Rapaport Magazine

U.S. Wholesale

By Brian Bossetta
Buying Shifts To “As Needed”

Retailers appear to be spending less on stocking inventory, instead waiting to purchase goods on an “as-needed” basis. That approach has resulted in a slowdown in the pace of sales and a general weakening in business. “I think people are seeing where they are before spending to stock up,” said Joel Braun, a sales executive at E.F.D. Inc., a diamond wholesaler in New York City.
   Joey Cohen, office manager at Solomon Cohen Diamonds, another New York City wholesaler, sees the same trend. “Our customers are not investing as much in stocking inventory,” Cohen said. “Christmas was okay for us, but things have been falling off a bit since then.” Despite a disappointing Christmas season, Harsheel Shah, vice president of sales and marketing at Prijems, a manufacturer and wholesaler of diamonds based in Los Angeles, reported “an incredibly strong” start to the new year, driven by the Tucson gem and jewelry shows in late January and early February. “In preparation for Tucson, our inventory levels were quite high because clients were eager to purchase new products to take to the show,” Shah said.

Lowering Prices
   Naresh Patel, vice president of Baguette Diam Inc., a diamond wholesaler and manufacturer in New York City, said buyers are “skittish” due to price fluctuations on RapNet and are waiting to see in which direction prices go in the coming weeks and months before stocking up on inventory. “This is much different than in 2014,” Patel said, adding that he’s had to lower his prices to meet this softening in demand for stock. “There’s less liquidity right now as well,” Patel added. “People are scared that the market is going to go down. So they are asking for lower prices on goods.”
   Lowering prices is just what wholesalers have to do in order to move goods, according to Jay Mehta, director of operations for Varsha Diamonds, Inc., a wholesaler and distributor in Los Angeles. “Nobody wants to commit,” he said, “even with the lower prices.” Mehta estimated that prices are 5 percent to 10 percent lower now — depending on the type of goods — than they were at this time in 2014. Another factor hurting wholesalers, he said, is that many jewelers have an excess of goods because they overstocked for the holidays but didn’t sell as many goods as they had anticipated. “They are waiting to turn over that inventory before making new purchases,” he said. “And with the instability in prices, they are also waiting to see if there are further price decreases.”

Cheaper Goods
   Prices, Braun said, have dropped off in recent months, with “discounts flowing” after the holiday season, which, he added, has made replacing inventory relatively easy. “Goods are cheaper right now because of the market,” he said — due in part, according to Patel, to less manufacturing, which directly affects profit margins. “Polished prices are not correlating to rough,” Patel said. And while Mehta also sees shrinking profit margins because of the price differential between rough and polished, retailers, he said, enjoy the widest profit margins, more than any other sector of the trade.
   However, Cohen believes that prices will stabilize as they adjust to the market and he was confident that business would increase. “I’m feeling good,” he said. “Anything can drive prices: the economy, changes in oil prices. I think we’re on the down slope and things are going to pick up again. And right now, with prices not strong, it’s a good time to buy.” After the bump in business from Valentine’s Day, Mehta said he expects business to pick up again in March as the industry heads into the spring bridal season.
   A growing challenge to diamond dealers has been the rise of online retailers, such as Blue Nile, that are able to sell larger quantities of goods at extremely reduced prices. To combat this, Mehta said he sees more of his customers opting to brand their own diamonds and lines of jewelry in an effort to set them apart. “This allows them to offer better value and helps to maintain loyal customers,” Mehta said.

Overseas Effect
   With most U.S. wholesalers selling to the European and Asian markets, the health of those markets has a direct impact on business here at home. In the past four months or so, the Asian market, particularly China — major consumers of U.S. diamonds — has been down, which has also added to the post-holiday lull. Still, Mehta, who deals in Asia, said the market there has picked up some since the beginning of the year.
   Shah said he has heard “quite a bit of rumbling” from his overseas clients regarding the problems in Russia, the weakening euro and the strengthening dollar. Still, he expressed confidence about the industry as it moves further into the new year. “I feel the U.S. market is actually quite well positioned globally,” he said, adding that companies “that are well run and well stocked will find great success in 2015.”

Article from the Rapaport Magazine - March 2015. To subscribe click here.

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