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Tricky Outlook Facing Global Diamond and Jewelry Industry

20 november 2023

As if the global outlook for diamond jewelry sales wasn't already dim, the industry is now having to work with another unsettling factor as war rages in the Middle East, and the prospect of it escalating further.

With the holiday season approaching, many members of the diamond and jewelry trade believed there was a prospect of a rise in sales. Although that may well come to pass, any increase is now expected to be somewhat muted.

Let's take a look at some of the major events of recent months.

Hong Kong September Jewellery Show Reflected Low Global Mood

The huge diamond, color gemstone and jewellery trade show has served for many years as an indicator of where the global trade is heading, particularly in the run-up to the critical holiday season. Not only that, but the fair has always been known as one where trading is done and contracts are signed, as opposed to some other shows where exhibitors don't expect to get deals done on the spot but find the events very useful for creating contacts and sales going forward.

Reports this year overwhelmingly described the Hong Kong show as a disappointment. The diamond hall, in particular, was slow. The fair lived down to the low expectations forecast, further worsening industry morale.

Discussions with diamantaires underlined the low mood among the diamond community. Few buyers were seen, especially from the vital Chinese market. As one Shanghai-based trader commented: “Chinese buyers hardly turned up, and those that did were certainly not buying stock. At most, they replaced specific items for which they had customers. The retail market in Shanghai is very slow, and Shanghai bourse members are pessimistic.”

Increase In US Jewelry Business Closures

Although it is a long-term trend stretching back at least to the 2008 financial crisis, nonetheless the number of American companies involved in the jewelry trade once again declined in the third quarter of this year.

The Jewelers Board of Trade (JBT) reported that 179 such companies shuttered their businesses in the June-September period. That compared with closures of 160 firms in the same quarter of 2022.

It is important to put the numbers in perspective because there are 23,301 jewelry-related companies in the United States. In other words, the number of companies that closed down in the third quarter is equivalent to less than 1% of all such businesses operating.

Nonetheless, at a time when the diamond jewelry trade is struggling, the JBT figures only serve to reduce morale further.

Slowdown in US Holiday Spending

According to the influential National Retail Federation (NRF), holiday spending by American consumers is seen rising at a lower rate this year than over the past three years. The reason given is that buyers are fearful of a recession, as well as ongoing economic problems.

Here are the NRF’s forecast figures: retail sales in November and December will be up 3%-4% on last year to around $960 billion. By way of comparison, sales for the holiday season in 2022 increased by 5% to $936 billion.

“Consumers remain in the driver’s seat and are resilient despite headwinds of inflation, higher gas prices, stringent credit conditions and elevated interest rates,” said NRF chief economist Jack Kleinhenz. “We expect spending to continue through the end of the year on a range of items and experiences, but at a slower pace. Consumers will be looking for deals and discounts to stretch their dollars.”

US retail sales declined in October, albeit very slightly, for the first time since March, according to US Census Bureau data as a result of economic difficulties.

Chinese Economy May Not Be Strong Enough to Boost Demand

The Chinese economy is forecast to grow by about 5% this year. For many countries, this would be an excellent rate of economic expansion, but for China, which has seen an economic downturn for most of this year, this increase may not be enough to pull the economy through.

The country is facing a wide range of financial problems, particularly in its real estate sector, which has seen the closure of many businesses.

As a result, fine jewelry is unlikely to be top of consumers’ priorities. Furthermore, industry figures are pointing to the increasing popularity of lab grown diamonds (LGD) among buyers. Reports say that many natural diamond companies in China have been losing money while seeing better turnover in their LGD sales.

Is this the start of a massive turnaround in Chinese diamond-buying habits? LGDs used to be seen as a product that was popular mostly in the United States while Chinese people preferred natural stones. Now that prices of LGDs have fallen, however, to a level that is approximately 20 to 30% of the price of their natural diamond counterparts, the picture is changing.

It is not that Chinese buyers are necessarily big fans of sustainability and therefore plumping for LGDs. The reason is much simpler according to the Shanghai-based trader. Consumers in the world's second-largest diamond market say that LGDs look the same as natural stones and are available at a much lower price. It can be summed up as follows: same sparkle, much lower price.

Another factor that the natural diamond market would do well to take into account is that Chinese marriage rates are falling drastically. In 2013, 13.5 million couples tied the knot, but last year the figure fell to 6.8 million. That is a massive drop by any measure. Reports suggest that increasing numbers of young people are delaying marriage – perhaps forever – since they regard the cost of having children as too high and that there is insufficient government aid in helping to raise them.

The consequent effect on purchases of engagement and wedding rings is clear for all to understand.

The news out of China isn’t all bad though, according to Simon Hui, Director of the Chow Tai Fook Jewellery Group’s Diamond Management Centre, speaking at the CIBJO Congress in October.

Although the Chinese market showed lower results than many analysts thought would be the case following the government’s zero-COVID policy, the fundamentals of the Chinese market are nonetheless in good shape, he said.

The public’s savings have risen, disposable income is up by 6.5%, and sales of branded jewelry are forecast to see an increase of 10-14% over the coming year.

Indian Factories Set for a Long Diwali Shutdown?

Diamond polishing factories in India, particularly Mumbai and Surat, closed down for the annual Diwali festival. Although there is nothing new in that, the question this year is when will the plants reopen.

Owners normally close down for a few weeks as employees travel, sometimes hundreds of miles, to be with their family for the festival. This year, however, due to the situation in the diamond industry, factories may be closing down for as much as two months.

Many employees cannot afford to be out of work for so long and this may lead to many of them deciding to move to more secure and stable jobs. The only upside is that with factories closed, the glut in polish diamonds stocks will decline as very few new products are produced by the midstream.

Diamond Business Must Innovate to Remain Attractive To Consumers

In addition to their price points and significant sparkle, LGDs are attractive to Chinese buyers because of the extra options that they offer in providing more interesting products. As a result, the natural diamond business must innovate in order to keep and attract buyers.

Female self-buyers, for example, are looking for jewelry that doesn't simply feature conventional round diamonds. They want something different and innovative.

This is where industry members selling LGDs have an advantage: because of the low cost of LGD production, diamond cutters and jewelry manufacturers can take a chance on creating new cuts.

By comparison, the natural diamond market struggles to do the same because of the much higher cost of natural polished stones and therefore is unwilling to take a chance on losing money.

De Beers Posts Big Drop in Rough Diamond Production in Q3

De Beers posted a 23% drop in rough diamond production for the third quarter of this year.

Although the diamond giant said this was largely a result of planned cutbacks in mining at its operations in South Africa and Botswana, it is clear that the miner did so due to:

·       Its sightholders’ purchasing decisions

·       Global polished diamond demand

·       The exceptionally high volumes of diamond stocks held by the midstream of the trade

·       The uncertain global financial situation

The company says that it is maintaining its production guidance for this year at 30-33 million carats. Clearly it is hoping for a restocking by the entire diamond and jewelry business following the holiday season.

Final Words…

There's no doubt that the global diamond and jewelry industries are faced with a tricky outlook. The situation was already difficult even before the outbreak of hostilities in the Middle East in October and is ongoing and that has added an extra layer of global economic and political uncertainty.

Looking back, however, over at least the last 20 years, there has rarely been a time when the diamond industry was not battling against global financial concerns.

In addition, the increasing popularity of LGDs means there is tough competition for the natural diamond sector. There are no easy solutions: Reducing prices in order to compete with lower-priced LGDs sends the wrong message to consumers and creates a race to the bottom.

Sellers of natural diamonds must continue to spell out the advantages to consumers of their products:

·       That natural stones have come up from the earth's crust having been produced billions of years ago

·       They provide a livelihood for millions of families across Africa in some of the poorest areas of the world

·       The diamond sector continues to invest time and money in sustainability projects to reduce its environmental impact

Above all, it must be stated that the natural diamond sector needs to make niche products in order to create new audiences because diamond jewelry is not a must-have product. The industry must find ways of attracting customers since they will not be flocking to stores of their own accord.

Abraham Dayan for Rough&Polished