There’s no question the diamond industry is facing challenges. The world’s largest producers have seen sales of both rough and polished stones slump in recent months – De Beers reported its worst sales results in two years in May, while Alrosa confirmed an 8 per cent year-on-year decline.
At major buying fairs across the globe, the sentiment has been mixed and slow trade recorded. “The diamond market is still suffering and most categories are not doing well globally,” Yehuda Diamond Company president Dror Yehuda says.
The problem is not oversupply but weakening consumer demand, both for the diamond category and across the retail industry in general. In recent years, a large number of jewellery retailers have closed their doors, struggling to cope with a downturn in consumer spending and the changing nature of shopping itself.
Even at the luxury end, publicly-listed retailers Tiffany & Co and Signet have posted losses for the first quarter of 2019.
At the recent JCK Las Vegas trade show, buyer numbers were estimated to be down by as much as 25 per cent. While some blamed the downturn on moving the show from weekend to mid-week, panels still focused on how to turn the tide.
“Demand has become very narrow and very specific in terms of what people are looking for,” Rapaport senior analyst and news editor Avi Krawitz said at one seminar, adding that some parts of the industry have been slow to adapt to the “tremendous change” that has occurred over the past few years.
Trading insights
Like other luxury goods, diamond prices are highly elastic, which means any changes in price have a direct impact on demand. Vipul Sutariya, director Dharmanandan Diamonds, explains, “White diamonds are always in demand because of their rarity and beauty but the micro and macro economy play a vital role in the price point of jewellery. During a particularly challenging time, the lower colour grades will attract more consumers who are looking for something affordable.”
Sutariya says 0.5 to 2 carats are “moving decently” – an observation echoed by Royal Gem Australia’s David Karakai. “The smaller sizes, up to 1 carat, are very competitive,” he says. “However, we specialise in larger sizes so we are seeing a lot of demand in the 2 to 3-carat range as well as 5 carats. Clients are always price sensitive and looking for the best deal.”
Meanwhile Yehuda lists various colours and clarities in 1 to 2 carats as performing better, noting a “big shortage” in G-I colour VS1-VS2 diamonds over 2 carats.
In terms of cut, he says ovals have done well over the past year, particularly in the US. Pear and emerald cuts are also in demand.
Uncertain times
According to the Australian Bureau of Statistics, consumer spending has been on a downward trend since the Global Financial Crisis of 2008 with consumers reluctant to spend on discretionary luxuries like jewellery. Spiralling debt, a softening property market and stagnant wages have all given many shoppers pause.
The effect on the retail industry has been stark and National Australia Bank economists declared the sector “clearly in recession” following the May edition of the bank’s Monthly Business Survey.
For the diamond category, the answer has been to re-orient the product to include women’s self-purchase jewellery and not just once-in-a-lifetime engagement rings.
“The women’s self-purchase market has been the growth engine of the sector over the past few years,” Jean-Marc Lieberherr, CEO of the Diamond Producers Association (DPA), says. “In the US, about one-third of diamond jewellery sales are women purchasing for themselves and the price points have grown to be similar to those for gifts, at between $US1,000 and $US1,500 for the median price.”
Jonathan Kendall, president, De Beers Group global industry services, confirms: “The self-purchase sector has been growing over the past 20-plus years and today it represents up to 40 per cent of purchases in some markets. So yes, it’s important and slowly trending upwards.”
Lieberherr explains that the change has come about due to a cultural shift. “Historically, many women have not seen diamond jewellery as a self-purchase option as the idea of a diamond as a gift of love or symbol of commitment has dominated,” he says.
“At the same time, the branded-accessory market has been growing, with women as the primary purchasers, pointing to a lost opportunity for diamond jewellery.”
Today, Lieberherr says women are looking to purchase diamond jewellery for themselves “to celebrate important milestones, reward themselves or simply because they can and it makes them proud,” which means retailers need to market and sell directly to women. He points to the DPA’s ‘For Me, From Me’ campaign, which gives retailers the resources both in-store and online to capitalise on this market.
Diamonds also appeal as gifts to mark various milestones.
“We see diamond gifting at christenings and other religious ceremonies, graduations and 21st birthdays, as well as silver and gold wedding anniversaries,” Kendall explains. “As populations age, we are also seeing a trend for eternity rings as partners show their love and appreciation, and brooches and necklaces are popular gifts for the older generation.”
Lieberherr calls the process “diversifying purchase motivations”. Rather than pivoting away from engagement and bridal, which still represent about 30 percent of diamond sales, the trade is adding occasions to celebrate with a diamond.
Synthetic versus Authentic
Millennials and Gen Z shoppers are attracted to authentic and eco-friendly businesses and are willing to pay more for these attributes, according to consumer research company Nielsen.
“More consumers are looking for sustainable products,” Sutariya says. “They are concerned about how and where their jewellery comes from – is it responsibly sourced?”
Producers of lab-grown diamonds have touted their alleged sustainable and ethical credentials, striking a chord with younger consumers; however, these claims have been criticised as capitalising on consumer ignorance of how synthetic diamonds are manufactured, as well as the lack of knowledge about the true environmental and social impact of diamond mining.
“There is nothing sustainable about lab-grown diamonds. They require heating up reactors at [extreme] temperatures, which require millions of gallons of water to cool off,” Lieberherr says, adding, “None of today’s lab-grown diamond producers make use of renewable energy, despite what some claim, and most of the volume comes from regions of the world where electricity is produced with coal and fossil fuels.”
For natural diamonds, the challenge is emphasising the industry’s long-term commitment to transparency, traceability and energy efficient technology.
Both De Beers and Alrosa have recently announced their own traceability initiatives. Tracr, an end-to-end blockchain platform developed by De Beers in collaboration with the diamond industry, will launch its beta version in the next few months and aims to build consumer confidence while making industry practices more efficient. Signet and China’s Chow Tai Fook have already pledged their support for the initiative.
Alrosa, meanwhile, has announced ‘electronic passports’ for each of its diamonds, including details on each stone’s age, origin and date of extraction. The passports will also note the time and place where the diamond was cut and the cutter’s name and background.
The Gemological Institute of America (GIA) has also begun issuing Diamond Origin Reports.
In terms of environmental impact, the DPA has recently released the results of an independent investigation into diamond mining conducted by third-party evaluator Trucost.
It found that natural diamonds emit three times less carbon dioxide per polished carat than synthetics; however, mining still has a significant environmental cost.
“The report points to the undeniable, negative environmental impact of diamond mining – carbon emissions account for the bulk of that impact, as diamond mines have a limited physical footprint and make limited use of chemicals,” Lieberherr notes. “It is important for the sector to look at ways to reduce its carbon footprint through energy conservation, greater access to renewable sources and ambitious carbon-absorption programmes.”
Kendall believes the industry has come a long way – further than outdated consumer stereotypes might suggest.
“The real diamond industry has a broad sustainability approach,” he says. “In the last 20 years there has been far more effort put into the economic, social and environmental impacts associated with our business. Sustainability is paramount to any business success and our industry is progressing well in this regard. Operating responsibly, creating healthy workplaces, supporting employees, their families and local communities, and protecting the environment are all a real focus in the modern diamond industry.”
He references De Beers’ Project Minerva, which supports groundbreaking research into carbon-neutral mining as well as the group’s partnership with UN Women and its strict environmental measures and ambitious carbon-reduction targets. Kendall says De Beers “has reduced its carbon footprint significantly in the last five years with excellent initiatives such as the first solar-powered grading lab in Surat, India”.
In terms of social benefits, Trucost determined that large-scale diamond mining generates US$16 billion in net benefits every year, of which more than 80 per cent flow to local communities around mines. These benefits include employment, services, taxes and royalties, as well as infrastructure and redevelopment.
Still, Rapaport Group chairman Martin Rapaport recently delivered a stern warning to the industry at JCK Las Vegas: “The diamond trade is not profitable enough to support a sustainable supply chain,” he said. “If the trade does not change its business practices and adapt to new realities, the diamond industry will suffer extreme financial and regulatory disruption.”
Lieberherr predicts a backlash against synthetic diamonds, claiming consumers will realise their lack of inherent or resale value – but Yehuda says retailers should cater to the current demand for synthetics.
“If you really wish to stand out and have the courage to do it, go into lab-grown diamonds. This category is doing extremely well in the US,” he says. “Despite all the controversy around the lab-grown diamond sector, it’s a product that can help your bottom line. You just need to be honest and passionate about the product you are selling.”
Still, Lieberherr urges caution, saying the synthetics category jeopardises diamond retailers’ premium positioning.
Sutariya believes the best solution for retailers is to add value to natural diamonds through technology. “At present, certification is very common; the same certificate with the same colour and clarity is available at a cheaper price at an online store,” he explains. To help retailers stand out, Dharmanandan exclusively offers Sirius Star diamonds in its Love Facets Collection, which are uniquely cut to optimise light return.
Billed as the ‘brightest diamonds in the world’, Sutariya claims stocking the collection “makes competition irrelevant” because there’s no way other retailers can mimic the effect and undercut the price.
What the future holds
There’s no way to predict the challenges the diamond industry could face in the future but it’s certain that, like all industries, evolution will be necessary.
In the meantime, better marketing, technological innovation, catering to consumer trends and streamlining supply chains are some tools that can help the diamond industry keep shining.
WHITE DIAMONDS
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Above: Left and right: The Sirius Star Collection from Dharmanandan Diamonds |
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Above: Left and right: Royal Gem Australia |