Rapaport Magazine
Markets & Pricing

US wholesale

Wholesalers see tighter margins, shrinking profits

Sellers remain cautiously optimistic, while at the same time bemoaning their diminished earnings.

By Joyce Kauf
Looking ahead to JCK Las Vegas (held after press time), wholesalers shared a common sentiment that the industry was facing many challenges that even a successful show would not resolve.

New York: A rough deal

“Like most business owners, I’m optimistic every day when I come into the office,” said Greg Telonis, president of Mr. Baguette, a diamond wholesaler in New York specializing in side stones. “However, it is hard to sustain that feeling given all the negative aspects of the industry.”

First and foremost is the wholesaler’s bottom line.“Everyone’s margins are being squeezed. Because of the internet, retail jewelers are forced to work [with] small margins. And if they want to keep their margins, what do you think they do?” said Telonis. “Between less demand in specific sectors and lower margins, we find ourselves in a difficult business environment.”

Telonis identified another critical factor impacting the industry. “One of the biggest faults is the fact that we don’t work together. Everyone sabotages the next person to make the sale.”

His solution is a concerted effort — by the industry as a whole — to share information, something most people are reluctant to do because of fear of stealing a customer, whether wholesale or retail. “We have no coherent story about diamonds. The consumer gets hundreds of pieces of information from hundreds of people. How can they decipher what’s real or not?”

Telonis also cited De Beers’ lack of advertising as a “big part of the problem,” because wholesalers can’t afford to fill that gap. “Since we are all making lower margins, we can’t spend $300,000 or $400,000 to advertise,” he said, noting that De Beers’ high rough prices were making it even more difficult. “They shouldn’t be shocked that diamonds aren’t selling, because they have priced them to a point that no else can make money.”

Telonis plans to attend JCK and is open to buying — if he finds “very cool things.”

Chicago: Highs and lows

“The higher-end market for 6 carats to 7 carats is fairly strong at the moment, even though we are in challenging times,” reported David Levine, owner of diamond wholesaler William Levine Fine Jewels in Chicago, Illinois. He attributed those sales to people who may have done well in the stock market and cashed out to buy diamond jewelry.

“But not everyone is benefiting from the market,” he noted. “Consumer confidence is lagging in the middle and lower end of the market; there is a lot of uncertainty about the economy and the political situation.”

Levine succinctly described the challenge from price shopping on the internet: “It kills profit.” That jewelry — especially diamonds — means nothing to millennials is an “insurmountable problem” for the majority in the industry, according to Levine. While it’s less of an obstacle for the larger stones he sells, “the 1-carat or 2-carat purchaser is backing off because they don’t see the necessity of it or they are opting for lab-grown, which is another can of worms.”

Levine will attend JCK with no set expectations. He predicted that the show would be “okay,” similar to last year. “I wish I could be more optimistic, but given the state of the industry, that’s the story,” he added.

Florida: Online competition

“A lot of people are getting engaged, and that’s good for the industry,” said Katy Bitton, owner of MB Diamond House in Aventura, Florida. A wholesaler and retailer, Bitton has observed demand for 0.70 to 3 carats, with an average 1.50-carat center stone. Yet she cited online competition for engagement rings as a serious concern, especially for rings 1.50 carats and under.

“There are so many diamonds floating around on the internet. The millennials are ordering online without knowing what they are ordering. They are ordering blindly based on just carat weight and price — the rest is not known to them. Then they come to me to compare,” said Bitton.

Although she attended JCK last year, she was not “motivated” to go this year. Aside from engagement rings, there is little certainty as to what the customer wants. “There is nothing new in the industry in terms of fashion jewelry,” Bitton said.

Article from the Rapaport Magazine - June 2018. To subscribe click here.

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