The diamond industry has its fair share of challenges ranging from the threat of synthetics to navigating the volatile global economy, changing consumer habits and shrinking profit margins. Among those, however, the need to lift consumer demand is widely recognized as the most pressing.
“Consumer desire is the single source of a diamonds’ value,” Paul Rowley, executive vice president of De Beers global sightholder sales, stressed during a panel discussion at the recent JCK Las Vegas show. “We [De Beers] mine as a consequence of consumer desire, and therefore we mine according to consumer demand.”
Panelists in the discussion, which was hosted by Indian diamond manufacturer SRK Exports, agreed that to raise demand, the industry needs to assess how it markets diamonds and sell the product in a different way.
Rowley urged the industry to embrace storytelling as a means to interact with a changing consumer base. The messaging must communicate that a diamond holds intrinsic and emotional value, added Tom Moses, executive vice president and chief laboratory and research officer at the Gemological Institute of America (GIA).
Polished Prices Slide
Diamantaires attending the Las Vegas show were encouraged by an apparent rise in storytelling marketing planned for the second half of this year. The Diamond Producers Association (DPA) secured a $57 million budget for 2017 — of which $50 million has been earmarked for the US — to fulfill its mandate of leading a generic marketing campaign on behalf of the industry.
Ultimately, the goal of the DPA’s campaign is to lift polished prices and allow margins to grow, Jean-Marc Lieberherr, the DPA’s CEO, said in an interview with Rapaport News in March of this year. This will empower the industry to restore profitability and invest even more in marketing, he said.
The DPA has its work cut out as diamond prices continued to soften in June as the Las Vegas shows failed to boost polished trading. The RapNet Diamond Index (RAPI™) slipped .1 percent during the period June 1 to 26. RAPI for .30-carat diamonds fell 1.1 percent, while RAPI for .50-carat diamonds declined 1.9 percent. RAPI for 3-carat diamonds dropped 1.1 percent during the period.
RAPI for 1-carat diamonds fell 1.8 percent in the first half of 2017, after it declined 5 percent in 2016. Suppliers stressed their profit margins have tightened in recent months as polished demand remained sluggish while rough prices have firmed.
Monumental Changes
De Beers raised rough prices by an average 2 percent to 3 percent at its June sight and Rapaport News estimates that De Beers prices increased an average 4 percent to 5 percent since January 1. Similarly, ALROSA has increased its average prices by about 3 percent since the beginning of the year, according to analysts at VTB Capital Bank.
De Beers limited its sales at recent sights by not providing ex-plan goods, with sightholders speculating that the company is trying to align its supply with lower levels of polished demand. The June sight was valued at $530 million and the company’s rough sales declined 4 percent year on year to $2.92 billion in the first half, according to Rapaport calculations. Lower supply has also helped support rough prices, others noted.
VTB Capital expects that higher rough prices might stimulate “the long-awaited increase in polished prices,” especially as Chinese demand shows signs of recovery. Diamantaires are less optimistic, noting that consumer demand for diamond jewelry remains cautious and purchases have shifted to lower price points.
Global consumer demand for diamond jewelry edged up .3 percent to $80 billion in 2016, driven by strength in the U.S. and a slight improvement from local currency sales in China, according to the De Beers Insight Report published in June.
De Beers expects similar marginal growth in 2017, signaling that much still needs to be done to stimulate stronger growth. Rowley cautions that the industry will need to adapt to a changing market, particularly as retailers adjust to omni-channel sales. “We are still going through the biggest change in consumer behavior,” he said. “Our opportunity lies in the creativity and innovation we bring to telling the diamond story.”
Article from the Rapaport Magazine - July 2017. To subscribe click here.