Rapaport Magazine

Anticipating a Happy New Year

U.S. December Wholesale Market Report

By Denise Romano
After a preholiday season of better-than-expected sales, the U.S. diamond industry is looking forward to a happy new year. “Festive season” sales so far in 2010 are almost double what they were last year, said Oren Sofer, of Beny Sofer Inc. in New York City. “We have to forget about pre-2007 sales figures. You can’t press a button and immediately return to days of old. The temperament of American jewelers has been cautiously optimistic. Slow and steady wins the race.”

Jewelers who are buying prefer “big, flashy stones,” said Ronnie VanderLinden, president of New York City’s Diamex, noting that “white facing stones for lesser per-carat prices” are also moving well. David Goldstein, president of Goldstein Diamonds in Scottsdale, Arizona, said, “Fancy color sales are picking up and I do see a fair demand for 3-carat to 5-carat fancies.”

But the biggest demand is still for bridal. “Bridal is the strongest category by far. After that is fashion jewelry and classic diamond studs,” Sofer observed.

The high demand for larger stones is causing some shortages. “Large stones are definitely in short supply because I think a lot of people don’t want to cut them,” Goldstein stated. VanderLinden agreed, saying that “certain articles over 5 carats you can’t find. It’s also a difficult market for larger sizes today, especially 5.5 carats and up.”

Adam Mirzoeff, vice president of East Continental Gems in New York City, believes that “consumption overseas is making it more difficult for users in New York to see finer manufactured products.”

Memo’s Double-Edged Sword

“Smart retailers are stocking and the ones that are still in tight cash flow situations are relying on memo” to fill out inventory, Sofer said. VanderLinden observed “Some out there feel that directly paying for a stone immediately fills a hole. Some others want to make a few extra dollars on consignment. But, these decisions are all based on relationships. Relationships between the buyer and seller are more important today than ever in this industry.”

Some wholesalers are enforcing new memo rules. “Things that you could borrow for 60 to 90 days, you can now have for only 15 or 30,” said Sumeet Sethi, director of diamonds at Manak Jewels in San Francisco. “But if it’s something important or rare, it will get bought right away.”

Sofer advised retailers to stock up on “core items they know will sell. If they rely on memo, it’s a double-edged sword. Yes, it’s free and less pressure, but it makes the sale tougher. When you buy your stock, you pay less than when you take on memo — it’s more cash in your pocket ultimately.”

When it comes to credit, the industry has mixed opinions. “We have tightened up credit criteria. It’s tough getting extended credit for jewelers who are marginal payers,” Sofer explained. Sethi agreed that “You have to extend credit only with top companies.” “We are not Teflon-coated, we have to tighten up,” VanderLinden said. But Goldstein had an entirely different take, insisting that “Credit is the best I have seen it in three years.”

Accepting Prices

“There is no question about it, loose diamond prices have gone up,” Sofer said, adding that 1-caraters have had the most significant jump. “From mid-2008 to today, we are seeing at least a 10 to 12 RapNet point jump in pricing, mainly driven by the high price of rough.” Sethi feels that pricing is global so there is a need to match competitors’ prices and he added that “very, very low” diamond production rates also are hiking up prices.

Since it is the holiday season, most in the industry are not seeing widespread reluctance to buy because of high price tags. “This time of year, everyone is focused on selling. The increase in prices is annoying, but we are not seeing any resistance. Once the smoke clears and we fall into the January and February doldrums, we may see some,” Sofer said.

Mirzoeff said that he sees some hesitancy to pay the asking prices in the 2-carat to 5-carat range and Goldstein admitted that “When anyone starts to talk about price lists, I see people shake.”

Looking Ahead

When it comes to 2011, the industry is “cautiously optimistic,” explained Sofer. “We are all waiting to see how this plays out. Are people waiting to make last-minute purchases?” VanderLinden observed that “When business is quiet during the prime-time holiday season, you have to wonder if the first quarter will be okay.” Sethi is “anticipating a very nice Christmas.” Goldstein also was encouraged by November sales. “This was one of the best months we have seen in three years. I am so optimistic, it’s ridiculous.”

The Marketplace

•     1-carat rounds are number one in demand and cushions are a close second, followed by radiants in third.

•     Large stones from 3 carats to 5.5 carats are in demand, but there is a shortage of stones over 5.5 carats due to decreased rough supply.

•     Blacks and browns are selling well because they are affordable and trendy. Pinks and yellows are moving because they are rare and expensive.

•     Demand is strong for middle-of-the road G-J colors, VS – SI1.

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

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