Rapaport Magazine

U.S. Wholesale

By Shuan Sim
Market Shifts to More Specialized Goods

Wholesalers dealing in diamonds around 1 carat, G to I colors, in VS and SI clarities — typically known as commercial goods — had a harder time making sales in recent months than traders working with bigger sizes and better quality. “The Christmas season is typically about larger stones about 2 carats to 3 carats and then it’s back to commercial goods for engagement sales in January,” said Anish Desai, president of Star Gems Inc., a wholesaler in Norcross, Georgia. Sellers did notice the switch back to engagement sales after the holiday season, but the performance of 1-carat commercial-quality diamonds remained subdued. “While sales have picked up a little in February from January, generally business has gone down quite a bit compared to 2015,” pointed out Harold Apfelbaum, president of ValuExchange, a wholesaler in San Francisco, California. Bigger sizes and better-quality diamonds sold better — GIA-certified triple EX cut goods up to the 4-carat to 5-carat range, F color and VVS and VS clarities.

Trend Toward Custom
   Desai reported a phenomenal start to 2016. He noticed a trend for custom makes and his company is launching a business-to-business (B2B) mobile app to capitalize on the momentum. “It’s niche, and maintaining inventory is tough, but you’re able to get the right prices with fewer goods around,” Desai noted. He added that retailers have said customers are constantly looking to make changes or want something unique, especially for engagement rings.
   Kushal Sacheti, chief executive officer (CEO) of Galaxy USA Inc., a wholesaler specializing in colored diamonds, highlighted that mom-and-pop diamond jewelers are not doing well, affecting the low end of the market. “Business has taken a beating, unless you are in the very high end of the market,” Sacheti said. However, he pointed out that while demand in the high-end market remains relatively unchanged, sourcing for that particular market can be challenging price-wise.

Supply Scarcity Helps
   Sourcing for bigger and better-quality stones becomes increasingly challenging as manufacturing in the industry has been cut. However, many diamantaires were not that concerned — in fact some welcomed it, saying it would help make prices favorable for them. “Prices had softened in the past and now they’re finally readjusting,” said Desai. “As the demand for triple EX goods remains, prices will eventually rise due to a scarcity of supply,” he added. Saul Goldberg, president of William Goldberg Diamond Corp., a wholesaler in New York City, said that a shortage might not necessarily be a bad thing. “It has created more of a buzz around in the industry as people become more sensitive to prices,” he said, explaining that buyers’ understanding of an impending scarcity gave sellers a better bargaining chip.
   The looming scarcity also has another benefit — a potential shortage has allowed lower colors to be accepted back into the market as in-demand goods start to run out. Sacheti noticed that G through I colors were the bread-and-butter of diamonds sold, but now the main mix might have shifted to H through L colors.

Fundamental Industry Change
   Some sellers felt that the wholesale industry as a whole has undergone a fundamental shift due to technological advances and globalization. “Buyers are increasingly buying as they need, and the role of the middleman seems to have been cut out,” said Sacheti. Many jewelers are able to directly contact wholesalers, cutters and manufacturers these days, squeezing out traders who do no manufacturing. As a result, Sacheti said that traders like himself are restructuring the way they do business, and are specializing in specific fields.
   Apfelbaum was concerned how consumer-facing businesses might be affected by online jewelers and laboratory-created diamonds. “You can see them offer prices 10 percent to 20 percent off of what we offer because they can,” he remarked. Apfelbaum believes that the Millennial generation perceives diamond engagement rings — a staple of commercial goods — differently. “They’re not as into diamond engagement rings the same way the older generation is. They’re all concerned about ‘blood diamonds’ and lab-created diamonds these days it seems,” he commented.
   Diamantaires were not sure what to make of 2016 moving forward. Desai predicts that 2016 will be stronger than 2015, and that sellers catering to the niche market will fare better. Goldberg felt that it was too early to tell, though he feels that sticking with bigger-ticket, higher-quality goods might be the way ahead. “April and May will probably be very slow, since that’s during the tax season,” speculated Raffi Meric, co-owner of JD Diamonds, a wholesaler in San Francisco, California. Apfelbaum echoed that sentiment. “It will probably be flat for the next few months, and then hopefully it will start to pick up,” he concluded.

Article from the Rapaport Magazine - March 2016. To subscribe click here.

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