Every single day we take chances. Some small, some dangerous, but inevitably, making decisions means taking risks. It’s a basic part of doing business and growing.
The diamond market is in a very delicate state, and the decisions it makes in the coming months will influence it for years to come. In the past few weeks this column has detailed in various ways, the new and perilous situation the market is facing: Rough prices are uneconomically high, diamond polishers’ margins are narrow and now cut to nothing because polished prices are practically flat, and all the while consumers are buying, but not aggressively.
Compounding this, the banks that finance the industry, at least the rough-to-polished wholesale part of the pipeline, are increasing their charges and lowering the availability of financing. This is making business development difficult and expansion a growing challenge.
We have also discussed the difficulties in generating growing sales at the consumer level. In the US, consumers are buying a lot more jewelry, but the diamond jewelry sub-category is not growing at the same rate – diamond jewelry is losing market share.
In China, the big bright hope for consumer growth, diamond jewelry sales are increasing, however Chinese jewelry buyers are largely still conservative. That means that gold jewelry is still preferred because of the investment qualities it represents and jade is still much more desired than diamonds. This does not mean that there is no room for diamond jewelry to grow, but the expectation that jewelry set with diamonds in a wide range of qualities and colors will be snapped up from the display cases proved to be simply over optimistic.
In Japan, after a great three-year run, imports of loose polished diamonds are starting to weaken. Do not get me started on India and its economic woes. It’s enough to mention that gold prices declined and many prefer to take advantage of the opportunity and buy gold jewelry.
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Making matters worse, diamond manufacturers are sitting on a huge stock of polished diamonds. This is the output of the rough diamond overhang that traders bought in the past year even though they knew it was not entirely economical. Eventually, these goods were polished and are now waiting for buyers.
It’s not all gloom and doom. If the industry continues to do business in the same old way, no improvement should be expected and that is the dangerous route.
On the other hand, this is an excellent opportunity to rethink the old model, and chart a fresh course. There is so much to do, including improving efficiencies, investing in smart marketing, bringing reporting standards into the 21st century, addressing ethics issues and blocking the continued flood of undisclosed lab-made diamonds into parcels of natural goods.
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“It’s not all gloom and doom. If the industry continues to do business in the same old way, no improvement should be expected.”
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The challenges are many, but facing them is a necessity. It will give rise to many new opportunities, especially for those seeking to re-invent themselves in an era of easily accessible data and infinite memory.
Not addressing the issues is taking a wild gamble with the future of the industry. Ignoring the problems is like sticking your head in the sand. As someone likes to remind me, in that position, your rear-end is sticking out, and anyone can give it a good kick. That is not a good way to move forward.
Shana Tova
