The Vegas JCK and Couture shows not only cemented where the problems are, they also showed where positive change activity is taking place, possibly signaling the way for the rest of the category. The show started with a certain degree of promise, suffered from low foot traffic and yet, provided some hope.
Here are a few insights:
1. Exhibitors optimistic
Walking through the hallways on opening day of the JCK Las Vegas show, diamond traders expressed optimism. Some may argue that salespeople are by nature optimistic folks, but in the diamond industry, it seems that salespeople are usually realistic. The source of this optimism may have been a belief in the US market as well as a feeling that prices of polished diamonds reached bottom. If prices will not decline anymore, than there is no point for retailers to hold out for further price declines. If a gun appears in the first act is a sign it will shoot in the third, than optimism in the first act is a sign of disappointment.
2. US okay, the rest of the world slow
Repeatedly traders stated that they are not so much worried about the US market, but for their sales in the rest of the world. Demand in China and Hong Kong is suffering from a continued slowdown and other markets, such as Japan, are reportedly expressing lower demand for diamonds.
In the US on the other hand, demand is at a slow but continuous pace. As the largest consumer market, the volume is there. And currently, that is what traders are looking for – volume that generates a steady cash flow.
3. Prices bottomed, wholesalers are protecting the value of their inventory
In the drive to generate cash flow – and in a textbook response to declining demand – wholesale prices of polished diamonds declined, brought very near to the point of complete loss of margins (and in some cases, past that point, according to polishers), in the past few months.
It is hard to tell so early after the show if prices were reduced further and if so by how much. However, the general sentiment was that prices should not be allowed to slip down any further. Wholesalers want to protect their bottom line and the value of their inventory for obvious reasons. More than that, they are showing confidence in the value of their product. This is very important. At some point, they need to refuse lower prices or risk losing the confidence retailers have in it. This confidence is eroding anyway on the consumer level and needs to be addressed on different fronts.
4. A growing realization that enduring economic diamond value needs to be addressed
Partially, the problem with diamonds is that they are perceived as an unnecessary product. They are not food or shelter. However, diamonds can have other worthwhile qualities, such as enduring value. More people in the industry are feeling that the resale value of diamonds is a topic that should be addressed.
For starters, one popular myth that must be busted: that diamonds are not worth much, “proven” by the low price a consumer gets when trying to sell back a diamond to a store. The myth is the expectation that after you buy a diamond at retail, you should be able to sell it back to a retailer for a premium price above retail. Obviously, that goes contrary to the retail business model – buy low, sell high, buy at wholesale prices, sell at retail prices. The expectation of getting back a full retail price plus a premium is just not realistic.
That said, at least some retailers took advantage of consumers’ lack of knowledge and paid them much less than wholesale prices when buying from them their old diamonds. I’m being cautious here. In some cases, the distance between wholesale prices, what consumers were paid and honest practices were far off, creating a very negative sentiment in the consumer market, and it is coming back to bite us in the lower back regions.
More people in the diamond industry, wholesalers and retailers, are coming to the realization that a middle road must be found. Consumers should learn which diamonds have a good resale value, a way to track and find out what the value is overtime and this must be done without breaking the traditional retail model or over commoditizing diamonds to the point that romance is lost.
During a panel at JCK, Forevermark CEO Stephen Lussier said that when they spoke with owners of high-end diamonds, there was a need to extend the discussion “beyond the 4Cs.” This is to say, explain other attributes of a diamond that impact its value. This is a bold statement from a De Beers VP, especially the Veep in charge of De Beers’ retail brand. De Beers is willing to take the discussion with consumers away from romance, enduring love, etc. into the realms of commodity.
5. Talking about the need for marketing is finally turning into action
Ever since De Beers ended the generic diamond promotion marketing campaign “a diamond is forever,” many asked, demanded, pleaded, even begged for the company or any other entity to pick up the initiative and promote the diamond category for everyone’s benefit. Until now, and with only one exception, the demand was that somebody, anybody, take care of it. All of a sudden, there are several initiatives in the works.
First, this is the end of the demand that “someone” will do it, and the beginning of if no one else does it, then let us think about how we can do it. That is refreshing. Among the initiatives are a group of miners, a group of industry activists, small groups of traders thinking of specific issues and more. This is an important change. I guess when your back flush against the wall, change does happen.
6. Price point
Buyers were very price conscious. Partially because retailers, just like wholesalers, are keeping a very tight control on their expenses. The diamond industry, all the way down to retailers, is facing a decline in sales. Another reason is an attempt to get the most out of the situation and see if they get negotiate prices down by another point or two.
7. Retailers’ inventory levels are high (but not necessarily with the right goods)
Not only wholesalers have inventory issues. Wholesalers may be surprised to hear that retailers are suffering from a similar problem. What they bought a year ago is largely still in the display cases and aging. Their inventories are not in sync with sales and this tied up asset is not allowing them great flexibility in revitalizing their offering with fresh goods.
8. Sales were not spectacular, with someeExceptions
Rounds, one carat and smaller, were not moving well at all and selling prices were low. A couple of companies specializing in fancy shapes reported decent sales, especially for Cushions and side stones. This may reflect an interest in something “different,” an item that may catch the interest of consumers not captivated by the traditional items.
On the other hand, bigger goods did better, part of a wider trend of higher priced items. It seems that the higher segment of American consumers is still buying diamonds. They have both the budget and interest. This bodes well with the decent business seen at the Couture show. Branded and stylized designs at both shows did well pointing to a dichotomy in the retail segments – high-end is moving and consumers find them worthwhile. Price point sensitive items are not doing well at all and desperately need marketing support.
9. Handmade, one of a kind design is hot
Well-designed items are capturing the attention of consumers and generating sales. It is about differentiation, offering something new and different (yes, ‘different’ is important), with high-quality production. It makes a big difference.
Of these, the handmade, one off type of designs are doing especially well. The reason could be, again, differentiation. Stepping away from a mass-production – even if well designed and high quality – provides even greater uniqueness. That is what generates sales today!
10. Diamond set guitars attract a lot of attention!
The Coronet electric Gibson guitar, placed at a strategic location at the JCK Las Vegas show had a constant stream of gawkers, and was a star attraction. Set with 500 carats of diamonds, and valued at $2 million, it had it all – a story, style, eye catching design, it was different, novel and unique. The entire diamond story with steel strings and a fret.