate emotional idea.

 

The ‘bread-and-butter’ Nakshatra line, while being driven by Bollywood’s high glamour quotient – Aishwarya Rai was its face – nonetheless tapped the Indian consumer’s emotional attachment to tradition by conforming to the age-old floral motif and linking it to the stars – another strong belief evoker in India. Asmi leveraged the emotional independence of the burgeoning female professional population and opened a new window of opportunity for retailers – the self-purchase market.

 

Ever since it decided to withdraw from worldwide promotions, De Beers has concentrated on developing its own branded diamond line, Forevermark. As this is a global brand, its emotional quotient is a global one – the overriding concern of consumers in developed markets about damage to the environment and the need to shun any product that would encourage oppression and brutality in producing areas.

 

The Forevermark diamond brand has tied into these concerns and offered consumers a way to publicly display affirmative action by guaranteeing an auditable trail for the diamonds all the way from the mine to consumers’ fingers. The stones are tracked from the mine, through sale and shipping to cutting and polishing firms, and their onward journey through setting in jewelry and finally distribution to the retailer.

 

Forevermark has evoked a positive response even among Indian consumers. But the brand accounts for a small fraction of De Beers’ own output. What about the vast majority of diamonds that are sold unbranded – especially in India? Most retailers in India report that there is a strong consumer aspiration to own diamonds, but that equally strong is the demand to know that they will hold and transmit onward, real economic value.

 

SUBJECT TO THE VAGARIES OF THE MARKET

The problem with this method of selling, as retailers found out recently, is that many factors completely outside their control impact sales. In the recent past, it was a combination of factors – first, the price of polished diamonds shot up at a rate that beat even the dizzying climb of gold and second, a rupee that slipped precipitously against the American dollar and thus made diamonds that much more expensive for Indian consumers.

 

The price of diamonds escalated not due to strong consumer demand, but rather due to the disproportionately high prices that were bid, primarily by Indian diamond processors, for rough diamonds. This had the knock-on effect of pushing polished prices up.

 

The whole thing became a vicious circle as mining companies, seeing that processors were buying rough diamonds at these new high prices, pushed up prices even more – triggering another mad rush by processors to buy rough at any cost as they feared prices would go on escalating.

 

There came a point, of course, when end consumers began resisting the high polished prices. But diamond dealers were equally stubborn in trying to hold on to the high prices as they had already bought more rough diamonds at even higher prices… Then, due to a variety of economic factors that had nothing to do with the diamond industry, the rupee began to slide against the US dollar. Diamond processors, who bought their rough in dollars, had to pay more for it in rupee terms. They had to pass on this price increase to domestic consumers, who were buying their diamonds in rupees too. At that point, demand began to fade appreciably.

 

Prices began to soften and inventories began to pile up. In a very short while, polished prices began to drop steeply. Panic set in through the diamond processing community. Picking up on this, De Beers, at its monthly Sight (sale of rough diamonds to its select clients) in September, reduced rough prices significantly. That steadied matters and the steep price drop flattened out and finally steadied. A great deal of confidence returned to the market. Diamond dealers expected a further drop of some 3- or 4 percent in polished diamond prices at the time of reporting, but this was expected to be a more ‘normal’ drop that would align prices with demand.

 

Optimism brightened at the end of September as the Indian government survived a confidence scare and came back strongly with a raft of economic reforms designed to jump-start the country’s stalled growth rate. This brought back confidence in international markets and the rupee strengthened appreciably against the US dollar. Suddenly, the outlook for Diwali had brightened among Indian diamond dealers. Diamonds would now be an attractive buy over the festive season, especially when compared to soaring gold and silver.

 

Some in the industry haven’t stopped worrying. Sanjay Kothari, Vice President of the Gem & Jewelry Export Promotion Council, noted, “We can’t go on selling diamonds as a commodity, along the lines that gold is sold. A commodity is subject to market fluctuations and the primary clients are not end users but investors and speculators. They will not hesitate to dump diamonds at a moment’s notice and jump into oil, for instance, if the fluctuating global economy makes energy a much better investment proposal. We have to get back into infusing diamonds – and diamond jewelry – with some emotional content. We are selling an end product that is not a commodity and we can’t have price ups and downs based on the cost of raw materials. Has a car dealer ever told you that your new car is going to cost more because the price of steel has gone up?”

 

Industry watchers have pointed out that the dependence on the intrinsic value of gold to sell jewelry has already had an adverse effect on the jewelry retail industry as was evident over the Diwali sales season in 2011. “People bought primary gold last Diwali,” said one gold jewelry wholesaler based in Mumbai’s Zaveri bazaar who asked not to be named, “they didn’t buy very much jewelry. If the idea is simply to sell them an investment vehicle, why should they go to the trouble of buying jewelry and losing out on making charges – not to mention having doubts about the purity of the gold in the product?”

 

NOT NECESSARILY A GOOD SALES SEASON FOR PRODUCT

The situation was clearly outlined as all around the country, jewelry retailers reported a disappointing Diwali sales season. The World Gold Council (WGC), however, reported that Diwali 2011 had been a good season for gold sales. This is not surprising as the WGC’s stated mission is “to stimulate and sustain demand for gold and to create enduring value”. This objective is achieved as long as consumers acquire gold, regardless of whether or not they bought jewelry. This is so even for the Silver Institute which, as the name suggests, is tasked with a mission similar to the WGC for silver.

 

Kothari said he had been urging stakeholders in both the diamond processing as well as jewelry retail industries to get behind an industry-wide effort to promote diamonds and diamond jewelry, infusing the stone with an emotional content that is not connected to commodity markets and direct economic value. “We are dealing in a precious material, so there is a perception of intrinsic value. The idea is to tie this in with some emotional content so that the direct sales driver is something other than just economic value.”

 

Kothari and the GJEPC did manage to get all the stakeholders in the diamond jewelry manufacturing and retailing industries together a couple of years ago to launch the Anant promotional campaign. “It didn’t take off primarily because it had an extremely limited budget and we were unable to make a strong enough media impact,” Kothari observed. He hasn’t given up and is now trying to rally the industry to another attempt at generically promoting diamonds. Instead of the relationship between men and women, which was the linchpin of the De Beers campaigns, the Indian effort will focus on the many avatars of the Indian woman – mother, daughter, sister, wife and professional.

“We have to do something,” says Kothari, “we’ve been piggybacking on the efforts of others all these years. Diamonds enjoy the sort of consumer reaction that they do today, thanks to the efforts of De Beers in steadily increasing their desirability in the consumer’s eyes. Now that De Beers isn’t doing it any more, we’re feeling the effects of the slump in demand. We’ve got to get off our feet and do something about it ourselves.”

At the time of reporting, however, neither the diamond processing nor the jewelry retail industry has anything in place to boost sales this Diwali. The question most industry watchers are asking is, despite the lowering of diamond prices and the strong rupee, will retailers be able to sell diamond jewelry this festive season in sufficient quantities? There is still a great deal of economic uncertainty and India’s growth rate has been significantly lowered by both the government as well as external rating agencies.

 

AGGRESSIVE PROMOTION BY OTHER PRODUCTS

A range of other product categories is also gearing up to make a splash this Diwali by not only keeping prices down to previous levels, but also offering freebies and discounts to ensure sales. Consumer electronics and white goods makers like Panasonic, Samsung, Whirlpool, Godrej and Videocon are all readying strong sales promotion schemes for Diwali, which typically accounts for some 40 percent of their annual sales.

 

Importantly, these firms have all announced that they will maintain prices at current levels despite a strong appreciation in the price of input materials. So far, only the Gitanjali Group from the gem and jewelry industry has readied similar plans. Gitanjali is reportedly also planning to maintain the price points on their existing ranges – by reducing the gold content in them.

 

For the gem and jewelry industry, the need to move away from the purely economic, investment-oriented model is emphasised by the fact that gold industry analysts are reporting a surge in the recycling of gold in the country. A big factor in this has been this year’s poor agricultural output. This means that the rural population, which is by far the country’s biggest gold accumulator, does not have the economic wherewithal to acquire new gold and will thus most liquidate its already held gold – everything from coins and bars to old jewelry.

 

Also, the 4 percent import duty on the import of primary gold has meant that the price of the yellow metal has shot up to breathless heights, thus further reducing consumer appetite for the acquisition of new gold.

 

All of this means that jewelry retailers are now presented with fewer opportunities to sell consumers new product – which offers the best margins – and reduces them to low-cost value-addition in the re-fabrication market.

 

“If jewelry were to be an object of desire like a new tablet computer or some other technological product that catches the consumer’s fancy, it wouldn’t have to contend with such issues,” says the Zaveri Bazaar wholesaler, who is uncertain about this year’s Diwali sales despite what appear to be clearly encouraging economic signs. “The debate about whether or not we should all pitch in for an industry-wide promotional effort to infuse our product with emotion will be amplified this Diwali,” he says.