In the month following JCK, there were some indications of a strong second half, but problems in the market persist.
New York: Reality check
“It’s summertime,” noted Haim Aharonoff, president of New York-based M Aharonoff Company, explaining the slower pace of sales in July. However, the fact that Aharonoff was still open — rather than closing for vacation in the beginning of July, as was once traditional in the industry — reflected the shift from production- to service-based business. “Our clients expect service, and if we’re not there, someone else is always looking for a sale.”
He cautioned that market sentiment must be examined from a broader perspective than price-list increases or higher sales of rough. The current demand for VS to SI quality is not indicative of a strong market, but is instead “an illusion” created by a production shortage that is driving prices up, said Aharonoff. He pointed to weak demand for “collection goods” — D, E and F stones — as a more realistic barometer of the state of the industry.
Furthermore, while the majority of stones may be manufactured in India, the same does not hold true for the production of collection goods. De Beers’ Lightbox synthetic line has sped up the diamond’s journey to market from millions of years to mere months. Aharonoff believes it will impact sales of 1- to 2-carat diamonds because it will offer better value — especially if De Beers spends huge sums to drive lab-grown sales. “But high-end is a different clientele; they will still buy natural diamonds,” he predicts.
Northeast: All signs point up
“We are encouraged by the first half, and the second half is looking strong. We really do believe this is going to be a banner year,” said Jevan Fox, vice president of diamond and jewelry manufacturer Devotion, which operates in Burlington, Vermont, as well as Mumbai and Montreal, Canada.
Of course, strong sales come with the potential for inventory shortages. “With the retailer confidence that we’re seeing, we could be squeezed on inventory or availability, which in turn would affect prices. It is TBD for us right now, but if it is going to happen, the impact is right around the corner.”
There has been a trend of using fewer diamonds in the setting, while the average center stone size has been “creeping up,” according to Fox. The much narrower shank allows for the center stone to “lead the show.” Fox acknowledged that it would impact margins for the retailer, given the higher margin on the setting than on the center stone. However, he pointed out, “the top-line total average sale will be increasing because of the larger center stone.”
Retailers may also find that Lightbox can add to their sales of natural diamonds. Fox believes Lightbox presents an opportunity for the industry to highlight the ways ethical natural diamonds contribute to the well-being of mining communities. This would especially resonate with millennials — the often reluctant diamond buyers. “People love to hate millennials. They think they eschew everything that is traditional, including diamonds. But you just have to paint the picture of the schools and hospitals to show what amazing things the industry does.”
LA: Where’s the profit?
“Business is steady,” said Larry Horowitz, owner of diamond wholesaler Gerson & Horowitz in Los Angeles, California. Ovals are still hot, and customers are price-conscious, with everyone wanting SI1 stones.
“People do not want to pay the jump in price to get the VS today,” Horowitz explained, noting that people were frequently making the trade-off for better color and larger size. “I think people are starting to realize that they can have a great look without having VS clarity.”
While Horowitz could not cite this as a trend, he hoped the preference for SI1 would become more common going forward. “Once people accept having an SI stone, then they are no longer buying a piece of paper — a cert. They are buying the actual diamond itself. And then we would get back to where it used to be — buying a diamond for its beauty.”
Still, overall market sentiment is “absolutely not optimistic,” according to Horowitz. “The profit margin is gone. It’s not that we’re losing a large percentage of sales to the internet, although because of the internet, everyone knows the price to within a dollar. It’s that everyone is lowering his price to beat the next guy, and no one can make any money.”
Article from the Rapaport Magazine - August 2018. To subscribe click here.