The (still) highly important U.S. market

Avi Krawitz

By most accounts, this week’s Las Vegas jewelry shows were positive even if diamond trading was not especially vibrant. That U.S. retail jewelers have gained confidence on the back of better economic news was enough to lift the mood. With China at an economic crossroads, and India hedging its volatile currency, the mature U.S. market currently offers the best environment for selling diamonds and jewelry.

The U.S. currently accounts for about 37 percent of global diamond jewelry demand, having grown about 5 to 6 percent in 2012, according to De Beers estimates. Forecasts for 2013 are upbeat as consumer confidence has improved on better job numbers, rising real estate markets and bullish stock markets. Strong first quarter results by publicly traded jewelry companies such as Tiffany & Co., Signet jewelers and Zale Corporation were well timed to boost sentiment before the shows.

However, while Vegas signaled a positive retail environment, that hasn’t yet filtered to the diamond industry. Diamond trading in Vegas was relatively slow and driven by dealers rather than wholesale or retail buyers. But that might not be a fair gauge of success or failure. For many polished suppliers, meeting the right people and the post-show follow-up is more important than actual sales on the trading floor.

Still, there’s no doubt that retail jewelers continue to manage cautious inventory levels, and are careful to carry the right inventory.

Donald Greig, president of Focus Business Management Institute (Focus BMI), a consultancy for retail jewelry businesses, noted that one of the biggest challenges facing retail jewelers is that their capital is tied up in dead inventory. He gauges that up to 80 percent of sales should come from stock that is less than three months old. “If it’s more than three months old, there’s a good chance it won’t be sold,” Greig observed. He added that jewelers should aim to turn their inventory 1.5 times a year, whereas the average turnover is about 0.7 times.

The slower turnover is clearly affecting diamond suppliers. As is emerging alternative sources of supply. Many are sourcing polished diamonds locally, preferring to tap the recycle market before approaching manufacturers for their new, generally more expensive supply. The U.S. has emerged as a significant supplier of polished diamonds to both domestic and foreign buyers via its recycling market.

Therefore, diamond prices were fairly stable at the show and buyers successfully resisted any attempts to increase. In fact, prices were relatively soft and suppliers who were prepared to compromise a bit were the stronger sellers.

Wholesalers, meanwhile, had an easier time, particularly those selling to mid-to-high-end independent retailers. Fred Makhlouf, CEO of Eli Jewels, a jewelry wholesaler, noted that sales grew in both fashion and bridal jewelry lines. He suggested that while bridal was such a dominant part of the industry in the past few years, retailers may now be overstocked on bridal and are looking for more fashion jewelry.

Still, bridal remains the biggest area of consistency for the industry. Greig tells jewelers that 30 percent of their average total sales should be bridal rings.

If someone’s doing 20 percent of their business in bridal, we know we can improve the whole total sales of the store by 10 percent, just by getting the bridal,” he explained. “If it’s higher, then their other departments are letting them down.

According to Greig, around 62 percent of a store’s sales should be diamond jewelry, with 30 percent being bridal rings, 7 percent anniversary rings, 5 percent diamond bracelets, 10 percent diamond pendants, and 10 percent diamond earrings.

The average sale of a diamond ring should be between $4,000 and $6,000, which surprisingly he adds, has gone up over the past few years.

Bill Boyajian, president of Bill Boyajian and Associates, an industry consultant who works with Greig’s Focus BMI, stressed that they consistently tell jewelers to resist the urge to discount in order to meet price points seen online, for the sake of making the sale.

A customer may have gone onto Blue Nile and learned a little bit and use that limited knowledge to try and negotiate a better price from the jeweler,” Boyajian explained. “So jewelers feel they’ll lose the sale if they don’t discount. But if they make all their sales at that price, they’ll lose money anyway.

While jewelers insist they can’t make margins due to competition they face online, Boyajian and Greig stress that they can maintain strong margins by competing in service where they can’t on price.

In turn, retailers are looking to partner with suppliers who will provide them with the best service. Both diamond and jewelry suppliers have come to recognize that price isn’t everything when it comes to their relationship with their retail customers.

Indeed, vendors at the Vegas shows, particularly those based in the U.S., displayed the added-value customer service they provide at times more than their designs or their diamonds. “Our market share is growing because we’ve been able to communicate our added value and connect with retailers who appreciate it,” said Louis Price, chief operating officer at M. Geller, a polished diamond wholesaler. “We sell stones and build relationships and programs. Our aim is to help customers sell more diamonds, which helps us sell more diamonds.

For many, that includes expanding the presence of their diamond brands across stores. One wholesale supplier, who requested to remain anonymous, noted that brand-run businesses – including purveyors of other brands – are doing best in today’s environment, as people prefer to buy familiar and recognizable products.

However, in advising retailers, Greig and Boyajian stress that they should concentrate on branding their own store rather than taking on too many diamond brandsthat often become more important than the store.”

That may cause some tension between the various segments of the diamond and jewelry trade as companies in each seem to be pushing their own branding. In fact, mining companies, diamond manufacturers, jewelry wholesalers and retailers are increasingly competing with each other in the branding space. Vegas was awash with slogans and marketing material largely with the end consumer in mind, which is encouraging for the diamond and jewelry sector. Competitive branding can only enhance generic demand for diamonds.

Equally important, the focus on service and branding demonstrated that the U.S. is a truly consumer driven diamond market and still a bellwether for the industry. While Vegas signaled an uptick in mood, it also reminded the trade how important the U.S. is in the global sense. Even when the trade is not booming, the U.S. is the mainstay of stability for the global diamond industry.

Source Rapaport