Jewelers in the US are understandably confused about the government sanctions. The ban on importing Russian diamonds has a narrower application than the industry initially feared. It’s also unclear how the rules will develop and whether consumers will choose to avoid all products originating from Alrosa.
The main reaction has been uncertainty. This sentiment has already translated into a slowdown in business, though other factors such as inflation may have had an equal or greater impact.
“Folks all kind of agreed that they had a great holiday season, but now you’re starting to see a split-up of the responses in terms of how their March is going,” said Erich Jacobs, president of the
Jewelers Board of Trade (JBT), which provides data on companies’ creditworthiness.
The ratio of on-time payments to late payments in the jewelry industry — what the JBT calls the “current” versus “slow” trade dollars — reached record highs last year; the more jewelers pay vendors on time, the higher the ratio. But it has dropped since December, Jacobs reported. This decline was greater than usual for the time of year, indicating that some difficulties had set in.
The unpredictability in the jewelry market is showing some parallels with the inflation situation.
“There’s [some] analysis out there that shows that, yes, oil prices are up, so people are paying a lot more for the pump in the US, [but] roughly $13 per barrel of that is just folks being uncertain about what’s going to happen,” Jacobs added.
Any impact from the Russia crisis on the jewelry sector’s outlook is indirect, as many JBT members are still working out what the sanctions mean for them, he said. Rising consumer prices are the more significant and immediate factor right now. This was the key concern in the most recent shopper-confidence reports from The Conference Board and the University of Michigan.
The industry is still in a “buffer period,” because it takes a while for diamonds to get from mine to market, notes Sara Yood, deputy general counsel at the
Jewelers Vigilance Committee (JVC), which provides legal guidance to the trade.
However, as far as compliance goes, some things are already clear. US jewelers may not sell to anyone in Russia, as the White House has explicitly banned this, Yood points out. Subsidiaries that US retailers own or operate in Russia must also stop selling; locally owned shops that license the US companies’ trademarks can probably carry on, but American warehouses shouldn’t send them products. Russian merchandise that companies acquired before the invasion remains legal, though, Yood says.
As for sourcing, having anti-money laundering (AML) procedures is beneficial, partly because it gets companies used to asking questions about their suppliers, she adds. Not all companies have a legal obligation to maintain an AML program, but some choose to do so as a way of reducing risk.
“You can use that building block to develop a longer vendor questionnaire that will give you information from your vendors about where they’re sourcing,” she elaborates. “As consumers become more aware of what is happening, I think they’re going to be more interested in origin and provenance. Jewelers should be prepared to start answering those questions.”
One difficulty for jewelers is that many diamonds have no known origin. Another is the discrepancy between the law and possible consumer behavior. In anticipation of customer preferences, many retailers will consider avoiding all diamonds originating in Russia. While this is a respectable sourcing decision on their part — and one that Yood supports — it raises questions about vendor relationships, she explains.“You’re asking your suppliers to go beyond the law, and that can be challenging.”
Article from the Rapaport Magazine - April 2022. To subscribe click here.