5 lessons from the Hong Kong Show

| March 22nd, 2017

5 lessons from the Hong Kong Show
"5 lessons from the Hong Kong Show"

The Hong Kong show was better than expected for the diamond trade, as Chinese jewelers were looking for goods after being absent from the market for some time. But while exhibitors were simply happy to be doing business again, conditions ultimately favored buyers.

Suppliers took the opportunity to reduce stock and generate some cash flow, and they were therefore prepared to accept offers at slightly higher discounts in certain categories.

There are a lot of goods on the market and a definite hunger to sell,” noted a Jakarta-based jeweler looking to buy at the Diamond, Gem & Pearl Show. “You feel there is flexibility among suppliers.”

Manufacturers’ profit margins remain tight, after rough prices firmed in the first two months of the year and polished prices softened slightly. Therefore, suppliers were hoping the show would stimulate stronger polished trading for the coming months. After all, the first quarter is supposed to be an upbeat period for diamond dealers – a time when jewelers in the U.S. and China restock after the Christmas and Chinese New Year periods.

While that inventory replenishment hasn’t yet happened in a significant way, there was sufficient activity at the show to inspire optimism about the short term.

However, a number of factors were apparent in Hong Kong that will influence the market moving forward. Here are five trends we’re keeping an eye on after the Hong Kong show:

1. Retailers don’t want to overstock

Jewelers are owning less inventory than they used to, with Chinese retailers taking a lot of goods on memo, according to Vincent Yiu, a manager at Hong Kong-based diamond manufacturer Brilliant Trading Company.

They’re also very careful not to get stuck with too much inventory the way they have in the past, influencing them to purchase more selectively, added Jeremy Medding, owner of EMA Diamonds, which supplies round diamonds up to 10 carats.

As jewelers expanded aggressively across China earlier in the decade, they bought a lot of stock to fill those new stores and satisfy rising consumer demand. However, as economic growth slowed and that expected consumer demand did not fully materialize, store expansion stagnated in the past two years. Jewelers have consequently been working through excess stock and only replacing what they need.

There’s been a clear destocking trend among the major jewelry retailers, noted Stéphane Fischler, president of the Antwerp World Diamond Centre (AWDC). Dealers, meanwhile, are [for now] focused on moving greater volume, rather than maintaining their prices.

2. Jewelers are shifting to lower price points

Jewelers are also replacing their higher-value inventory with lower-priced goods, Fischler noted.

That trend is stemming from the retail sector, as larger jewelers are shifting to lower-end products, which are their fastest-selling items, Yiu observed.

Today, Hong Kong is competing with the U.S. for SI-clarity and piqué goods,” he added.

Exhibitors noted strong demand for SIs at the show, whereas a few years ago, the Far East was recognized as a market for VVS- to VS-clarity goods.

There was also a shift to lower colors. About two months ago, there was good demand for G to H colors, but at the show, buyers were looking for I, J and K colors, reported Motti Amit, a manager at Tel Aviv-based polished-diamond supplier Leo Schachter.

The latter goods are difficult to supply because there’s less rough available in those lower colors, Amit explained. “Therefore, you’re selling a smaller portion of your stock,” he said.

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Source Rapaport

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