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Rapaport TradeWire January 16, 2015
Jan 15, 2015 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Jan. 16, 2015
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Rough prices under pressure. Indian diamond cutters reducing polished production as dealer demand slows in all market segments. De Beers relaxes deferment policy as sightholders plan to refuse 25% of rough allocation. Next week’s sight expected to value at $400M to $500M. Low expectations for Chinese New Year season after Chow Tai Fook 3Q sales -10%. U.S. retailers report higher than anticipated inventory as Christmas sales disappoint. U.S. Nov. jewelry store sales -7% to $2.7B. Tiffany & Co. Nov.-Dec. sales -1% to $1B. Richemont 3Q sales +4% to $3.6B. Michael Hill 1H +4% to $227M. Birks 3Q sales +3% $98M. Visitor registration opens for The Diamond Show – Basel 2015.
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RapNet Data: Jan. 15
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| Diamonds |
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1,525,096 |
| Value |
$7,704,864,835 |
| Carats |
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1,428,390 |
| Average Discount |
-28.44% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Rising costs elsewhere in the U.S., including healthcare and low earnings growth, have stunted retail sales at year-end. The trend in consumer spending remains positive but far from robust.
Lindsey Piegza | Stern Agee
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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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INDUSTRY
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Hayek: 'Words Fail Me' on Ending Currency Cap
The Swiss franc initially surged 30% against the euro and shocked global markets lower when Switzerland’s central bank ended its effort to cap the currency's movement.
“Words fail me,” Swatch's CEO Nick Hayek told Bloomberg News. He called the central bank's actions a “tsunami” for the watch industry, Swiss exports, tourism and for the entire country in general.
With a stronger franc, watches will become more expensive for weaker currencies. But the segment has already had a difficult year following November's watch export decline of 4% to $2.14 billion. Exports of Swiss watches have risen only 2.3% in the first 11 months to approximately $21 billion.
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U.S. Jewelry Store Sales -7%
U.S. specialty jewelry store sales fell 7.1% year on year to $2.734 billion in November -- the latest sign that jewelers in the U.S. have been facing economic headwinds. Furthermore, the sales figures from November, the month that marks the beginning of the Christmas-shopping season, reflected the sharpest drop in monthly sales since April 2012 when they fell 10.3% year on year to $2 billion. The November results followed a 3.9% decline in October. Still, specialty jewelry store sales have managed to increase 2.2% to $27.472 billion for the first 11 months of 2014.
Meanwhile, as reported earlier by Rapaport News, U.S. jewelry and watch sales across all channels rose by a preliminary 1.4% year on year to $7.127 billion in November, but that figure is subject to several revisions. Rapaport News estimates that sales across the entire U.S. jewelry and watch sector have risen 2.1% to $63.58 billion for the first 11 months of the year.
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DDC Hosts India Week
The Diamond Dealers Club (DDC) of New York hosted India Diamond Week on the trading floor, attracting roughly 70 exhibitors and hundreds of attendees. The trade event was coordinated with the Gem & Jewellery Export Promotion Council (GJEPC) and was planned to coincide with post-Christmas buyer demand. Reuven Kaufman, the DDC's president, explained that these trading events are a true gem for local diamond dealers and it is important to provide these opportunities for all participants.
Trading activity was similar to the first India week, held in August, as demand was centered on 0.50-carat to 1-carat, G-I, SI-I diamonds. Overall, the mood has improved following a weak fourth quarter of 2014, and Indians would like to make this trading event a more frequent occurrence.
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RETAIL & WHOLESALE
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Chow Tai Fook's 3Q Sales -10%
Chow Tai Fook reported that group sales fell 10% year on year for the third quarter that ended on December 31, according to preliminary estimates that did not include hard totals. Same-store sales fell 18%, with a pronounced decline of 21% in Hong Kong and Macau and a 15% drop in Mainland China.
Gem-set jewelry sales fell 12%, which the company attributed to weak consumer demand for high-end jewelry in Hong Kong and Macau. Gold product sales declined 21%, in part due to difficult comparisons from very high demand one year ago.
Chow Tai Fook added 55 jewelry stores and one Hearts On Fire standalone store in Shanghai, while closing five watch point-of-sale locations. The company operated 2,243 points of sale as of December 31.
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Tiffany's Christmas Sales -1%
Tiffany & Co. reported that revenue fell 1% year on year to $1.02 billion for two-month Christmas season that ended on December 31. Comparable-store sales were flat. The retailer admitted Christmas was disappointing, with significant variability in performance by region and by product category. Asia-Pacific showed solid sales growth, sales in Japan continued to be weak, European sales rose quite nicely; however, sales in the Americas declined. Strong and concentrated marketing boosted Tiffany 'T' growth for fashion gold jewelry; however, that success did not translate into broader sales momentum.
Sales and same-store revenue across the Americas region fell 1%, while in the Asia-Pacific region, and on a constant-exchange-rate basis, revenue increased 10% and comparable-store sales rose 6 percent. In Japan, on a constant-exchange-rate basis, sales declined 3%, while same-store sales dropped 8 percent. Sales across Europe, on a constant-exchange-rate basis, increased 9% and comparable-store sales rose 4%.
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Richemont's 3Q Sales +4%
Richemont reported that its sales increased 4% year on year to $3.59 billion (EUR 3.05 billion) during the third quarter that ended on December 31. The company noted that sales measured at constant-exchange-rates were flat due to mixed retail trends across major global markets.
Sales from jewelry maisons rose 3% to $1.85 billion but they fell 1% at constant-exchange-rates. Richemont's sales from its specialist watchmakers were flat at $961 million and down 4% at constant rates. The company said that sales growth in the Americas and Europe during the Christmas shopping season was partially offset by declining revenue from Japan and the Asia-Pacific region. The company specifically noted a poor trading environment in Hong Kong during period, a major market for its Swiss watch products.
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Michael Hill's 1H Sales +4%
Michael Hill International reported that revenue improved 3.9% year on year to $227 million (AUD 279.3 million) for the six months that ended on December 31, according to preliminary totals that excluded Emma & Roe stores. However, on a same-store basis, sales rose 0.8%.
In local currency, Michael Hill's sales in Australia -- the jeweler's largest market -- fell 0.7%, however, in New Zealand revenue rose 3.8%. In Canada, sales jumped 18.5% and they rose by nearly as much in the U.S. Michael Hill opened eight new stores during the first six months and closed one.
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Birks Group Comps Rise in 3Q
Birks Group Inc. reported that revenue rose 3.2% year on year to $97.6 million in the third quarter that ended on December 28. The increase reflected higher comparable-store sales, which rose 11%, offset by $3.8 million of lower reported sales due to a weaker Canada dollar and a drop of $1.5 million in revenue due to having closed four locations this year. Same-store sales jumped 17% in the U.S. and 5% in Canada during the quarter.
Specifically for the Christmas season (November 2 to December 27), Birks reported that comparable-store sales rose 7%, with same-store sales up 11% in the U.S. and 3% in Canada. Sales growth was primarily the result of Birks growing its average sales transaction value and strong watch brand revenue.
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Lazare Kaplan Expects Sales Decline
Lazare Kaplan International anticipates that revenue will drop nearly 61% year on year to $11.4 million for the second quarter that ended on November 30. The company informed the Securities & Exchange Commission that its financial report would be late, citing its inability to resolve material uncertainties pertaining to the recovery of certain assets and the potential obligations under lines of credit. Sales were expected to total $10.1 million during the quarter, down from $13.5 million one year earlier, as sales from commercial (non-branded) and branded polished diamond decreased. Lazare Kaplan collected $1.3 million in other revenue.
The company continues to battle with Antwerp Diamond Bank and KBC Bank in Belgium and U.S. courts, charging the institutions with numerous fraudulent actions. Once the material uncertainties are resolved, Lazare Kaplan intends to file official financial reports dating back to May 2009.
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SLANE Ends Wholesale Operations
SLANE announced plans to discontinue its wholesale operations while considering a new direction. SLANE will begin to sell down its inventory and continue to take production orders until January 30. The company will not open additional wholesale accounts. The brand's ecommerce site will remain live. SLANE will continue to develop collaborative projects with partners, such as Forevermark, according to company founders and sisters, Landon Slane and Heath Slane.
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Laxmi Consolidates U.S. Divisions
Diamond and jewelry manufacturer The Laxmi Diamond Group will combine its two U.S. divisions -- Sumit Diamond Group and Suberi Brothers -- as part of a strategic development plan. The combined operation will operate from Sumit’s existing premises at 592 Fifth Avenue in Manhattan. With the reorganization, the company seeks to pool talent and resources while elevating the level of product and service offered to its customers, according to a company statement.
The new division will be collaboratively led by Nick Parekh, Amit Javeri and Nitin Gajera and offer retailers a wide array of both bridal and fashion jewelry. Laxmi Diamond stated that its 2014 acquisition of a stake in Sumit Diamond Corporation, followed by this restructuring plan, is a strong indication of the company's outlook for the U.S. jewelry market since the nation leads the world in retail jewelry consumption.
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James Avery Captures the New Consumer
Luxury jewelry consumers in the U.S. are applying demanding standards and shopping for simplicity, according to Pam Danziger, the president of Unity Marketing. While many jewelers qualify to meet that shift, affluent consumers need to hear the story from all the retailers they engage. Some of the brands that are succeeding, according to Danziger, include Alex and Ani, Fischer Voyage, Bonobos, Shinola and Warby Parker, all of which support "Made in the U.S." campaigns.
But Danziger called out jeweler James Avery, in particular, for telling a story of simplicity and meaning, which is capturing affluent consumers' back-to-basics mood. The "Made in the U.S." motto resonates powerfully with James Avery's artisan jewelry and four basic values: simplicity, integrity, meaning and universality.
Brand storytelling is a key component of James Avery marketing, which is reflected on its website, Facebook postings and in the store, where product displays are arranged in a series of theme-based shops, including Milestone Creations for wedding bands and spiritual products and the Charm Bar to create customized and personalized bracelets, Danziger said.
Luxury brands that directly or indirectly carry on a story of "elitism disguised as exclusivity" will lose marketshare, she concluded. Design excellence and workmanship alone were supposed to create desire and aspiration for luxury shoppers to show off -- but affluents today no longer buy it, especially the millennial generation.
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Pure Gold to Open at Singapore Airport
Pure Gold Jewellers became the first jewelry company from the Middle East to operate a jewelry concession at Singapore Changi Airport’s departure in terminal 1. Firoz Merchant, the chairman and founder of Pure Gold Jewellers, explained that the airport is one of the busiest in Asia and the new concession will boost the brand's travel retail business.
Pure Gold is already the largest duty-free operator of jewelry in the Middle East region and operates at several locations -- all terminals at Abu Dhabi and Kuwait International Airports, Jordan Duty Free, Kuwait Duty Free, Muscat Duty Free, Dubai Duty Free and Sri Lanka Duty Free.
Pure Gold Jewellers also opened a new outlet in Abu Dhabi's destination shopping mall, Bawabat Al Sharq Mall, which is already home to an extensive variety of retail brands. The new location marks Pure Gold Jeweller's eleventh in Abu Dhabi.
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Richline Partners With Omate
Richline Brands and hardware and software design firm Omate signed an agreement to collaborate on wearable technology jewelry and watches. Omate operates as a vertically integrated design house based in Shenzhen, China, where it designs and retails ready-to-wear products that are presold throughout its online store and through distributors worldwide. Richline Group contended that in the smartwatch segment, two worlds are merging together: the traditional 100 year old watch industry and the high-tech hardware and software industry so it is preparing to become a major player.
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GENERAL
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Kingold Progresses on Construction
Kingold Jewelry Inc. stated that it wrapped up the first phase of construction for the Kingold Jewelry International Industry Park in Wuhan, China, following completion of outer framing. The second construction phase will be focused on the exterior and interior decoration and design, according to a company notice. Kingold Jewelry, which manufactures and designs 24-karat gold jewelry, ornaments and investment-oriented gold products, expects to complete the jewelry complex this year and host a grand opening in December 2015.
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Tilles, Miller Return to CIRCA
CIRCA appointed Richard Tilles as the president of its core division to manage all buying and selling activity of pre-owned jewelry, watches and gemstones as well as day-to-day oversight of the company's 13 buying offices in the U.S., Europe and Asia. Tilles was the founding member of CIRCA in 2001 and brings more than 20 years of experience in managing and operating businesses in the pre-owned jewelry market. He most recently served as president of Richard Tilles Inc.
CIRCA appointed Edward Miller as the senior director of CIRCA Solutions, where he will assume overall management for all buying and selling of luxury watches and branded jewelry from manufacturers, distributors and retailers. Miller was a founding member of CIRCA Solutions in 2007 and brings more than 40 years of experience in managing and operating businesses in the inventory overstock market. Most recently, he served as president of Diane Sales, a company primarily involved in buying and selling overstocked watches and jewelry.
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Vaibhav Repays Term Loan
India's Vaibhav Global Ltd. informed the Bombay Stock Exchange (BSE) that it had repaid a $1.5 million (INR 90.414 million) working capital term loan, plus interest, to a consortium of bankers. Vaibhav Global, which was formerly known as Vaibhav Gems, operates electronic retail channels and a traditional business-to-business wholesale distribution network through STS Jewels. The company manufactures and distributes a range of gemstone jewelry, timepieces and fashion accessories.
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JA Acquires National Jeweler
Jewelers of America (JA) acquired National Jeweler from Emerald Expositions, which owns the JA New York shows and Couture. JA’s board approved the acquisition without disclosing the deal's financial terms and it will take effect later in January. JA and National Jeweler will remain and act independent of each other. Both organizations were established in 1906, with JA serving as a forum for the analysis and discussion of issues affecting the industry and a platform for which National Jeweler has been since its inception.
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De Beers Opens New Business Incubator
De Beers Consolidated Mines (DBCM) opened a business incubator in Cape Town as part of a program to encourage entrepreneurship among historically disadvantaged South African communities. The De Beers Marine Zimele Business Hub is DBCM's first incubator in South Africa's Western Cape Province. The Cape Town hub joins four Zimele hubs located in each of the other South African provinces where DBCM operates, the Northern Cape, Limpopo, Gauteng and the Free State.
Lindiwe Zulu, South Africa's small business development minister, attended the launch in a show of support for greater entrepreneurial activity in the country. In 2014, De Beers Zimele supported 233 new small and medium-sized businesses that were collectively responsible for creating 2,335 jobs, according to DBCM. The company reported that the fund also provided a total of $5.3 million (ZAR 60.7 million) in loans to entrepreneurs last year.
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MINING
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Rockwell Reports $4M Loss
Rockwell Diamonds reported that revenue increased 59% year on year to $15.8 million (CAD18.9 million) during the third quarter that ended on November 30. Sales were given a boost from an increase in the volume of rough diamonds that were sold. Management stated that the latest reporting period represented the tenth consecutive quarter of increased diamond revenue. Rockwell declared a loss of $4 million compared with a loss of $318,000 one year earlier, due to a steep decline in profitability and a reduced recovery of large diamonds, which negatively impacted its sale price per carat. Ultimately, the average price achieved on rough diamonds dropped 32% to $1,267 per carat.
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Mountain Province Nears Funding Approval
Mountain Province Diamonds Inc. confirmed that it continues to move toward arranging its previously announced $370 million term-loan facility. Finalizing the funds is subject to customary conditions, including final credit approval and an agreement on documentation, which is expected shortly.
Mountain Province Diamonds is a 49% participant with De Beers Canada in the Gahcho Kué diamond mine that is located in Canada's Northwest Territories. The Gahcho Kué project consists of a cluster of four diamondiferous kimberlites, three of which have a probable mineral reserve of 35.4 million tonnes, grading at 1.57 carats per tonne for total diamond content of 55.5 million carats.
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ECONWATCH
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Diamond Industry Stock Report
Weaker than expected Christmas sales sank every U.S. firm we track, with shares falling by mid-single-digits or more. Birks (-19%), Movado (-17%), Tiffany (-18%) lead declines. Chow Tai Fook (-9%) lead declines in the Far East. Europe was mixed but Swiss bank action sank Richemont (-16%) and Swatch (14%) at the last minute. Indian shares were mainly lower, except Classic (+12%), Goenka (+27%), Winsome (+17%) and Vaibhav (+8%). Mining shares were all lower except ALROSA (+14%), True North (+17%) and Gemfields (+8%). View the detailed industry stock report.
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Jan. 15 |
Jan. 8 |
Chng. |
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| $1 = Euro |
0.860 |
0.848 |
0.012 |
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| $1 = Rupee |
61.88 |
62.47 |
-0.6 |
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| $1 = Israel Shekel |
3.92 |
3.95 |
-0.03 |
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| $1 = Rand |
11.56 |
11.59 |
-0.03 |
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| $1 = Canadian Dollar |
1.20 |
1.18 |
0.02 |
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| Precious Metals |
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| Gold |
$1,258.90 |
$1,207.80 |
$51.10 |
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| Platinum |
$1,253.00 |
$1,213.00 |
$40.00 |
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| Stock Indexes |
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Chng. |
| BSE |
28,075.55 |
27,274.71 |
800.84 |
2.9% |
| Dow Jones |
17,320.71 |
17,906.65 |
-585.94 |
-3.3% |
| FTSE |
6,498.78 |
6,569.96 |
-71.18 |
-1.1% |
| Hang Seng |
24,350.91 |
23,835.53 |
515.38 |
2.2% |
| S&P 500 |
1,992.67 |
2,062.11 |
-69.44 |
-3.4% |
| Yahoo! Jewelry |
1,240.79 |
1,233.04 |
7.75 |
0.6% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Trading is slow in the local market and sentiment is down as buyers stay very cautious ahead of next week's De Beers sight, where traders do expect a better assortment or lower prices. Manufacturing is being curtailed and the liquidity crunch has intensified due to delays in overseas payments. Read the full report.
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