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Rapaport TradeWire November 21, 2014
Nov 20, 2014 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Nov. 21, 2014
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Buyer’s market with suppliers pressured by tight liquidity. Limited inventory buying ahead of holiday season. U.S. demand stable, Far East weak. Market for fancy shape and fancy color diamonds improving with increasing dealer demand due to oversupply and limited profitability of rounds. Markets expect steady rise in Internet jewelry sales this holiday season as comScore predicts U.S. Nov./Dec. online retail sales +16% to $61B. U.S. Sept. specialty jewelry store sales +1% to $2.2B. Chow Tai Fook’s Oct. Hong Kong sales -17% due to political protests. Belgium Oct. polished exports -4% to $1.3B, rough imports -1% to $1.1B. Swiss Oct. watch exports +5% to $2.3B.
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RapNet Data: Nov. 20
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| Diamonds |
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1,502,981 |
| Value |
$8,058,366,214 |
| Carats |
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1,496,201 |
| Average Discount |
-27.91% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Gold is still in the process of unwinding the craze that it enjoyed from 2000 to 2011. It was the commodity that got the public enamored and went up and topped over $1,900 per ounce, and that whole process of deflating that excitement that built up over 11 years is still in process. Expect another 30% decline in the next three to four years.
Doug Ramsey | Leuthold Group
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Careers@Rapaport
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The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants and entry-level positions for our offices in New York, Antwerp and Mumbai. View jobs now.
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RETAIL & WHOLESALE
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U.S. Jewelry Store Sales +1%
U.S. specialty jewelry store sales rose only 1.2% year on year to $2.244 billion in September. The sales total was the weakest by value since January when revenue estimates barely topped $2 billion. As reported earlier on Rapaport News, preliminary U.S. jewelry and watch sales from all retail channels in September rose and estimated 3% year on year to $5.521 billion, but that data is subject to several revisions.
Specialty jewelry store sales have risen by a healthy 4.2% year on year to $22.374 billion for the first 10 months of 2014, while jewelry and watch sales from all channels have risen 2.8% to $51.129 billion, according to Rapaport News estimates.
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U.S. Jewelry CPI -5%
The U.S. consumer price index (CPI) for jewelry declined 5% year on year to 171.35 points in October and the reading slipped about 4 points from September's index. The CPI for watches, meanwhile, rose 2.6% to 124.42 points, which was the second highest reading of the year.
Market prices for precious metals during the month remained under pressure with the average price of gold down approximately 2% compared with one year ago, while platinum experienced a second consecutive month of double-digit declines and fell 11%.
Diamond price movement was mixed, according to the RapNet Diamond Index (RAPI), the global benchmark for polished goods. Polished prices for 0.30-carat rose 3.3% year on year, while they increased 5.1% for 0.50-carat stones. However, polished prices for 1-carat diamonds fell 5.9% and prices were down by 4% for 3-carat diamonds.
By comparison, the CPI for all product categories in October increased 1.7% year on year to 237.43 points.
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Ultra-Wealthy Spend $25B on Jewelry, Watches
Ultra-high-net-worth (UHNW) individuals, or those with at least $30 million in personal assets, spent an average of $1.1 million on luxury goods and services, including jewelry and watches, in the past year, according to the annual World Ultra Wealth report by Wealth-X and UBS. UHNW consumers spent $25 billion on jewelry and watches in the past year, which accounted for a 35.2% share of the market. In all, the UHNW population rose 6% year on year to 211,275 and their combined wealth jumped 7% to $29.7 trillion.
UHNW consumers accounted for 18.9% of total spending for the luxury goods and services sector, representing $234 billion, according to Wealth-X and UBS. Authors also observed that consumers who are simply mass affluents -- with assets below the $30 million threshold -- are backing off luxury goods spending right now, but UHNW consumers are shopping more due to an increase in both cash holdings and average net worth. However, these ultra wealthy consumers are seeking more experiential luxury than has typically been the case. Still, these consumers spent $45 billion on travel and hospitality this year, $40 billion on automobiles, $25 billion on art, $23 billion on private aviation, $22 billion for yachts, $15 billion on apparel and $12 billion on accessories.
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Chow Tai Fook Warns of Oct. Sales Impact
Chow Tai Fook Jewellery Group Ltd. shared an unaudited operating statement with shareholders regarding October sales, which were impacted by street demonstrations in parts of Hong Kong.
The group observed that demonstrators dramatically reduced store foot traffic. Retail sales in the Hong Kong market fell by 17% year on year, while same-store sales dropped 24% for the month of October, according to the group. Chow Tai Fook releases quarterly results on November 26.
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Birks 1H Loss Narrows
Birks Group Inc. reported that revenue rose 9.7% year on year to $139.7 million for the first fiscal half that ended on September 27. The increase was primarily driven by a comparable-store sales improvement of 20%. Same-store sales increased 14% in Canada and 25% in the U.S., where revenue improved from a higher number of transactions, a higher average unit sale price and stronger timepiece sales. Canada's growth was primarily the result of higher average unit sales, driven by stronger revenue from bridal and fine jewelry. The retailer narrowed its loss to $4 million compared with a loss of $7.7 million one year earlier.
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Kingold's Profit Drops
Kingold Jewelry Inc. reported that revenue fell 11.6% year on year to $251 million in the third quarter that ended on September 30. The company stated that over the past nine months, the decline in gold prices alone have resulted in a $97.3 million drop in revenue figures. Gross margin as a percentage of sales fell to 4% compared with 5.9% one year earlier. Profit fell to $5.2 million compared with $11 million. Kingold told shareholders that construction of the Kingold International Jewelry and Cultural Industry Park is continuing and that the firm is working aggressively on pre-leasing rental spaces.
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DGSE Reports Small Profit
DGSE Companies Inc. reported that revenue fell 10% year on year to $17 million in the third quarter that ended on September 30. The company observed strong growth for jewelry, watch and diamond sales, which partially offset continued decreases in both bullion and scrap metal sales, a result of lower gold prices. Gross profit as a percent of sales rose to 18.4% compared with 17.4% one year earlier. Net income was $179,587 compared with a loss of $1.4 million.
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Holiday Weekend Store Traffic Wanes
Foot traffic to U.S. retailers over the four-day Thanksgiving weekend continues a slow decline, especially as more consumers shop online from the comfort of their home. The National Retail Federation (NRF) found that 38.9% of U.S. consumers absolutely do not intend to shop in stores over the weekend, nearly 1 percentage point higher than 2013, while 29.5% were definitely planning to visit stores, which was down from 30.6% one year ago.
Those who "might shop" in a store on either Thanksgiving, Black Friday, Small Business Saturday or Super Sunday, was flat at 31.6%. With all the hype about stores opening earlier on Thanksgiving Day itself, the NRF found that only 18.3% of those in the "definite" or "maybe" camps will visit stores that day, down from 23.5% in 2013, while 68.2% will shop Friday (down from 69.1%), 42.9% on Saturday (down from 43.8%) and 21.6% on Sunday (down from 24.2% in 2013).
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Wearable Tech Scores Gift Lists; Sales Count Most
While jewelry, specifically, did not make Accenture Research's most popular Christmas gifts, 13% of shoppers intend to buy wearable technology -- such as smartwatches and fitness bracelets, etc. Gift cards topped the list (57%), followed by apparel (56%) and toys (42%). Of those who intend to buy gift cards, restaurants (45%) were the top choice, but 27% intend to purchase from department stores, 18% will buy from specialty retailers such as jewelers and 4% will by from luxury brand boutiques.
Accenture pegged the average amount that shoppers will spend this Christmas season at $718, but the figure is highly inflated by wealthy households. A full 65% of Christmas shoppers will spend less than $500, with 36% anticipating their receipts to total between $251 and $500. Fifteen percent anticipate spending more than $1,000. In addition, 71% said discounts were "very important" to their budget, while 25% said a sale was "somewhat important."
In terms of in store shopping patterns this year, Accenture found that of those who intend to shop on Thanksgiving Day, 26% plan to visit a store and 27% will shop online. On Black Friday, of those who plan to shop, 36% expect to visit a store (down for the fourth consecutive year), while 37% expect to shop online.
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Majors Slash Jewelry Prices for Black Friday
Number crunchers at the WalletHub analyzed 5,525 Black Friday deals at 21 of the largest U.S. retailers and found the highest average discount being offered by troubled retailer JCPenney, at 65%, and the lowest from member-only retailer Costco at 21%. Jewelry was the most discounted category from all retailers with an average price reduction of 58%, while electronics were the least at 30%, the group found.
Of those brands that sell jewelry (of any kind) and provided the data to WalletHub, AAFES's jewelry discounts averaged 33.6%, Kmart slashed prices by 78.8%, JCPenney's jewelry discounts were 66.4%, Kohl's was 24.9%, Macy's was 65.9% and Meijer slashed jewelry by 78.7%. Specific jewelry discounts were not provided to WalletHub by some, including Costco; however, the average product discount for big retailers that sell jewelry were: 26.1% at Amazon, 50.2% at Sears, 35.6% at Target and 32.2% at Walmart.
Marketing experts remind independent jewelers not to focus on beating the rock-bottom prices of mass produced jewelry at the majors. Instead, consider alternatives to price cuts, sell your unique story and the quality of merchandise, and create an experience that provides value-addition that the majors simply cannot match.
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Best Omnichannel Retailers Will Win
Online retail sales for the U.S. Christmas season are expected to increase 16% year on year to $61 billion for the months of November and December combined, according to comScore Inc. Desktop ecommerce should reach $53.2 billion, up 14%, while mobile ecommerce could surge 25% to $7.9 billion.
During a conference call with analysts, comScore determined that online jewelry sales remain "very strong," meaning year-on-year growth rates of 15% or more. In terms of dollar sales online, by product segment, jewelry ranked No. 13.
Gian Fulgoni, the chairman of comScore, noted that jewelry sales growth is "probably being driven by the upper income segment." The middle- and lower-income households, which represent the majority, continue to face, at best, stagnate wages and high rates of unemployment. In addition, while the Christmas retailing season definitely looks bright overall -- for the well prepared retailers -- comScore noted that 31% of U.S. consumers still believe the economy is in very bad shape.
Effects from the great recession linger, so retailers that adopt and execute the best in omnichannel to serve all devices, provide free shipping, offer discounts and differentiate merchandise will come out ahead, according to comScore.
The firm anticipates the heaviest online shopping day will, again, be Cyber Monday (December 1), while weekends could experience dramatic increases in online sales. Online retail sales generally taper off by the third week in December, when free shipping no longer ensures packages arrive by Christmas Day.
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Make the Shopping Chore a Breeze
The Integer Group® and M/A/R/C Research cited the top reason consumers choose a retailer is to complete the transaction easily and fast -- whether online or in a store. Mass retailers (such as Target and Walmart) edged out online stores (28% versus 26%) as the top destination for gift buying this year due to strong omnichannel investment, whereas department stores have ranked in third place for the past three years at about 20%. Even with attention focused on Thanksgiving weekend, the group found that 51% of consumers plan to conduct their gift shopping in December and 29% won't even plan before that time. Integer and M/A/R/C told retailers to know what is happening in the lives of a core customer -- aligning the shopping experience with their life stage brings a more inspiring and meaningful brand experience.
Consumers of all demographics view the Christmas season as hectic, so retailers who make holiday shopping easy and less stressful -- infusing that message into campaign and channel solutions -- will win. The groups said position the brand as clearly different, and better, than the competition. Factors that play into a gift buying decision include free shipping (58%), coupons (44%), buy one and receive half price on a second (43%), online email offers (41%), Black Friday deals (40%), a loyalty program (38%), instore email offers (38%), instant rebates (35%), a last minute deal (35%) and early bird door busters (31%).
The survey revealed that the average shopper will spend $605 for Christmas season, but there are important demographic nuances. Unmarried, but living together, couples expect to spend the most, an average of $744, followed by married couples at $713. The survey found that those in the age group of 18 to 24 plan to spend an average of $353, those of 25 to 34 expect to spend $492, while 35 to 49-year-olds plan to spend $663 and 50 to 64-year-olds budget $669. Those over 65 plan to spend an average of $622.
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MINING
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ALROSA Sells Insurance Stake
ALROSA sold its 99.74% stake in the ALROSA Insurance Company to SOGAZ Insurance Group. The companies signed a share purchase agreement, following an open auction and ALROSA received payment of $13.4 million (RUB 620 million). The insurance business was considered to be a non-core asset for the diamond-mining giant and the change in ownership will not affect outstanding insurance contracts, according to ALROSA. The insurance arm offers coverage to retail clients and corporations, including ALROSA and its subsidiaries.
ALROSA also paid off $500 million of outstanding company Eurobonds, reducing its debt-load to $3.7 billion. The bonds were originally issued between November 2004 and January 2005 with a fixed coupon yield of 8.875%. ALROSA's next Eurobond series totals $1 billion and will mature in the fourth quarter of 2020.
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Gannicott Takes Medical Leave
Robert Gannicott, the chairman and CEO of Dominion Diamond Corp., is taking medical leave that is expected to continue until mid-February. Board member Dan Jarvis will assume the role of acting chairman and will be supported by the audit committee chairman, Ollie Oliveira, who has extensive experience in the diamond mining industry.
During this period, Brendan Bell, currently the executive vice president, will assume the role of acting CEO. Bell will be supported by Elliot Holland as vice president, who is responsible for the Jay project and business development. Prior to joining Dominion Diamond, Holland was a partner at McKinsey & Company serving mining clients, including diamond mines, on operations, strategy and capital projects.
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Gemfields Auction Garners $35M, Production -3%
Gemfields plc reported $34.9 million from a rough emerald auction that was held in Lusaka, Zambia from November 13 to 17. The auction offered 598,000 carats and was 94% sold by lot at an average price of $66 per carat. The auction, which was comprised of predominantly high-quality rough emeralds, was the sixth in Lusaka since April 2013. The emeralds were recovered at the mining company's Kagem mine in Zambia.
Gemfields' production fell 3.1% year on year to 6.3 million carats of emerald and beryl in the third quarter that ended on September 30. Meanwhile, production of ruby and corundum was flat at 2.9 million carats. Gemfields held an emerald auction in August, which realized $15.5 million for 11.58 million carats of predominately lower-quality goods.
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STATS
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Belgium
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Oct. $Mil. |
%Chng. |
YTD $Mil. |
%Chng. |
| Polished exports |
$1,280 |
-4% |
$12,285 |
5% |
| Polished imports |
$1,179 |
-4% |
$11,962 |
5% |
| Net exports |
$101 |
-2% |
$323 |
22% |
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| Rough imports |
$1,120 |
-1% |
$12,640 |
14% |
| Rough exports |
$1,000 |
-1% |
$13,030 |
9% |
| Net imports |
$120 |
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($390) |
13% |
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| Net diamond account |
($19) |
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$713 |
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ECONWATCH
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Diamond Industry Stock Report
U.S. shares wildly mixed as investors slammed Charles & Colvard (-40%) after disappointing earnings, Movado (-32%), following a warning on weak watch sales and Blue Nile (-6%), but rewarded Birks (41%) for a strong quarter. Far East shares all lower, led by ValueMax (-7%). Europe little changed as weekly gains/losses held within (Kering) -2% and (Richemont) 2%. India mostly lower, led by C.Mahendra (-14%) and Vaibhav (-26%). Miners were mixed as Peregrine (-10%) marked the steepest drop but Lucara (6%) pulled ahead. View the extended stock report.
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Nov. 20 |
Nov. 13 |
Chng. |
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| $1 = Euro |
0.797 |
0.802 |
-0.005 |
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| $1 = Rupee |
61.93 |
61.55 |
0.4 |
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| $1 = Israel Shekel |
3.84 |
3.81 |
0.03 |
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| $1 = Rand |
10.96 |
11.21 |
-0.25 |
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| $1 = Canadian Dollar |
1.13 |
1.14 |
-0.01 |
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| Precious Metals |
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| Gold |
$1,195.10 |
$1,160.70 |
$34.40 |
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| Platinum |
$1,205.00 |
$1,188.00 |
$17.00 |
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| Stock Indexes |
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Chng. |
| BSE |
28,067.56 |
27,940.64 |
126.92 |
0.5% |
| Dow Jones |
17,717.88 |
17,652.79 |
65.09 |
0.4% |
| FTSE |
6,678.90 |
6,635.45 |
43.45 |
0.7% |
| Hang Seng |
23,349.64 |
24,019.94 |
-670.30 |
-2.8% |
| S&P 500 |
2,052.76 |
2,039.33 |
13.43 |
0.7% |
| Yahoo! Jewelry |
1,200.51 |
1,190.56 |
9.95 |
0.8% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Activity slower than last week, but steady trading for dossiers -- mainly in 40s and 50s. Liquidity remains very tight and problematic. Read the full report.
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