The U.S. diamond industry is finding it must adapt to a world market where it is no longer calling all the shots. U.S. wholesalers report that they are dealing with high prices and short supplies caused by strong demand and robust sales in other countries.
“Indian diamond dealers are buying everything; they’re driving the prices up,” said Ami Koret, vice president of Davidoff Diamond Corporation in Houston, Texas.
“The market conditions in the U.S. don’t warrant the prices we are seeing,” he explained. “There are shortages in nice goods in several categories. We used to have a few of each stone in stock. We have some categories right now where we have zero stock. We have been here 34 years and we have a following, so it is not as if we deliberately let our inventory get low. We are selling things and we can’t replace them. Whatever I see is either ugly or expensive. Israeli diamond cutters make better prices by selling there — maybe the goods just aren’t getting to the U.S.; they are getting sold in the Far East.”
“It’s a world economy,” explained Nick Jain, vice president of sales, Paramount Gems, New York City. “We’ve always sent goods to the Hong Kong show, but this year, we’re going there ourselves. Today, we have to look at a wider picture to get the sales volume we want.”
Paramount is doing very well in 1.50 carats in rounds and princesses but “we are seeing shortages,” reported Jain. “We are not finding as much as we could sell. Asia is driving up pricing. And with that market so strong, wholesalers are sending out more merchandise to the Hong Kong show and the India IIJS show so those goods are not available in the U.S.”
“We specialize in the promotional, commercial end of the market and the Indians are buying up everything in those goods,” said Jay Moskowitz, vice president, Robert Moskowitz Co., New York City, who noted a particular shortage of rounds and princess cuts in $700 to $1,400 a carat. “If we do find them, they will be expensive.”
The Upside of Shortages
The shortages actually are helping to stabilize prices. “If you have an item and a retailer needs it, he will pay the price, especially since some stones are hard to find,” said Moskowitz.
“Retailers know they have to pay the price if they want the goods,” said Koret. “But a customer who comes in and asks for a G, VS, 3-carat may be surprised, especially if he hasn’t shopped for diamonds in ten years.”
Retailers are struggling against the low markups on website sales. “Retail stores can’t survive on the low markup internet companies are charging. Those retailers who have built up personal relationships and are handling long-time customers are in the best position,” said Shakeel Japanwala, manager of the certified diamond division at C.D. Diamond, New York City. “There are still customers — I’m one of them — who want to see a product and touch it before they buy. I don’t want the hassle of returning something I ordered over the internet because it’s not what I expected.”
The economic recession — and its rocky recovery — are creating a hangover effect that is affecting how much U.S. diamond buyers are spending and even what they are buying. “Everything is budget driven,” said Marvin Finker, Trillion Diamond Co., New York City. “It’s not a resistance to high prices that is determining what they buy; it’s what they decide they can afford to spend.”
“People will still get married and they will still buy diamonds,” said Koret. “Maybe they will buy a lower-quality stone, maybe a smaller stone, but they will still buy something.”
Mounting Takes a Bigger Share
In a budget-driven environment, the high prices of gold and platinum are impacting how much of the budget is spent on diamonds. “If your total budget is $7,000 to $8,000, the mounting that used to cost $400 now costs $800 to $900 or even $1,100 to $1,200 if you’re including other diamonds,” said Finker. “Diamond prices have not gone up as much as gold and platinum, so the mounting is taking a bigger percentage of the budget than it used to.”
Wholesalers suggest that some of the renewed popularity of rounds is attributable to a desire to return to more basic looks during difficult economic times. “Before the recession, we were selling a ton of fancies — maybe 70 percent of our business was in emeralds, marquises, pears, ovals,” said Jain. “There’s been a 180-degree turn in our business. We’re now doing 70 percent in rounds and princesses.”
Good Times Ahead
“The worst is over,” said Koret. “2010 may not be a banner year but it’s gradually getting better,” he said, but he doesn’t predict any big spikes in business because “the goods are not there for a spike.”
Moskowitz also is optimistic. “For the past year and a half to two years, people have not been spending, they’ve been saving,” he stated. “So they are sitting on a lot of money. If they suddenly get in the holiday mood and decide to buy gifts, they’ve got the money to do so.” Japanwala sees another upside to the recession. “When you are depressed, you shop,” he said. “Spending makes you feel better.”
The Marketplace
• Rounds are still number one in demand, princesses, number two and radiants, three.
• Demand is strong for G-H, VS2-SI1. Stones outside those parameters will sell if they look nice and are cut well.
• Emeralds are finally moving again, but cushions are not. There is no demand for larger-size marquises and ovals in 3 carats+.
• There is ample supply of 4-grainers but there are so many out there that it’s hard to make a decent profit.
Article from the Rapaport Magazine - October 2010. To subscribe click here.