Will Prices Peak?

Sumeet Sethi, sales director for natural and fancy color diamond manufacturer Manak Jewels in San Francisco, also observed uncommonly strong sales for the summer months. “We have had pretty good sales — June was strong and, after the end of July until now, sales have been increasing about 10 to 15 percent. This usually doesn’t happen; it’s an anomaly.”

While manufacturers were vying for the limited summer demand, however, not all were able to prosper. “Competition is too tough,” declared Sam Nazarian, chief executive officer (CEO) of A&M Diamond and Jewelry in Los Angeles. “Sales are soft and it’s quiet — slower than 2010. And even if we put out the lowest prices in the market, it would still be slow.”

Hoping for Price Peaks

Given the modest U.S. demand, many wholesalers anticipate prices will hit their peak sometime before the end of the year. “Soon, I think, the price of diamonds will decrease because there is not that much domestic demand,” said Nazarian. “Suppliers cannot hold to today’s price; they have to reduce to sell.” 

Some wholesalers already are starting to see prices slow down for certain categories, like melee diamonds, that have risen exponentially since the beginning of the year. “The price of melee has gone up since January anywhere from 50 to 100 percent depending on the item,” said Rick Shatz, founder of loose diamond wholesaler Rick Shatz Inc. “But so far, the prices in August have been encouragingly stable.”

The New Market

As the dust settles on the price front, a distinctly different marketplace is coming into view. “Nowadays, lower quality and lower color have more demand than higher color and higher quality,” observed Nazarian. “Most people want to spend between $5,000 to $10,000 for engagement rings, but high-quality 1-carat to 2-carat stones are above that price range — so people go for H, I and J color.”

Consumers are also more careful with how they spend their capital — long gone are the days of impulse jewelry and diamond buying. “Fashion and impulse buyers have disappeared,” said John Harris III, marketing director for Harry Kotlar, a Los Angeles–based manufacturer of platinum and diamond jewelry. “But we have seen sales growth in what we call ‘special event’ purchases: bridal, anniversary and birthday jewelry. Consumers use these events to justify spending big money on jewelry.”

Asian Attraction

Prices, however, are still at an all-time high and American consumers, worried over a double-dip recession and a fragile economic recovery, are resisting them more than their colleagues oversees. This is leaving some manufacturers straining in the domestic market. “The problem is to get the goods, we have to pay a high price and you have to pay a high price. The difficulty in the U.S. is that while the goods are there, you have to manage the price — you cannot sell for the same price in America that you sell for in Asia,” said Mehta. “The prices make a difference in the U.S., but in Asia they don’t care right now — they need the goods, and that’s the main thing.”

With the Chinese and Indian markets appearing more resilient, more domestic wholesalers are looking to expand overseas. Harry Kotlar, for example, is making what Harris deemed its “first foray into the international market. We are exhibiting in the upcoming Hong Kong Jewelry & Gem Fair to explore the demand in the Asian market for larger, better diamond jewelry.”

Future Anxiety

The recent U.S. credit downgrade by Standard & Poor’s (S&P) and discouraging reports on consumer spending are fueling pessimism in the diamond and jewelry industry, and inhibiting the industry’s momentum coming out of the June JCK Vegas show. “At the Vegas show, everyone was very positive, but with this new market crash, we have slowed down,” said Sethi. While some wholesalers are discouraged by recent economic events, they are still holding out for the end-of-the-year sales. “I don’t think this year will be good; the economy, I believe, will get worse and worse. But in the end, I hope we have a good holiday season,” declared Nazarian.

The Marketplace

• Demand is strong for .50-carat to 2-carat stones, with rounds and princesses the most popular shapes.
  
  
• Because of price points, consumers are buying more H, I and J color stones.
  
  
• While summer demand is stronger than usual, it is also limited, increasing competition among manufacturers.
  
  
• There is heavy resistance to prices in the U.S., leading many manufacturers to believe that prices have hit their peak.

Article from the Rapaport Magazine - September 2011. To subscribe click here.