Editorial

As American as Apple Pie

Even for those outside of the U.S., Thanksgiving Day evokes images of big turkeys, big football and … big shopping. Maybe not on the same sensory level brought on by mom’s home cooking, or from sharing a beer with the old-man while rooting for your favorite team, but the importance of this holiday is certainly felt beyond U.S. borders. The reason is simple, and should be celebrated as an indication of America’s influence on pop culture and global economies.

That is, despite the powerhouse trends emerging from the Far East, and rumors of moving commodities and currencies away from the greenback, markets are anxious to see how the U.S. consumer spends in the next four weeks, beginning with Black Friday, as an indication of the global economic recovery.

The diamond industry’s anticipation is no less eager -- in fact, with the U.S. still accounting for upwards of 40 percent of global diamond consumption, of which a large portion is bought through this period, the industry remains very much invested in consumer demand for Christmas gifts.

The early signs are encouraging as jewelry retail sales edged closer towards 2008 levels in the third quarter, although in general, U.S. sales lagged behind other regions for many of the major players. Tiffany, for example, saw U.S. comparable store sales fall 10 percent, while sales in all other regions, including Japan, rose. Similarly, Signet, the world’s largest jeweler by sales value, saw its U.S. sales down 1.7 percent, while its UK sales rose 4.5 percent. The numbers appear to have reached a turning point from the slide of one year ago, and as many retail jewelry companies have forecasted, the fourth quarter should show some single digit growth on a global scale and possibly only modest declines in the U.S., particularly considering the poor comparable fourth quarter of 2008.

While there is some indication of improved consumer confidence in the U.S. – the Conference Board’s confidence index rose from 48.7 to 49.5 points between October and November – there are clearly other issues to factor in. Most importantly, unemployment at above 10 percent appears to be foremost on consumers’ minds. So even if they are getting ready to shop, as the Conference Board indicates, consumers will remain conservative. That means, they will spend less and aggressively seek out bargains and discounts.

In the diamond sector, retailers have avoided stocking-up due to weak demand and to maintain cash flow. Coupled with conservative consumer spending, the question for this Christmas season is whether the consumer mindset will trend further towards buying diamonds for specific special occasions, rather than as a mass market product? Does Christmas itself fall into that special occasion category as De Beers’ Everlon Knot commercial would indicate?

While dealers from Ramat Gan, Antwerp and Surat express cautious optimism for Christmas and try to downplay their reliance on the holiday, they quietly assure themselves that U.S. consumers can still shop en-masse.

As the rest of the world watches the U.S. this Thanksgiving, with all its parade, food and ritual, this year more than ever, it is hoping U.S. consumers will continue the one holiday tradition that still impacts us all. Here’s wishing you a happy Thanksgiving, and even better black Friday.

Between the Lines

Rough: Major Investment in the ‘Prince of Mines’

De Beers and Botswana, the equal shareholders in Debswana, announced that they plan to invest up to $3 billion during the next 15 years “to ensure profitable and continuous production” at the Jwaneng mine until at least 2025. The so-called Cut-8 project at the De Beers flagship mine will create access to an additional 95 million carats, which could be worth more than $15 billion over the life of the mine. Referred to as the ‘Prince of Mines’ by former Botswana president Sir Ketumile Masire, De Beers’ Gareth Penny stressed that the project would ensure that Jwaneng remains the richest mine in the world. Output at the mine varies between 12 million and 15 million carats a year, contributing about 70 percent of Debswana’s total production.

Wholesale: Larger Indian Manufacturers Still Growing

While India’s diamond manufacturing sector was hard hit by the economic downturn, and is still only operating at an estimated 70 percent of full capacity, the larger companies appear to be in healthy shape. Among the diamond companies covered by Rapaport News listed on the Bombay Stock Exchange (BSE), all but two saw sales growth during the second fiscal quarter ending September 30, 2009, while all nine were profitable through the three month period.




Retail: Encouraging Signs From Tiffany

Tiffany & Co. performed better than expected during the third quarter ending October 31, 2009 and its results proved encouraging considering the luxury environment remains stressed. Total sales fell 3 percent during the three month period, compared to the declines of 16 percent and 22 percent in the two preceding quarters. Significantly, sales grew in all regions in which the company operates except the Americas. Tiffany expects a mid-single percentage increase in sales in the fourth quarter stating that November sales so far were in line with this forecast. The company stressed, however, that “results in December are most relevant to the company’s ability to achieve its outlook for the fourth quarter.”



Economic Highlights:

• British economy shrinks 0.3 percent in third quarter, less than expected.
• Dollar falls to 14-year low against the Japanese yen ($1 / JPY 86.27).
• Dubai World conglomerate to restructure and puts in place six-month standstill on its debt.
• Air travel in the U.S. expected to drop 6.7 percent over Thanksgiving holiday weekend.
• Twitter reportedly to start charging companies to use its platform.

Global Markets

United States: Retailers have been cautiously optimistic going into the Thanksgiving holiday weekend after seeing an increase in traffic and sensing a rise in optimism among shoppers in the past week. However, they appear concerned that there lacks the volume of consumers to go around, which will lead to discount hunting, more difficult sales and greater competition. Prices in the polished market continue to firm in all categories while supply remains low. Demand is strongest for rounds, 1.00-2.00 ct., F-H, VS2-SI2 goods, while there is good demand and relative short supply for princess, cushion, and radiant cut, 1.25-2.00 ct.+, F-G, VS-SI diamonds.

Belgium: The polished market in Antwerp is showing signs of life although the trade appears less busy than one week ago. There remains notable price differences between buyers and sellers, with sellers generally holding strong. There is good demand for 0.50 ct.+, D-H, VVS-SI goods while some specific items are difficult to find. Demand for heart shape stones are edging up as buyers are starting to think beyond Christmas towards Valentine’s Day.

Israel: Trading activity in Ramat Gan is improving due to better demand from the U.S. and further penetration into the Far East markets. However, dealers are expecting a shorter season than usual this year, especially as U.S. buyers are seeking bargains. Demand is strong for collection goods in rounds, 0.50-1.50 ct., D-E, VS1+, which are still proving difficult to find. Sales of rounds in 3.00 ct.+ are improving, as is general demand for cushion and oval shapes.

India: There has been a steady improvement in demand for polished stimulated by the current wedding season in India. Dealers and manufacturers are aggressively looking for rough, especially for sizes which yield smaller polished goods, while prices remain very strong. Demand for gold jewelry continues to grow despite gold hitting record price levels in India. Demand is strong for stars and melees in the domestic market with shortages becoming increasingly apparent since Diwali. Asking prices on these goods has increased and suppliers are holding firm on their prices. There is strong demand for 1.00 ct. stones, and pique goods are also selling well.

China: November has been seasonally quiet in Shanghai but the market is stable and trading activity is estimated at approximately the same level as 2008. Trade usually diminishes in November from the highs of the October buying season and wholesalers and retailers are now waiting out for the calendar New Year on January 1, and the Chinese New Year in February for the next sales boosts. Demand remains focused on 0.30-1.10 ct., D-J, VVS-SI, GIA, EX cut goods.

Hong Kong: The market in Hong Kong remains steady but very price conscious as buyers are lagging behind the manufacturing centers of India and Israel. Wholesalers are reportedly finding it difficult to profit on new stock as they feel the market has not yet absorbed new price levels, and are therefore focusing on selling older stock they still have, which they bought at cheaper prices. Demand is being stimulated by Chinese buyers although the market is expected to quiet towards the end of the year.

Quote of the Week

“This is a fantastic time to be entering the business world, because business is going to change more in the next 10 years than it has in the last 50.”

- Bill Gates, Founder of Microsoft

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