Rapaport Magazine

Getting Around High Prices

U.S. November Wholesale Market Report

By Karolyn Schuster
Locked into high prices on their traditionally strong product categories and facing sluggish demand from a still-recovering economy, U.S. wholesalers are moving into new product areas where there is greater pricing flexibility and more room for growth. 

“We are doing more business in natural colored diamonds in different shades — the champagne colors, pink, yellow and the new silver gray shades that Argyle is marketing as Silvermist,” said Nilesh Sheth, president of New York City’s Nice Diamonds. “We are also seeing more interest in treated colors in blacks, blues and yellows due to their affordability. We source specialty items — the unusual, the trendy, in cuts as well as colors. We carry rose cuts and briolettes, which are popular again. We also stock rough diamonds, which are currently being used by designers in their new collections.”

Atit Mehta, vice president of Atit Diamond Corporation in New York City, reported more interest among his clients in noncertified goods because of their price advantage. “The Indian companies are buying up all the triple EX goods so there are some deals to be had in other categories. We’re seeing the most movement right now in 70-pointers and up in I1, I2 goods, also in SI1 and SI2 parcels. For these stones, it’s often not worth it to pay the expense of certifying.”

Andrew Rickard, vice president of operations at RDI Diamonds in Rochester, New York, agreed that supplies of Gemological Institute of America (GIA)–certified big goods are tight in terms of both availability and pricing. “The goods are out there but when we locate them, they are more expensive. In terms of the overall market, price-point goods in SI2, SI3, I1 and I2 are moving well.”

Bridal Budgets

At the same time as fashion clients are moving into new stone categories, bridal customers are moving down in quality for the sake of affordability. “Our business is a business of engagement and, regardless of the economy, people are still getting engaged and that still means a diamond ring,” continued Rickard. “But where that ring used to retail at $8,000, now it retails at $6,000. They still want a 1-carat stone but two years ago, the jeweler would be spending $4,000 to $4,500. Now, they want to spend $3,000 to $3,500. They know they are going to get a little less in terms of quality, but budgets have shrunk and gold is way up and that’s what their customers can afford to spend.”

Jai Bhansali, vice president of sales at Diagem, in Chicago, Illinois, agreed that consumers may be making some concessions on the quality or size of engagement rings, but when they do so, he said “the most important factor becomes cut. They don’t mind a lower color or clarity, but they want it to look really nice — and that means a good cut. They want it to sparkle like a diamond should.”

Citing the continued strength of the bridal market, Mehta offered the opinion that some of the current business could reflect pent-up demand from customers who put off getting engaged during the worst of the economic crisis.

Pockets of Demand

Coming into the holiday season, “the volume is at the lower end and we’re having a lot of trouble replacing piqué goods,” said Bhansali, noting that many chain-store promotional programs feature piqué goods, which cuts into supply. Sheth agreed, stating: “Part of the volume at the lower end is the industry competing against all the new electronic gadgets for gift giving. A lot of those gadgets sell for about $500, so the industry is trying to bring some of its jewelry offerings to that level.” When you have big-volume promotions on the same items, he added, “like 1-carat-total-weight matching earrings at $500 to $1,000, there’s a lot of price pressure on that size category as a result of higher demand and limited supply.”

Admitting that it’s true there are shortages, Mehta suggested that most are due to pricing. “If you’re looking for specific demands, you can find them, but the prices are too high. The issue is finding the quality you want at a price you are willing to pay.”

“Across the board, retailers are buying what they need, not for inventory,” continued Mehta. “Wholesalers are buying what they need, maybe a few carats more. No one is buying more than they need. If retailers do decide to buy something for inventory, they are looking for really good deals. Cash flow is better than it was a year ago and if a customer has a quantity order, he can negotiate better payment terms. You find a way to make a deal.”

Sheth said wholesalers are concerned about the constant pressure on prices, caused by strong demand from the Chinese and Indian markets, supply levels at 50 percent of where they were a couple of years ago and the exchange rate, with a weak dollar taking costs higher.

“Nothing is considered too expensive if everything around it is just as expensive,” said Bhansali. “I’d like to see a price that holds. I’m not a big fan of big increases.” Mehta agreed, noting that “It’s hard to figure out where to quote because we just don’t know where prices will end up.”

The Marketplace

• Demand is still strongest for rounds, with cushions, square radiants and larger ovals moving and the Asscher cut rebounding a bit.

• There is lots of activity in the little stones to -2 in SI1 and SI2.

• The 2-carat size and fine makes are starting to come back but they are not always easy to locate.

• Demand is great for high D-G colors.

Article from the Rapaport Magazine - November 2010. To subscribe click here.

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