Wholesalers that supply diamonds for watch manufacturers in the US do not have to debate whether to go to Baselworld in April; the decision has been made for them. But while the Swiss show’s cancellation solved an immediate issue, these wholesalers and manufacturers still face the ongoing concern of decreasing demand for this product segment. And their issues reflect broader trends in the American diamond market.
New York: Specific buying
“People used to buy parcels of diamonds for watches. Now they only buy what they need,” said Izzy Rosenberg, manager at IGC New York, a subsidiary of the Antwerp-based IGC Group. Even though the company is busy, he acknowledged, “demand is definitely not as strong as it was previously.”
There is still “quite a diamond-watch market” in the US, Rosenberg continued, but competition from non-diamond watches and other market forces have had an impact. He attributed the slower business in part to the increased popularity of the Apple watch.
Furthermore, Rosenberg — who focuses on supplying diamonds to the prestige watch market, price-wise — compared the situation to that of wholesalers supplying the retail jewelry sector. “The watchmakers are only buying specific sizes; they are not purchasing for inventory. Everything is per order.”
The cost of the diamonds is not a factor, he said, noting that 10 years ago, prices were double what they are now.
Providing specific diamond sizes for watches is a labor-intensive process, given that watches require small stones — 1 to 1.5 millimeters. “A 1-millimeter diamond is much more expensive to produce per carat than a 2-millimeter because of the amount of work required,” he explained.
Some companies just make diamond bezels for timepieces, he continued, while there are retail jewelers that fit or replace existing bezels with diamonds.
Rosenberg doesn’t anticipate any shift in the market that would lead to increased demand.
“The shift has already happened,” he declared. “The watchmakers are using very fine makes. I can count on my fingers which companies produce them. That’s our specialty and the reason our business is still active.”
Los Angeles: Up against Apple
“Our business is okay, but not as good as it used to be,” said Samir Sangani, president of Solar Diamonds Inc. in Los Angeles, California, which manufactures diamonds for US watchmakers and for custom work.
Sangani reported slow demand for diamond-accented watches. “Everyone wants the Apple Watch,” he said, adding that millennials were showing little interest in diamonds at all.
While he also counts European watchmakers among his customers, his clients are primarily in Los Angeles and in the tri-state area (New York-New Jersey-Connecticut). The average retail price for these timepieces starts at $2,500, but custom watches can command prices of over $20,000. Like Rosenberg, Sangani noted that watch manufacturers needed “very, very small stones,” citing a size range of 0.6 to 1.2 millimeters. To provide a sense of scale, he explained that there were almost 2,500 0.6-millimeter stones in a single carat.
As a result, production requires precision and accuracy. “It is a very specialized and labor-intensive process, even though computers are used to calibrate the exact specifications,” Sangani said.
He admitted that manufacturing margins were higher for larger diamonds used in custom watches. But there are some caveats. “Sizes are so specific that we can only get 3% to 4% of the same size,” he explained.
“Furthermore, to produce those sizes, we have to maintain high-value inventory, so the margin does not really reflect what we can earn from the end product,” he pointed out.
Sangani stressed that the entire sector was facing challenges.“There really isn’t much to talk about now regarding the market for diamond watches — or the rest of the industry. We are all going through a tough phase. I hope the diamond miners consider and understand what is happening and take steps to help the industry survive.”
Article from the Rapaport Magazine - April 2020. To subscribe click here.