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Year expected to start strong

The crystal ball for 2022 is a little cloudy, but there are still some bright spots on the horizon for the first quarter.

By Joyce Kauf
After a banner 2021 for most, concern about inflation is on the minds of the many. Still, expectations are high for a strong first and even second quarter of 2022 — though wholesalers are reluctant to predict any further.

New York: Predictions of value

“Strong is a very relative term,” said Morris Szklarski, drawing a comparison to the early days of the pandemic, when he couldn’t even get into his office. The president of New York-based manufacturer Kelsol Diamond Co. described sales in 2021 overall as “good, but not great.”

“It was more difficult for us than those who sell lower- or medium-priced goods,” he explained. “We sell 5 carats and below, VS2 and better. SI2s and I1s are not our niche.”

Pent-up demand will still drive business through the first quarter, which will be a solid one, according to Szklarski’s predictions. He views inflation as a positive, since people will want to own “hard assets.” Yet continually rising prices contribute to a “buy-today mentality,” he noted, since the price will just go up again.

Szklarski sees over-grading by the Gemological Institute of America (GIA) in India as a “potentially serious issue” for the industry. Unlike others, who only look at the certificates and not the stones, he doesn’t “buy paper,” he stated. “At some point, when the consumer goes to sell that stone, they’ll feel the burn when the buyer tells them it doesn’t match the certificate.”

Szklarski recommended keeping inventory diversified to ensure cash flow. As for what lies ahead, he said, “those of us who stuck it out will be okay, and those who didn’t might regret it. There is definitely a future to this business.”

Philadelphia: doing business defensively

“This has been a good year, but it’s not going to last,” said Larry Rosenberg, president of wholesaler Rosenberg Diamond Co. in Philadelphia.

Rosenberg, who specializes in diamonds from 0.50 to 10 carats, is only buying on a “needs basis,” because replacing the stock is expensive due to the diamond supply chain and inflation. He is convinced inflation will pose serious problems for the economy, and he described the future as “unsure, unpredictable and scary.”

“The writing is on the wall,” Rosenberg declared, adding that the Federal Reserve couldn’t raise rates because “every business has been leveraged out at zero interest rates.”

While the industry has benefited from people having “a lot of coronavirus cash to spend,” he said, the diamond trade is a “disposable-income business. The rich will always have money, but that is only one end of our business. The reality is that most Americans don’t have sufficient savings to weather the storm.”

Nonetheless, diamonds and jewelry are a commodity business with goods that have value, he continued. Among those who can afford it, people are increasingly finding the industry “a good place to put their dollars.”

Based on his assessment of the economy, Rosenberg thinks sellers should heed the lesson of keeping expenses down. He also advised conducting business defensively, being careful to “avoid risk-taking and expansion.”

Scottsdale: hedging against Inflation

“The last 15 months have been amazing, especially since we weren’t sure what to expect when Covid-19 hit,” said Ralph Mueller, founder and owner of Ralph Mueller & Associates. “I would have questioned the sanity of anyone who predicted we’d have such fortuitous results.”

The diamond, colored-stone and jewelry wholesaler is based in Scottsdale, Arizona, and Mueller buys almost exclusively on the secondary market. Restocking is becoming a “bigger and bigger challenge,” he reported; within the past six to nine months, he has sold almost 90% of his inventory of 2 carats and up. Sales of “nicer” yellow diamonds above 2 carats have picked up “dramatically,” reducing his inventory of those stones as well.

Previously, Mueller made money on the buy, but now he is making money on the sell — even for goods he had planned to reduce or offer as closeouts. “Everything became salable because of lack of availability,” he said.

He noted that middle America was “investing strongly in diamonds” as inflation kept rising. He could see us “going back to the 1980s, when people were looking for tangible assets and portable forms of wealth as hedges against inflation.”

Going forward, “we’re all looking into our crystal balls to see what will happen in 2022,” said Mueller, forecasting that the next six months would remain strong. “It’s all about perception. Often, public sentiment and consumer confidence are the opposite of what is happening in our economy.”

For now, until he can see a “direct path” to where the economy is heading, he is adopting a cautious stance and will “sit back and wait.”

Article from the Rapaport Magazine - January 2022. To subscribe click here.

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