The recent Vegas JCK and Couture shows not only cemented where the problems currently are in the diamond industry, they also showed where positive change is taking place, possibly signaling the way for the rest of the category. The show started with a certain degree of promise, suffered from low foot traffic, but still provides some hope.

 

Here are a few insights:

 

The US Market is Okay, the Rest of the World is Slow

Repeatedly traders stated that they are not so much worried about the US market, but for their sales in the rest of the world. Demand in China and Hong Kong is suffering from a continued slowdown and other markets, such as Japan, are reportedly expressing lower demand for diamonds.

 

In the US, on the other hand, demand is at a slow but continuous pace. As the largest consumer market, the volume is there. Currently, that is what traders are looking for – volume that generates a steady cash flow.

 

Prices Bottomed; Wholesalers are Protecting the Value of their Inventory: In the drive to generate cash flow – and in a textbook response to declining demand – wholesale prices of polished diamonds have declined and been brought very near to the point of complete loss of margins (and in some cases, past that point, according to polishers), in the past few months.

 

It is hard to tell so early after the show if prices were reduced further and if so by how much. However, the general sentiment was that prices should not be allowed to slip any further. Wholesalers want to protect their bottom line and the value of their inventory for obvious reasons. More than that, they are showing confidence in the value of their product. This is very important. At some point, they need to refuse lower prices or risk losing the confidence retailers have in the current pricing levels. This confidence is already eroding on the consumer level and needs to be addressed on different fronts.

 

A Growing Realization that Enduring Economic Diamond Value Must be Addressed

Part of the problem with diamonds is that they are perceived as an unnecessary product. They are not food or shelter. However, diamonds can have other worthwhile qualities, such as enduring value. More people in the industry are feeling that the resale value of diamonds is a topic that should be addressed.

 

More people in the diamond industry, wholesalers and retailers, are realizing that a middle road must be found. Consumers should learn which diamonds have a good resale value, a way to track and find out what the value is over time and this must be done without breaking the traditional retail model or over commoditizing diamonds to the point that romance is lost.

 

During a panel at JCK, Forevermark CEO Stephen Lussier said that when they spoke with owners of high-end diamonds, there was a need to extend the discussion “beyond the 4Cs.” That is to explain other attributes of a diamond that affect its value. This is a bold statement from a De Beers VP, especially the Veep in charge of De Beers’ retail brand. De Beers is willing to take the discussion with consumers away from romance, enduring love, etc. into the realms of commodity.

 

Price Point

Buyers were very price conscious. Partially because retailers, just like wholesalers, are keeping a very tight control on their expenses. The diamond industry, all the way down to retailers, is facing a decline in sales. Another reason is an attempt to get the most out of the situation and see if they get negotiate prices down by another point or two.

 

Retailers’ Inventory Levels are High (but Not Necessarily with the Right Goods)

It is not only wholesalers who have inventory issues. Wholesalers may be surprised to hear that retailers are suffering from a similar problem. What they bought a year ago is largely still in the display cases and aging. Their inventories are not in sync with sales and this tied up asset is not allowing them great flexibility in revitalizing their offering with fresh goods.

 

Sales were not Spectacular, with Some Exceptions

Rounds, 1 carat and smaller, were not moving well at all and selling prices were low. A couple of companies specializing in fancy shapes reported decent sales especially for cushions and side stones. This may reflect an interest in something “different,” an item that may catch the interest of consumers not captivated by the traditional items.

 

On the other hand, bigger goods did better, part of a wider trend of higher priced items. It seems that the upper income segment of American consumers is still buying diamonds. They have both the budget and interest. This jibes well with the decent business seen at the Couture show. In fact, branded and stylized designs at both shows did well pointing to a dichotomy in the retail segments – high-end is moving and consumers find them worthwhile. Price point sensitive items are not doing well at all and desperately need marketing support.

 

Handmade, One-of-a-Kind Design is Hot

Well-designed items are capturing the attention of consumers and generating sales. It is about differentiation, offering something new and different with high-quality production. It makes a big difference.

 

Of these, the handmade, unique designs are doing especially well. The reason could be, again, differentiation. Stepping away from a mass-production – even if well designed and high quality – provides even greater uniqueness. That is what generates sales today.

 

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