Rapaport Magazine

Making Margin, While Keeping Price Down

Israel December Market Report

By Avi Krawitz
Israeli diamond cutters are keeping an optimistic outlook but express deep concern that the stability seen in polished prices is holding back business activity.

“We are getting more requests for goods, but demand is very specific and you can only sell if the price is right,” explained Erez Rothem, chief executive officer (CEO) of R. Rothem Diamonds, a manufacturer of diamonds and diamond jewelry. “The market is not paying above a certain level and there is upward pressure on polished prices in order to keep up with production costs.”

In addition to higher rough prices in the market, Rothem noted other rising costs that manufacturers are facing, such as rentals and salaries, which also are cutting into their margins, while retailers are applying pressure to keep prices down. “We are caught between the hammer and the nail as rough prices go up a few percent each month and retailers are keeping their costs low,” he explained. 

Edi Faltz, owner of Edi Faltz Diamonds, a dealer in all size and shape stones, agreed that margins were depleting across the pipeline, which is making business especially difficult for cutters. He noted that since the economic downturn began, retailers have avoided making large inventory purchases and are still tending to buy according to the orders they receive.

Christmas Investment

Even in the middle of the Christmas buying period, Faltz, who sells mainly to the European market, said that sales are focused on the engagement sector as consumers are looking away from diamonds to more affordable gift items in the fashion jewelry category. “People are not buying diamond fashion jewelry at the moment and are focused on other stones,” he explained. “We are only selling diamond engagement rings and some earrings.”

Most manufacturers who spoke with RDR agreed that there would be a holiday sales season in 2010 even if it doesn’t turn out to be as strong as hoped for a few months ago. “I feel that the market has quieted down lately,” reported Mordechai Turgeman, owner of Turgeman Diamonds, manufacturer of the Brilliant Star cut. “But if Christmas is strong, it will be a good sign for next year.”

Rothem noted that the Christmas sales period is not what it used to be five years ago and that it does not bring the strong price boom or large stock orders anymore. Faltz added that as people tend to do things more “at the last minute,” Christmas buying occurs later each year. He also stressed that the diamond industry is increasingly facing competition from other gift items such as electronic products like the iPad or Kindle, which have emerged as popular alternatives to diamonds as Christmas gifts for consumers.

In response, Faltz emphasizes to retailers that they should stress the investment value of diamond jewelry. “Unlike other products, which lose value as soon as they leave the store, diamonds can be shown to be a good investment,” he continued. “We always tell salesmen to inform their customers that they are not spending, but investing, when they buy diamonds.”

Sophisticated Marketing

Other diamond dealers recognize the need to raise their marketing profile to boost sales ahead of the Christmas period. “Before, it was okay just to sell your goods, but today, you have to have a much more sophisticated marketing strategy in place,” Rothem said. He stressed that his company, which sells uncertified Russian parcel goods and Gemological Institute of America (GIA)-certified individual stones, as well as diamond jewelry, is focused on developing its marketing to better capitalize on internet sales avenues through its own websites and other business-to-business trading sites. While he expects the market in general to be much better in 2011, Rothem stressed that it will be the marketing drive that will provide the added boost to sales.

Similarly, Turgeman added that he is putting in place the right systems to raise the profile of his Brilliant Star brand and patent. He stressed, however, that much depends on the banks, which have grown far stricter in their lending since the downturn. “I understand that they are trying to reduce their risk exposure toward the industry and they are not giving credit to diamantaires even when we bring strong surety,” Turgeman explained. “It has become very difficult to conduct regular business when the banks are not behind you.”

Bourse Trading

While sales to the traditional Western consumer markets may not be quite at the level hoped for before Christmas, trading in the bourse remains sustainable as shortages have become apparent in the market. “The bourse is the hottest market at the moment because everyone is looking for goods,” Faltz said. “So if you have the goods, you can sell.” He added that dealers are starting to view polished as cheap relative to rough and are therefore starting to buy.

The Marketplace

•     Trading is stable but quieter than hoped for leading up to the U.S. Christmas holiday season.

•     Demand is good for round 1-carat to 2-carat stones in all colors and clarities, especially in SI goods.

•     There has been a shift to cheaper goods, including SI as an alternative to VS and 0.90-carat instead of 1-carat stones.

•     Demand is good for dossiers in SI1-SI2.

•     Piqué goods are in demand in all sizes.

•     Demand for stones above 4 carats is weaker.

•     Cushion shapes are hot among fancies, while demand for princess and pear shapes remains stable.


Article from the Rapaport Magazine - December 2010. To subscribe click here.

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