The GFC has slowed diamond sales around the world but local suppliers seem confident that the Australian market is already over the worst.
The Global Financial Crisis has caused a significant decline in diamond sales around the world this year – and unfortunately there are no signs of an immediate recovery on the horizon.
In fact Rapaport Group chairman Martin Rapaport recently warned the diamond industry that it will face even more dramatic challenges in the years ahead.
In his annual ‘The State of the Diamond Industry’ speech at JCK Las Vegas, Rapaport told delegates that the industry was “witnessing a fundamental shift to a new reality”.
“Great changes are taking place in the world around us and they will have a profound and powerful long-term impact on the diamond and jewellery industry,” he said.
“We are not experiencing a short-term crisis that will pass with a return to business as usual.
“We are witnessing a fundamental shift to a new reality, to a new world of challenges and opportunity.”
He said that although initial reactions to the global economic crisis were relatively easy to understand, the long-term implications were much more complex and significant.
“It may be obvious that if people have less money they will buy less diamonds, but how do you calculate the psychological impact of financial insecurity on the mindset of different consumer demographics?
“Even if people were to somehow get all their money back, would they buy diamonds the same way? How, when, where, why and what will they buy?
“We need to rethink our business models and the way we add value to diamonds rather than just improving our old way of doing business.”
Although largely referring to the dramatic drop in diamond and jewellery sales within the US, Rapaport’s comments are nonetheless still relevant to the seemingly more resilient Australian market.
For example, Gavin Pearce, the sales and marketing manager for Elion Diamonds International agrees with Rapaport that there is a major shift taking place in the diamond and jewellery industry and that “long term structural changes” lay ahead.
“Although the Australian economy has and will shelter our industry from some of the extremes, we are a small market and will be subject at the very least to the supply side and financial changes,” he says.
“These (changes) are not necessarily all doom and gloom, but will certainly expose quality management, sound business decisions and quality sales staff as defining factors in the sector.
“The supply-scape effects of diamonds and diamond jewellery have not been felt yet as people have been working down inventory. Tight credit, less supply of rough diamonds and more demands on profitability will start to flow through in the current buying season and continue for a few seasons yet…
“Wholesalers and retailers alike have been in survival mode for this current year, but the pressure will be to transform the businesses in the new financial year to be profitable and sustainable.”
Similarly Lonn Miller from Miller Diamonds argues that the GFC has lessened local demand for diamonds.
He says that prior to the GFC there was “strong demand for diamonds across the board” but this has “slackened off” particularly in the large sizes.
“For loose diamonds the very top end is doing it ‘quite tough’ compared to trade pre the financial crisis while the mid range to lower end of the market is fairly insulated and is holding its own.”
He says that although Australia has been relatively insulated due to the small size of our market and the greater stability of our economy compared to those of the US and Europe we have nonetheless “been subjected to wild currency swings which have had an impact on what goods are selling at retail”.
“The last 18 months has seen a slight move back on carat weight sizes as people adjust their preferences whilst their budgets have remained the same or have become smaller,” he says.
“The consumer is also more flexible in terms of qualities being consumed than when the dollar was up in the 90s.
“However since the dollar has strengthened recently, these trends are now reversing. In addition there has definitely been a strong move to certified and better, well cut goods in the past several years.”
Miller believes that in the next 12 months or so there will be several short-term shortages in various diamond categories.
“Pre-financial crisis there was an overstock of inventory right throughout the diamond pipeline from rough to cutting to wholesaling and even at the retail level,” he explains.
“Due to massive cuts in production by producers the situation has changed somewhat and now shortages are emerging overseas for various categories of diamonds …
“We expect retailers will commence re-stocking in a meaningful fashion throughout the last quarter of 2009. And this is when shortages of better well cut goods will occur.”
AM Imports marketing specialist Vikrant Kanade also believes that no business has been unaffected by the GFC but argues that local diamond sales are holding up well.
“The diamond and diamond jewellery sales in Australia are echoing effects (of the GFC)”, he says. “Uncertainty of what will happen in world markets is the single topic that is affecting the sales of diamond and diamond jewellery today.
“The GFC has seen consumers wanting to spend less on non-essential items. Diamonds and jewellery unfortunately fall under this category of non-essential products. With uncertainty of jobs or level of income there is definitely a curb on buying by them.
“Consumers with revised limited spending capacities are rethinking the way they buy. No longer are the masses subscribing to the ‘Flash for Cash’ ideology. They are now looking at every purchase as an investment and hence want the best product even if it means stretching their already miniscule budgets a bit more.
“Demand for diamond quality (in jewellery) however, seems to be unaffected with the masses still preferring lower qualities.”
“Loose diamonds have however seen a phenomenal growth in demand for large certified stones. The drop in prices for stones above a third in carat weight is probably responsible for this.”
Meanwhile despite the worries about the GFC, the business of buying and selling diamond jewellery remains a priority for jewellers like Robert Musson, the owner of Musson Jewellers in Chatswood, NSW and the president of Diamond Guild Australia.
He says the current trends favoured by his customers are “multi-diamond pieces” and “small to medium-size diamond rings in the eternity and panel style”.
“In the current economic climate clients still have money, they are just deciding to be less ostentatious,” he explains. “No big diamonds – just lots equaling big carats. The price point is different and if done well it’s no longer about bling but about unique distinction.”
“The world today is smaller than ever and the sensibility and uniqueness of Australian style is leading the market. Today’s luxury is inclusive luxury – it’s about wearing pieces that bring happiness to the wearer not just the admirer.
“The world keeps spinning – we marry, we celebrate, we endure and we continue to mark all these occasions with jewellery. What else stands the test of time like precious self adornment? The next 12 months will see the trinkets dwindle and the heirlooms shine.”
Nikhil Jogia, the managing director of Jogia Diamonds International, also believes that consumers are searching for the best (biggest, whitest, brightest) diamond they can buy.
“I don’t think trends have fundamentally changed from 10 years ago, however, consumers have a lot more choice due to the internet and the flood of imported jewellery being sold in stores.
“This has led to new styles of diamond jewellery being sold, especially complex designs that are imported from Asia.
“The rising popularity of the internet means that consumers are more educated,” he says.
“Therefore, sales people will have to sell based on verifiable facts, which leads to better quality products.
“The prime example of this is the rise in popularity of GIA certificates in Australia. Five years ago, they were fairly uncommon, but I think the internet has forced retailers to stock GIA certified diamonds, simply because GIA has an excellent reputation online.”
Gavin Pearce also believes the Australian consumer, like other consumers around the world, is becoming a very informed consumer “with any amount of information on diamonds available at their finger tips”.
“The underlying trend has been more and more knowledgeable consumers,” he says.
“Quite often the consumer is more informed than the people on the other side of the counter.”
Similarly Kanade says that consumers’ increasing knowledge is impacting on their jewellery purchasing decisions.
“People now travel more frequently and hence are exposed to different cultures and trends. They see something abroad and want the same.
“Traditional Australian jewellery used to be full of simple gold-centric designs but the demand for more progressive diamond jewellery is now extensively visible.
“Whereas centre stones used to be low set, we are now witnessing the high head mounts replicating the American trend. While the older generation still prefer bezel set stones the young are looking for more fashionable settings like micro-pavé and micro-prongs.”
Happy New Year
Kanade, like the other wholesalers Jewellery World spoke to, seems largely confident that this Christmas is looking bright for diamond and diamond jewellery wholesalers and retailers.
“The dark clouds of recession seem to be clearing, and retailers and wholesalers alike seem to be stocking up on product for the upcoming Christmas sales,” he says.
“The retailers will have no option but to put new merchandise in their windows or lose customers to competitors. (However), the conclusion of revival or not will be answered only once the books are tallied in January and sales figures are calculated.”
Finally, but certainly not least importantly, local jewellery retailers are not alone in their battle to win diamond sales in a time of global financial insecurity – on the international front key players in the diamond industry have joined forces to launch a generic marketing campaign for diamonds.
Announcing the formation of the Board in an official statement, Rio Tinto and BHP Billiton said that over the next 12 months, the Board will initiate “its first category public relations and communication program”.
“Among the Board’s immediate tasks, critical to its success, will be the securing of support from all parts of the diamond value chain.”
The formation of the Board has been enthusiastically welcomed by the World Federation of Diamond Bourses.
“Discussions about how to promote diamonds and diamond jewellery in the consumer markets, who needs to take the responsibility and who is to shoulder the financial burden have been ongoing in a variety of forums and platforms since De Beers announced it would no longer play the role of the industry’s custodian,” said WFDB President Avi Paz.
“The establishment of the IDB is a first, significant step toward the creation of a new entity that will be supported by all major players in the diamond mining, manufacturing and jewellery industry, and not just by a single rough diamond producer, as was the case until the beginning of this decade.”.
Although the funding arrangements for the IDB and its promotional campaigns are yet to be finalised, the move to reinforce, and hopefully raise even higher, the diamond’s position as a luxury item in a world filled with an increasing amount of luxury items should be welcomed by the whole industry.
After all it’s been a long time since the launch of De Beers ‘A diamond is forever’ campaign and a new international campaign repositioning the diamond in a fresh new light is bound to have a positive effect in increasing diamonds’ desirability and increasing sales – for wholesalers and retailers around the world.