Rapaport Magazine
Markets & Pricing

‘Out-of-control’ prices bring risks

The rising expense of natural goods may drive consumers toward lab-grown, wholesalers speculate.

By Joyce Kauf
Just as manufacturers ran out of superlatives to describe 2021, they are now trying to find words for prices that continue to rise unabated. Instead of buying stones that would be good to have in stock, they’re just replacing goods they’ve sold.

New York: TV advertising essential

In a “fortunate” result of “extremely unfortunate circumstances,” Covid-19 proved to be a boon for the diamond trade, according to Ronnie VanderLinden, president of New York manufacturer Diamex. “Prior to the pandemic, the industry was incredibly weak, but it turned the industry around.”

The skyrocketing demand for diamonds produced a shift in attitudes. “Instead of being focused on specific diamonds, our clients have been more receptive to what’s in our inventory. We offer them other choices, and those options are selling,” he said.

While overall market sentiment remains “good,” VanderLinden thinks the industry must “maintain the momentum by getting out in front of the public,” especially with the cost of living escalating and people going out again. “It’s not enough to think that the product is just going to sell because it looks good. We have to advertise on television.”

The industry should take its cue from the extensive TV campaigns of consumer-goods companies and automobile manufacturers, he suggested. He could point to only one diamond company that aggressively advertised on television: Signet Jewelers, pushing its Zales, Jared and Kay Jewelers banners. “They do it because there is a reward at the end.”

As for the year to come, he said, “if I look into a happy crystal ball, I would say we’ll have a pretty good year — barring any unforeseen circumstances. But we must be smart about it.”

Boston: Finding qualified workers

“The market is a big question mark right now,” said Hilda Ozcan, citing domestic and global issues that have created uncertainty in the world. “And of course, we’re dealing with crazy prices for natural diamonds and gold.”

Ozcan — who co-owns wholesale jewelry manufacturer Ozcan Jewelers in Boston, Massachusetts, with her husband Varujan — voiced concern that the increasing natural-diamond prices would encourage consumers to buy the less expensive lab-grown. “Demand for natural diamonds will still exist, except it will be less,” she forecast.

While the pandemic may be waning, businesses are still dealing with its impact, she continued. “Covid-19 opened the door for people to work at home. But not every job can be done there. For us, manufacturing jewelry is a team effort. We’re having a tough time finding qualified people to fill our bench positions.”

At both the manufacturing and client levels, she considers it essential to change with the circumstances. “We’ve had to adjust the delivery time on special orders because they take so much longer. Fortunately, our retail stores understand because we’re all in the same boat.”

Ozcan was cautious about predicting what 2022 would bring. Covid-19 seemed to be under control, but the international situation posed serious risks. “I’m looking for a more peaceful and healthier year — hopefully soon — so we can experience the new normal way of living and working.”

Chicago: Red flags

“This is not a healthy market,” observed Ami Sarbagil, owner of manufacturer E.M Trading in Chicago, Illinois. He warned of an impending crisis in the industry. “Out-of-control diamond prices are coinciding with a drop in consumer demand because of inflation and higher interest rates.”

Traders need to take consumer sentiment into account when setting prices, he maintained. “It’s time for Rapaport to take the pulse of what’s happening at the street [retail] level.”

Rather than “looking at an algorithm,” he said, diamond price analysts should get feedback from the retailers, especially the mom-and-pop stores in middle America. “They are the end of the food chain.”

Sarbagil described a self-perpetuating “snowball” effect: Wholesale prices increase, manufacturers respond by raising their prices, and this, in turn, leads to higher wholesale prices — a situation that makes it impossible for Sarbagil and other dealers to replace goods at the price they paid.

As a result, dealers are “reducing their exposure by limiting inventory, which is slowing the trade. The dealers can’t solve this problem,” Sarbagil stated.

More importantly, he emphasized, “nothing happens in a vacuum.” People are still buying diamonds, “but with natural diamonds so expensive, consumers are opting for the cheaper lab-grown diamonds.”

The industry is past the point of a correction, he cautioned. “If the situation continues with prices rising every week or two weeks, there will be a crash, either at the end of this year or the beginning of 2023. No tree grows to heaven.”

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

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