It is hardly a secret that demand for natural polished diamonds has been declining for many months, but perhaps the most startling confirmation of this was the recent announcement by the Gemological Institute of America (GIA) that it is firing 20% of the workforce at its headquarters in Carlsbad, California.
In an unprecedented move, the GIA announced in late July that it was planning to axe 151 employees. These positions are mostly in its laboratory, although some would also be in the corporate part of the organization. The job cuts are a direct evidence of the sharp decline in the number of diamonds submitted for grading.
Given the size and scale of its operations, the GIA – which is by far the world's leading lab and which grades more diamonds than any similar organization in the world – the announcement carries additional weight. Indeed, the lab’s announcement provides a stark snapshot of the current state of the polished diamond market.
The gem and jewelry sector around the world are going through a downturn due to the economic conditions affecting the global gem trade, GIA spokesperson Stephen Morisseau told diamond industry media outlets. Tough trading conditions mean falling demand for GIA’s gem identification and grading services which led to the organization making its decision regarding staff levels.
The job cuts will reduce the GIA’s total workforce in Carlsbad to 600, according to The San Diego Union-Tribune, which reported the story first. The lab’s global workforce numbers around 3,500.
While there has been a downturn in the number of diamonds being graded, there has concurrently been a huge increase in the quantity of lab-grown diamonds (LGDs) graded. Although this also provides an opportunity for the GIA, it actually grades fewer such stones than does a major competitor – IGI. A further issue is that grading LGDs – which have far lower price points than natural stones – means income from this sector is considerably lower.
Did GIA Spot Opportunity to Expand Use Of AI?
Although the GIA put the blame for job cuts on the downturn in the number of diamonds being graded, some industry observers see a more opportunistic move behind the GIA’s decision.
There has been a continuous increase in the ability to grade diamonds using Artificial Intelligence (AI) and instruments which give the ability to create more consistent grading at a lower cost.
Could this be the thinking behind the GIA’s decision?
De Beers’ Sales Provide Further Confirmation of Decline in Demand
De Beers – still the world’s most important diamond miner and marketer – says the current decline is simply a natural downswing in demand. During the COVID pandemic, shoppers were stuck at home and made purchases that sent polished diamond prices considerably higher.
That demand has since ended but will turn around at some point, according to the diamond giant. Paul Rowley, who heads De Beers’ diamond trading business, said: “We see the real issue as a macroeconomic issue.”
De Beers Group CFO Sarah Kuijlaars further clarified, saying: “The macroeconomic conditions have been tougher than we would like. It’s easy to forget, but 2021/2022 were outstanding for the diamond industry, and we’ve come off that a bit. There was fiscal stimulus in the US and, as that’s unwound, it has provided softer conditions in the diamond market."
“India demand has been strong and then if you look across to China, where we all hoped for the pent-up demand to come through, as it had in the US, that’s been a bit slower than we expected, so overall tough macro environments for us in the first half. We know demand is going to grow. We know more middle-class income people are going to aspire to buy diamonds, and supply is going to support that demand growth in the longer term.”
Diamond industry reports, however, suggest that the company is hurting. It has made significant cuts to prices for some of its categories of diamonds. That is unusual, given that the company makes price cuts only as a very last resort, and then only low percentage cuts.
The size of the drop in demand can be clearly seen in its financial results for the first half of this year. Profits fell more than 60% to $347 million, and the company’s average selling price dropped to $163 per carat from $213 per carat from a year before. Meanwhile, its August sale of rough goods was the smallest so far this year.
Furthermore, the impact on the miner can be seen in the fact that it has allowed its sightholders to delay contracted purchases for the rest of 2023 of up to 50% of diamonds weighing more than 1 carat, according to reports.
Meanwhile, diamond manufacturers across the world are now buying only the rough goods they need for immediate production, while jewelry retailers are acquiring diamonds and diamond-set jewelry, or more usually taking on memo, that they feel they have customers for due to the current uncertainty.
De Beers Holiday Season Campaign Shows Concern Over Sales
De Beers will relaunch its iconic “A Diamond is Forever” campaign with a $20 million investment aimed at raising demand for natural diamonds in the US and China during the 2023 holiday season.
De Beers aims to reach holiday shoppers via a range of media, such as print, digital media and influencer-generated content.
Signet Jewelers Results Illustrate Impact on Retail Sector
Meanwhile, at the retail end, Signet Jewelers – the largest jewelry retailer in North America which also operates in the UK and owns leading online retailers – reported a sharp drop of 8% in sales for the second quarter of its full-year 2024 which ended on July 29 to $1.6 billion.
Its profit slumped by almost 50% to just $75.1 million. Sales in North America totaled $1.5 billion – a fall of 7.1% decline compared to Q2 of fiscal 2023.
India’s Polished Diamond Exports on a Declining Trend
Indian companies, which process nine out of every 10 rough diamonds in the world, is suffering particularly badly from the downturn. The Indian diamond sector has recommended a two-month freeze on rough imports, according to Rapaport News, which would be its most dramatic emergency moves since the Covid-19 crisis. The pause is planned to run from October 15 to December 15.
The Gem & Jewellery Export Promotion Council has already warned that the fall in demand would hurt exports this quarter. India's exports of cut and polished diamonds are seen dropping by 22% to $17.2 billion in the current fiscal due to weakened demand from the key consuming nations, according to rating agency Icra.
In the first five months of the current fiscal, cut and polished diamond exports witnessed a sharp year-on-year decline of 31% following lower export volumes and higher polished diamond prices, the agency said. It added that exports of cut and polished diamonds have been dropping since the first half of 2022-23.
Growing Popularity of Lab-Grown Diamonds Impacting Polished Sales
Undoubtedly, perhaps the most important reason for the drop in natural polished diamond diamonds is the impact of the growing popularity of lab-grown diamonds, particularly in the American engagement and bridal ring markets.
Proof for this is provided by the fact that price declines have been bigger for diamonds used in lower priced one and two-carat solitaire bridal rings in the United States than across other categories of stones. Reports suggest that buyers of these rings pay particular attention to price points, and LGD manufacturers were quick to understand this and saturate the market with the relevant type of diamonds.
Western media industry players are asking is if all of this is leading to a permanent change in diamond jewelry buyers’ habits and will demand for LGDs be picked up next by Asian consumers who have traditionally been keen on buying higher-end diamonds. If the latter were to happen, the impact would be felt across a wide range of industry players dealing with the luxury end of the market.
Closing Words…
The global polished diamond market has known many ups and downs in recent years. Global economic uncertainty always weighs on the industry. Current slow demand in the US, China’s economic slowdown and the increased demand for LGDs are all having their effect.
The decision by De Beers to invest $20 million in marketing ahead of the holiday season is a good start, but much more obviously needs to be done.
Meanwhile, the Natural Diamond Council has done exceptional work in recent years in publicizing diamond jewelry, but unfortunately it has not been able to persuade the diamond industry overall of the critical value of contributing to its programs.
As in the past, again the solution for companies is to find a niche market and smart marketing that persuades consumers that they should choose jewelry set with natural diamonds. As with every other retail sector, it’s all in the story that you tell consumers.
Does a woman want a ring set with an LGD that was created in a huge factory several months ago and whose value is on a constant downward spiral, or set with a mined diamond created billions of years ago and that also helps some of the poorest people on Earth put food on the family table?
Abraham Dayan for Rough&Polished
