The last warning was launched only a few months ago at BaselWorld 2013, when experts reported that jewellery sales figures in Europe are showing “conflicting results”. Many countries are still experiencing a declining trend, while those who grow are doing it only at moderate pace. The implications of the financial crisis for the diamond jewellery business have been already explored far and wide, but this is only one side of the story. Together with the contingency of rising unemployment rates and low liquidity, Western Europe is facing a long-term structural problem: a changing society.
You talk about diamonds and you talk about love. The idea of diamond as a gift for the loved one is still the leading driver of the business. A diamond ring in particular represents the quintessential symbol of engagement. So, instead of looking at the economy, we should begin to look at how customs and societies in Europe are changing when it comes to engagement and marriage. They have indeed a large impact on diamond jewellery sales, an impact too often overlooked.
Figures provided by Eurostat, the main statistical body of the European Union, say that Western Europeans are less keen to marry than they were in the past. Marriage rates have dropped almost 45% since 1970, with peaks of over 60% in Southern Europe. Chart 1 shows a graphical representation of the decline in marriages for the four largest Western European countries in terms of population (EU4), and the aggregated data for all the 27 members of the EU.
As one could easily guess, fewer marriages mean fewer engagements, and thus reduced revenues from engagement rings sales. But is there a way to roughly calculate the damage that those sociological changes are creating to the diamond business? We could try to do that by using some simple maths.
In 2010 the estimated number of marriages in Germany was around 385,000, while according to surveys recently conducted by Bain&Co, the percentage of engaged or married women who possess a diamond engagement ring is 40%; in France there have been 325,000 marriages, with a 60% rate of engagement rings; in Britain marriages were just below 380,000, with 80% of brides having received a diamond ring; finally for Italy the figures were 220,000 and 70%, respectively.
According to these figures, the total number of engagement rings bought in those four countries over the period of one year should be around 678,000. If we assume an average cost per engagement ring of US$ 2,800 – which is a rather conservative estimate – it results that the aggregated value of all engagement rings bought in one year is around US$ 1.89 billion.
Now, if you think that these figures are a great result for the business, bear with me while I show how bad they actually are. Just over twenty years ago, in 1990, the average marriage rate in the EU4 was over two points higher than the present one, which accounts for more or less 560,000 more marriages every year. If today’s big fours in Western Europe could count on same marriage rate they had 1990, the yearly revenues from engagement rings would be roughly US$2.72 billion, over 800 million above the actual level (chart 2). It is an extremely conspicuous sum, a loss so relevant that can hardly be ignored. In addition, consider that we are analysing only four countries – albeit the biggest – in the European Union. Aggregated revenue losses for the Union as a whole would surely amount to more than one billion US$ per year.
However, a decreasing marriage rate is not the only problem posed by demography: also worrying is a contextual rise in divorce rates, which have more than doubled in the last twenty years. Divorces of course impact on the remunerative market of anniversary rings, which are usually bought by more mature (and often wealthier) individuals.
Yes, one could say that in those years the business has opened to alternative markets, such as those of birthday and graduation gifts, where the practise of giving diamonds (usually mounted on earrings or necklaces) is on the rise. But the problem is that their size and quality is not comparable with a typical engagement ring; nor, of course, is their price.
The never-ending troubles for the diamond jewellery market in Europe cannot therefore be blamed only on the economy. There is, now more than ever, a sociological problem. Diamonds have always been the symbol of eternal love, but couples in Western Europe seem not to believe in eternal love anymore. Less and less individuals are planning to get married, and many of the ones who decide to take the big step do not last enough to reach memorable anniversaries that would justify an investment in Trilogy or Eternity rings.
New marketing strategies should rapidly address this issue or the decline will be irreversible. The problem, though, is to understand how to do that. The linkage between diamonds and love is today so strong that one could barely see other reasons for making such a gift. Ironically, what has always been considered the most successful marketing campaign in history could now backfire on jewelleries in Western Europe. Can the hardest gem on Earth be flexible enough to accommodate the caprices of the modern society?
Matteo Butera, Rough & Polished
