Rapaport Magazine

Is the US Jewelry Boom Waning?

By Jennifer Heebner

Sales have been up for the past year and a half, but rising prices, the war in Ukraine, and a return to travel have buyers tightening their spending.

Bryan Moeller has enjoyed good business over the last year. In that time, the owner of R.F. Moeller Jeweler has seen his transactions and average ticket prices go up 6% and 27%, respectively. But he’s still nervous about the fourth quarter.

“The past two years [of sales] have been beyond our expectations,” says Moeller, whose company has stores in Edina and Saint Paul, Minnesota. “But I know people who are holding off on home remodels, and I see a looming downturn because of key economic factors.”

Anecdotes of record sales have been circulating in the US industry for the past year and a half, and the numbers confirm these tales. Government stimulus funds and a lack of travel during the pandemic made for extra discretionary income, which many continue to spend on jewelry. May’s jewelry sales were up 65% compared to the same month of 2019, according to surveys by Mastercard SpendingPulse.

However, those same surveys found that flight bookings for this year already exceeded 2019 levels, and that tourists were spending 34% more on experiences than on goods. Meanwhile, the cost of consumer products is skyrocketing. Food prices at grocery stores rose 12% in the 12 months that ended in May, while gas prices were up nearly 50%, according to the US Department of Labor. Overall, the price of consumer goods and services rose 8.6%, marking the largest 12-month increase since December 1981. Inflation is undeniable. Plus, there’s the ongoing war in Ukraine.

All this information suggests that consumers’ jewelry spending patterns are poised to shrink — though how much and when the shift will take effect are unclear.

“We have macroeconomic uncertainty now and a boom-to-potential-bust situation,” observes jewelry industry analyst Paul Zimnisky. “Consumer sentiment is falling rapidly in the face of multi-decade high inflation, a tightening economy, and a severe stock market sell-off. There’s real economic risk on the table, and I think this will certainly affect the jewelry-buying consumer.”

Still shelling out — for now

Jewelry revenues so far in 2022 have been robust for both merchants and manufacturers.

At Exclusively Diamonds in Mankato, Minnesota, sales are up 20% over last year, which was the store’s best year ever, according to owner Sarah Person. She chalks up the success in part to the warm customer experience her shop offers. “I believe people are starved for that in the retail environment,” she says.

Kimberly Collins affirms the importance of in-store experiences. “Demand to do roundtable parties again is strong,” says the owner of the eponymous loose-gem and finished-jewelry supplier. This year’s JCK Las Vegas show was Collins’s best in terms of sales, which were nearly 35% higher than her take from the event’s August 2021 edition.

Others attribute the current spending power to wealthy shoppers who have been unaffected by inflation. At New York-based brand Gabriel & Co., sales slowed a bit in March, but most clients’ buying habits were unchanged. “Luxury customers are still chasing goods; there’s a wait list for many items,” says Paul Skaret, the company’s director of sales. “Supply has not yet caught up with demand.”

Even with rising debt levels and a drop in personal savings rates — the percentage of disposable income that people are able to save — affluent shoppers continue to spend, agrees Jonathan Goldman of New Jersey-based jewelry manufacturer Frederick Goldman. It’s “those at the lower end of the economy [who] are hurting,” he notes.

At retailer John Mays Jewelers in Fort Smith, Arkansas, the younger generation has been driving steady sales increases for the past two years, relates owner Kevin Mays. “Ages 35 to 45 will spend for finer pieces if you have product.” But not all vendors have positive news to report. Retailers have told Neil Shah of jewelry maker Shah Luxury that their foot traffic is down. Lori Gadola of Joyla, which manufactures colored-stone jewelry, sees trouble both in the industry and outside of it. Her 2022 JCK Las Vegas experience was disappointing next to her February sales at the AGTA GemFair in Tucson, Arizona.

In a further sign of consumers’ reluctance to spend, Gadola’s beachfront condominium in Ocean City, Maryland, which she rents out as a vacation property, still has three open weeks for July — usually a prime slot for tourists. “My rates are the same as last year, but people are really nervous about the cost of food and gas,” she says.

Lab and marriage

Economics aside, bright spots exist in the form of lab-grown diamonds and bridal jewelry — the latter a perennial inventory staple that is seeing a post-pandemic boost.

Lab-created diamonds were everywhere (again) at JCK Las Vegas. In the fair’s Lab-Grown Diamond Neighborhood, which debuted in 2018, there were 82 exhibitors — a big jump from the 29 that populated the space in 2019. Plus, lab-grown came up in nearly every interview for this article. It is not going away; there is plenty of consumer demand for these stones, and the margins are better than for mined diamonds, vendors say.

“Lab-grown diamonds are the big question mark. Retailers know they are a big opportunity, but they don’t know if they are a mistake,” comments Skaret.

For Person, synthetic diamonds are increasingly accounting for bridal sales. “Lab-grown diamonds have been an incredible surprise,” she says. “Some 40% to 50% of the centers we sell now are labs.”

And because they’re cheaper per carat, customers can afford larger stones. Sylvie Levine of bridal jewelry supplier Sylvie, who only works with mined diamonds herself, says her retail clients tell her lab-grown center stones are a quicker sale for that reason. To wit, they’ve been ordering ring mounts that can accommodate bigger center stones.

Shah and Moeller, too, have seen center-stone sizes increasing. “Two carats are the new 1 carat,” Moeller declares.

Abe Sherman of jewelry-industry consulting firm Buyers Intelligence Group (BIG) is well-versed in this demand thanks to the nationwide data his retailer clients have shared. In particular, “consumers are looking for large, 1.50-carat-plus, elongated, fancy-shape centers,” he reports.

And because life is returning to an almost pre-pandemic normal, more weddings are taking place, including ones that had been postponed. Goldman — whose company sells both lab-grown and natural diamond jewelry, as well as wedding bands in alternative metals and a new line of bridal rings with blue-sapphire centers — foresees a spike in the annual number of marriages. While that figure is typically about 2.1 million, “there could be 2.5 million this year,” he muses.

Soaring diamond prices

Diamond prices and availability are the industry’s biggest headache right now. The war in Ukraine prompted US sanctions on diamonds of Russian origin, preventing the direct import of stones from Alrosa, the world’s largest diamond miner by volume. This has made America’s favorite gem not only harder to obtain, but also more expensive.

Polished production in India was down by as much as 50% as of press time. Many of the cutters are still getting paid — “It’s hard to replace that skilled labor,” says Ashkan Asgari of wholesaler Misfit Diamonds — but the reduction in work ensures that prices remain high for the limited goods available. “Last year, we cut 1,000 to 1,500 carats of salt-and-pepper products every four to six weeks,” relates Asgari. “But in our last few shipments, we were barely getting 500 carats.”

Misfit has been in business since August 2019, and Asgari says the cost of his products — which include step and antique cuts along with salt-and-pepper diamonds — has risen 30% in six months. Bigger players with vast resources are buying up everything, keeping prices high and making it hard for smaller firms to invest in inventory, he reports. “My manufacturers are going to tenders to buy rough, are bidding 15% above market prices, but are losing to bids that are in excess of 30% above market.”

For Shy Dayan of Shy Creation, having fewer diamonds means that producing his brand’s value-oriented fine jewelry is more challenging. Melanie Goldfiner Goldberg of diamond jeweler Rahaminov has also noted the disruption in the international supply chain, and has been urging clients to buy what goods are available before costs increase. “We just can’t guarantee that prices will be the same in six months,” she says.

Levine, for her part, has lost track of how many times melee prices have gone up since fall 2021. Waking up to emails from diamond suppliers announcing a jump in their prices has become a frequent occurrence for her. Larger stones with Gemological Institute of America (GIA) certificates are another tough ticket to score, she’s found.

For retailers, these challenges can lead to difficult conversations. Chad Berg of Lee Michaels Fine Jewelry, which has nine locations throughout the southern US, struggles to rationalize the increases to shoppers. “If we paid $5,000 for a ring, and replacement costs are $6,000 to $7,000, explaining that to the customer is not always easy,” he says.

Fallout for fall?

Though uncertainty looms, retailers are riding the wave of sales until it crests. Many shoppers delighted in the joys of buying fine jewelry during the pandemic, and that sentiment may last even if purchasing power diminishes.

“We’re hopeful that we’ve inspired customers to return and shop with us again,” says Lisa Bridge of retailer Ben Bridge Jeweler, which has 30 stores across nine states. “That’s our challenge — to show clients that jewelry is the right place to turn to celebrate special moments in life.”

And while some insist that the Covid-19 shop-from-home era is over — “Big-box retailers in the US, such as Target and Walmart, have recently noted a significant year-over-year buildup in excess pandemic-related inventory,” Zimnisky reports — others are building on newfound traffic and sales.

“We’re opening a new 10,000-square-foot store in New Orleans in September,” says Berg. “We’re still seeing people buy jewelry at an increased clip, and are strongly ahead of last year’s numbers.”

Hard to get: Gem sourcing
When it comes to colored stones, supply chain issues remain thorny. Covid-19 halted mining operations and curbed transportation to remote South Sea pearl farms, leading to a gemstone shortage that persists today.

Throughout the pandemic, sourcing difficulties tested gem dealer Kimberly Collins’s patience. But she was well stocked for the recent JCK Las Vegas fair; loose colored stones, bezel-set gem studs, and sapphires for bridal rounded out her inventory. Meanwhile, dealers who had seen a drop in sales at the start of the Ukraine war are now reporting a rush of buyers as scarcities emerge. Supply from Madagascar and Sri Lanka — two major producers of sapphires and other gems — has become harder to get. In the former, government mandates are preventing stone exports. The latter recently declared bankruptcy, and its financial troubles are making a mess out of fuel availability and electricity rationing.

John Ferry, founder of Prosperity Earth, mines demantoid garnets in Madagascar but has been unable to sell them because of the red tape. “We had a small window for exports open for five months in 2021, but then it shut down again,” he laments.

“Wholesalers are in a panic, scooping up whatever they can get,” confirms Afshin Hackman of ruby and sapphire supplier Intercolor. “A good portion of our JCK Las Vegas sales were to other wholesalers.”

What was hot at JCK
The most recent edition of the JCK Las Vegas show saw vibrant transactions. Many jewelry manufacturers reported their best sales ever, including Gabriel & Co., Kimberly Collins, and Sylvie. The turn of events wasn’t too surprising for the latter’s owner, Sylvie Levine, given that her first-quarter sales were up 40% over 2021. “We had more people making new appointments and opened more doors than ever before,” she says.

Sales at the show included lots of diamonds — lab-grown in both bridal and fashion; larger center stones for engagement rings; step cuts; rivière and line necklaces; and large diamond earrings. Men’s jewelry, too, was in demand, as were sapphire engagement rings. Blue and green gems remain the most sought-after colors at retail, and fine watches like Rolex and Patek Philippe have been selling out before they even arrive in stores.

Fashion-forward styles in yellow gold were also abundant and included medallions, paper-clip chains, layering necklaces, and stacking pieces. “When the price of gold goes up, yellow gold comes back because it shows its value,” explains Gabriel & Co.’s Paul Skaret.

Overall, retailers shopped for everyday, easily stackable jewelry with colored stones and diamonds. Pieces with deep meaning were another high priority. “Shoppers want a story, and that is true across the demographics,” says Lisa Bridge of the Ben Bridge Jeweler chain.

Images: Stocksy; Rahaminov; Sylvie; Shy Creation; Frederick Goldman

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

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