Ramble On Ron

Diamonds, Music and other Facets of Life

Diamond Market Report

Posted on | July 3, 2009 | 2 Comments

Like other financial and commodities markets, today’s diamond market is very volatile and unpredictable.  A lot of companies going into Chapter 11.  That being said, it’s a GREAT TIME to buy or to invest in diamonds.  They will be back!  The market for super high end colored diamonds is still strong and bridal is doing well.  It’s the fashion jewelry and designer brands that are taking the hit.  If you’re selling luxury and not value, you’re in trouble.  Bottom line is that CASH IS KING.  If you’re a jeweler and you’re not paying cash for your diamonds, then you won’t be able to compete on price.  The days of memo are over and the days of credit are over too.  The credit issue is what got these big companies in trouble to begin with.  Now they’re all sorry that they gave retailers goods with flexible terms.  Better to take less money and get paid if you ask me.  Here’s a great article by Victoria Gomelsky from National Jeweler about the diamond market and of course it opens with a quote from yours truly 🙂

Recession brings glut of diamonds, but few buyers

Baltimore–Last year, Ron Samuelson, chief executive of Samuelson’s Diamonds in Baltimore, bought an 8.5-carat brownish-yellow round diamond mounted in a men’s nugget ring from a customer who was seduced by the “sell your jewelry” offer on the store’s Web site.

“It was a big, ugly stone,” Samuelson recalls. “When we showed it to our cutter, he said, ‘Yeah, I could make this into a fancy yellow.'”

The resulting diamond, a 6.86-carat fancy-yellow radiant, is now part of the store’s inventory, and Samuelson is confident that when he eventually sells the stone, it will net him a tidy profit.

“I’ve almost eliminated my need for diamond dealers,” Samuelson says. “For every one person who wants to buy a diamond, 20 want to sell.”

As a comment on supply and demand in the high-end diamond trade, the Samuelson’s transaction is fitting though hardly anomalous. On Manhattan’s 47th Street, it happens countless times a day.

From the mines to the retail trenches, the perpetual scarcity that defined the business and fueled its tremendous growth over the past five years has, since last fall, morphed into an unfamiliar abundance: so many goods, so few willing buyers.

Take, for example, the market for large, quality diamonds–specifically, the impressive but ultimately replaceable stones in sizes of, say, 10 or 12 carats (not the 40-carat, D-flawlesses or rare vivid-blue diamonds that appear only at auction). A year ago, such stones were impossible to find and came with sticker prices that many described as speculative. Today, they languish on the ultimate buyer’s market. Prices, while said to be firming, are still well below their mid 2008 peak. The auctions are selling them as “real values.”

It’s a sign of these crazy times that not even the Russians are interested.

“We’re not in a crisis because in a crisis, everything goes to hell and comes back,” diamond industry analyst Martin Rapaport, chairman of the Rapaport Group, said during a presentation at BaselWorld. “This is not that, because nothing will be the same. Forces beyond our control are changing the diamond and jewelry industry.”

Citing culprits that contributed to last year’s financial ruin, which resulted in “30 trillion dollars going to hell in a bucket over the last six months,” Rapaport ticked off plummeting real estate prices, soaring unemployment rates and Bernie Madoff.

“Does that affect whether people want to buy diamonds? Duh,” Rapaport said.

The drastic change in consumer sentiment has thrown the diamond industry, like all luxury businesses, into an unprecedented predicament. Crammed full of goods, the pipeline has been in virtual gridlock since last fall, when luxury consumers decided, seemingly en masse, to stop spending. Retailers slashed prices on their holiday merchandise but to no avail. Jewelry continued to literally gather dust in showcases.

“From retailers to producers, it’s hard to think of a more difficult five or six months,” De Beers Botswana Chairman Stephen Lussier says. “We’ve had other crises that impacted one segment of the industry but this one has been universally challenging.”

The rich get poorer

By now, the events that led to such an equal opportunity downturn are permanently imprinted upon the collective consciousness: The United States officially slipped into recession in December 2007, after years of deregulation and chronic risk-taking by the masters of the universe who had created, in effect, a global Ponzi scheme built upon illusory profits and questionable investments.

Throughout the spring and early summer of 2008, however, alarms bells only seemed to ring in the mass market. The trade’s highest echelons claimed immunity to the deteriorating economy, even as signs that things were seriously amiss (Iceland, anyone?) grew difficult to ignore.

It took the Lehman Brothers bankruptcy on Sept. 15 for the biggest spenders to finally grasp that even their rarefied sector of the marketplace could not provide shelter from the storm. Unlike past recessions, which tended to leave the super-wealthy unscathed, this one actually seemed to have the fat cats in its crosshairs.

Sales of luxury yachts, private jets, complicated Swiss watches and, of course, diamond jewels immediately registered the effects of the new consumer mood. A 60 percent decline in fourth quarter U.S. retail sales at Harry Winston (among others) was further proof that a paradigm shift was in progress.

“Luxury is the easiest thing for anyone to cut back on, and jewelry is the ultimate luxury item,” says Pam Danziger, president of Unity Marketing, a consumer insights firm that specializes in the luxury consumer mindset. “People are making a huge adjustment fueled by the media, their own experiences. There’s a bit of leftover guilt from all that spending. These trends were already in the market, making the affluent more careful about their spending. Recession was the tipping point.”

With retail sales down anywhere from 5 to 80 percent after the holidays, wholesale buying largely came to a standstill. It was a simple solution to a crisis of liquidity and retailers embraced it wholeheartedly.

“We’ve got a lot of inventory and haven’t had to fill in as we did last year,” says Brad Marks, vice president of I W Marks Jewelers in Houston. “Vendors have been very good about understanding that things are not moving.”

The one exception, of course, is bridal. Marks, like almost every other jeweler who carries a selection of bridal jewelry, hasn’t had to cut back on that portion of his inventory.

Based on how little actual trade has gone on over the past half-year, Las Vegas market week will be a crucible for the industry. Although many retailers interviewed by National Jeweler at press time said they plan to attend the shows, there is little indication that they will revert to their old spending habits. In fact, if anecdotal evidence is to be believed, sales to retailers won’t pick back up until fall, when it will be easier to estimate how much new inventory the holidays will require.

The companies most vulnerable to the new business-as-usual are jewelry manufacturers, designers and diamond dealers who rely on sales to retailers. Case in point: Doris Panos, the couture designer who filed for Chapter 11 bankruptcy protection in April. Not only have customers stopped buying, but banks have stopped lending, leaving them, as far as cash and credit are concerned, on dangerously thin ice.

So what does this say?  It’s a great time to buy not just for me, but for consumers.  It’s the people that take advantage of real values in this market that will come out smelling like roses in the end.  There are sooo many deals out there and I can’t get enough of them, so if you like diamonds now’s the time!