India & The UAE To The Diamond Industry’s Rescue? Better Wait & Watch

Belgiums diamond export statistics reflect the growth in emerging markets while demand from the US fades. It doesn’t come as a surprise to many in the industry that India and the United Arab Emirates are the two biggest polished diamond export destinations for Belgium – actually bringing about a growth in exports. Yippee! So we needn’t worry about the downturn in the US! Or should we?

I would advise caution. Both these markets put together can’t even begin to take up the slack left by the US. Also, given that much of India’s prosperity comes from the export of goods and services to the US, a slowdown in that market is going to have an impact on the Indian economy no matter what the economic pundits say about ‘decoupling’.

Right now, the Indian diamond industry doesn’t have much happening in the way of production. Movement in the market seems to be mainly for better goods in all sizes. This means that even the domestic market is opting for the larger stones, better colours and clarities. The lower colours and purities are languishing in safes. The lower colours and purities also make up the bulk of the diamonds processed in India in terms of the numbers of pieces. They are what keep employment high. If they continue to remain unsold…

 

While The World Heads For Safe Haven, Indians Turn Away From Gold

Whether it’s the high prices or the availability of many other investment avenues that come without any price volatility, something has turned Indians away from being the sure-shot consumers of gold who set the global price with their almost insatiable demand. Today, the price of gold is being determined more by safe-haven investment demand from the US and other developed markets – and is actually inversely related to demand from India.

The Indian festival of Akshaya Tritya was, until five years ago, pretty obscure and restricted only to two states — Tamil Nadu in the south and Maharashtra in the west. But the Indian bullion and jewellery industry realized its huge potential as a sales driver as one of the core beliefs in the festival is that it is auspicious for the buying of gold. With the help of the World Gold Council, a great deal of promotion and publicity turned the festival into a countrywide phenomenon that could be relied on to produce a spike in gold sales. There was talk of it rivaling Diwali as the gold and jewellery sales driver in the Indian calendar.

 

Great New Blog From An Industry Veteran

I’m really happy that my old friend Mark Boston, chairman of H. Goldie & Company, a De Beers Diamond Trading Company broking firm, has decided to start a blog. Mark is the man who introduced De Beers to India  and its potential as a diamond processing centre. Read his first post here. It’s utterly candid and written with a veteran’s perspective of the diamond business.

Good luck with the blog Mark!

 

Big & Beautiful Won’t Save The Diamond Industry

It is great to read that despite the subprime crisis and looming recession in the US as well as the negative impact of it all on other markets, diamond prices have been holding their own. Check out this report. This is what the mining companies like De Beers, Rio Tinto and BHP Billiton tout when they face investors and industry analysts.

The problem is, this only refers to the large, good colour and clarity stones. Every other category of diamond is struggling with nosediving sales in the US and almost nowhere else to go. These other categories constitute some 85% of all diamonds sold.

The mining companies will make a pretty packet because of the huge premiums the big and beautiful stones command. Very, very few in the diamond processing pipeline will however, get to see these stones. The rest have to do what they can to keep their heads above water. China, India, the Middle East and even Russia are showing sharply increased – and steadily increasing – diamond consumption patterns. But all of them put together can’t take up the slack left by a sagging US market. And as consumers in these markets get ever more affluent, they too want the big and beautiful…

 

Mounting Pawnbroker Inventories Will Hit Jewellery Production

With the global jewellery industry already struggling to stem the large sales losses brought about by the economic slowdown in the US – a market that consumes fully half of all the jewellery manufactured in the world – this report about mounting jewellery sales to pawnbrokers is really bad news.

What it means in effect is that firstly, the US consumer doesn’t think jewellery is something worth holding on to in tough times. Something that doesn’t bode well for the future, as the competition for a share of consumers’ discretionary spend becomes even more fierce with other luxury products barging in with large promotion budgets and innovative sales pitches.

Secondly, pawnbrokers’ inventories swelling daily and few if any attempts at redemption, there is an increasing supply of readymade jewellery now available to the consumer at attractive prices.

As though the situation wasn’t already tough enough for jewellery manufacturers and retailers…

 

Diamond Brands May Devalue Beneficiation

De Beers has announced the schedule for the staggered worldwide launch its proprietary Forevermark branded diamonds. ‘Launch’ is something of a misnomer, as these goods have been available to consumers in various parts of the world, including India, for some time now. The fact is, De Beers was only testing the waters until now. With the enthusiastic response it has received from consumers everywhere, the Forevermark is guaranteed a great formal launch.

What’s significant about theForevermark, though, is that it signals the beginning of something really new for diamonds – and the beginning of the end of an old idea.

What most people – including many in the diamond industry – don’t realise is that diamonds don’t have any value of themselves. De Beers created that value with its umbrella advertising. Diamonds as a whole became a brand, the symbol of the special relationship between men and women. Since De Beers controlled almost all the world’s gem diamonds back then, this was just fine.

Now, under 40% of the world’s diamonds pass through the De Beers system. De Beers has, naturally, lost interest in promoting the generic diamond brand. The Forevermark is its game plan for the future, building value for only those diamonds it controls.

 

$300,000 Watch That Doesn’t Tell Time – An Example For The Jewellery Industry

This is where the jewellery industry should be heading! Check out this report on the $300,000 watch that doesn’t tell the time! The string of comments also makes great reading! While I laughed at the whole thing, I was struck by the fact that a watchmaker had taken away the basic utility that makes us call the thing a watch and still sold it at this astronomical price. What the watchmaker did was to create a piece of jewellery with no utility value (unless you think a $300K gadget that tells you whether it is day or night does have utility value!). The term ‘watch’ in this case, is merely a categorization of the piece of jewellery – the way we distinguish pendants, rings, bracelets etc.

I strongly recommend that jewellery companies start hiring marketing crew from the big brand watch companies. Those guys seem to know what the game is all about.

 

While Watches Sail On Brand Perceptions, Jewellery Flounders On Intrinsic Value

It’s interesting that luxury brand LVMH has just agreed to acquire Hublot, the Swiss watchmaker for something like $300 million at a time when everyone else is nervously looking at the tanking US market and wondering how much of the rest of the world it will drag down with it. LVMH’s statement exudes confidence. It thinks Hublot, which has most of its sales in Europe, can withstand a downturn in financial markets and offer potential growth in Asia.

What bothers me is that I don’t think LVMH would even have considered acquiring another jewellery brand. That’s because other than the bejewelled kind, watches have very little intrinsic value and sell purely on the perceived values the brand offers. The jewellery industry for the most part, is still stuck with the old concept of luxury lying in intrinsic value.

After all these years, most people in the jewellery industry don’t seem to have cottoned on to the fact that intrinsic value itself, is a perceived concept – an illusion if you will. And the perceptions or illusions that built up the concept of intrinsic value in traditional materials like gold and diamonds, are based on ideas that are literally thousands of years old. Anchored to intrinsic value, jewellery doesn’t have anything to offer a huge proportion of today’s luxury consumers.

These consumers dominate the demographics even in the emerging markets and jewellery might be missing the bus there as well. At this year’s Baselworld watch and jewellery show, some of the most prominent buyers were from Russia and the Middle East. They were weighed down with cash and they had eyes only for the big watch brands.

 

The High End May Not Be The Safe Haven We Thought It Was

It appears that luxury as an entire category may be about to take a hit just like a lot of other goods and services. Up to now, conventional wisdom dictated that an almost sure-shot way of surviving the crunch in the US market was to trade up in the kind of diamonds and jewellery one dealt in. The high end, the buzz went, was not affected by the sub-prime mess. Indian diamond dealers and export production jewellery manufacturers have, as a result of this reasoning, all been busily trying to move their operations upmarket.

It might all be to no avail. This report suggests that because of their middle class roots, a majority of America’s wealthy are focussed on getting value for their money. They are going online to save money! According to the report, they spent $65 billion online – and saved a staggering $35 billion by having avoided brick-and-mortar establishments! The luxury goods and services they bought online ranged “from hiring a private jet to buying a Burberry raincoat or a music system from Bang & Olufsen”. But going online isn’t the end to one’s troubles. Tiffany and Blue Nile have been downgraded by Merrill Lynch due to the fact that it foresees reduced spending on big ticket items like jewellery.

On top of all this, here comes this report suggesting that luxury real estate in the US might finally be cracking. High or low, there doesn’t seem to be a safe end to run to for shelter.

 

US, India Exchange Appetite For Gold & Diamonds

There’s an interesting dynamic going on in the world gold and diamond markets. India and the US seem to be exchanging appetites! The Indians seem turned off by gold while the US and other markets are jumping with both feet into buying the yellow metal because of the fading US dollar and the high price of energy. And Indians are still enthusiastic diamond buyers while the US seems not to want sparklers!

The reason for this is that the traditional bond between investments and the country’s social and religious fabric has come undone. The traditional investment vehicle has been high-karat gold jewellery and elder family women – mothers and mothers-in-law – have usually made the purchase decision.

Given the high price of gold today, the decision to buy gold in India now also includes male family members and the metal is viewed more as a pure investment than as a socio-religious symbol. Most Indians think the price of gold today is too high and not sustainable in the long run. They don’t want to buy gold now. Most jewellery for social and religious occasions is now fabricated from gold that has been recycled from old family jewellery.

 

With sagging exports to the US, the Indian diamond industry is pinning much of its hopes on the domestic market while the US consumer, with the subprime crisis and an economy sliding into recession, doesn’t seem to have the stomach for diamonds.