Forecast: Signs of glimmer for diamond demand

diamond stud earrings from OGI Ltd

Coming off a dreadful year in which production literally ground to a halt at the world’s major mines, the prediction that 2010 is going to be an improvement for the diamond industry really isn’t saying much.

But it may come as a relief to some retailers who have been sitting on piles of diamond hoops and flashy bangles, hoping consumers would start buying more than just engagement rings.

Just don’t expect a rush of shoppers as soon as the New Year’s champagne supply has run dry, industry experts say.

“I see no reason for the beginning of 2010 to be a house on fire, no reason whatsoever,” says Ronnie VanderLinden, president of Diamex in New York.

The 47th Street veteran predicts purchases of non-bridal diamond jewelry won’t improve until at least the second half of the year, when pent-up demand among consumers who have held off spending for so long is finally unleashed.

“I think eventually those that need to buy gifts will start buying gifts again,” he says. “Once people have jobs and they feel comfortable in their positions, they will start buying gifts again for their girlfriends, wives, significant others.”

Russell Shor, a senior industry analyst for the Gemological Institute of America, also expects to see some recovery for non-bridal diamond jewelry sales.

“It’s going to be better, but it isn’t going to be stellar,” Shor says. “It’s going to take a while to come back.”

In particular, Shor doesn’t see consumers making ostentatious diamond purchases–expect for perhaps Tiger Woods–for the sake of showing off.

“Consumers right now have a different mindset about what they want,” Shor says. “They want something more meaningful, rather than for conspicuous consumption and prestige.”

If non-bridal diamond good demand rises as expected in 2010, it will bring with it an increase in polished prices, which–in an odd side effect of 2009 work stoppages at the mines–were actually lower than rough prices in 2009.

Hertz Hasenfeld, vice president of New York-based diamond company Hasenfeld-Stein, says polished prices were already on the rise toward the end of 2009, narrowing the 10 percent price gap between rough and polished stones. He says the trend will continue in 2010, beginning with 1- to 1.99-carat diamonds–now in the shortest supply and greatest demand-then spreading to other sizes.

Memo revised
As for the practice of loaning goods out on memo, industry players don’t see it disappearing.

Memo was a top talking point at industry events in 2009, after a number of companies lost big money when the goods they lent on memo vanished after retailers who declared bankruptcies were forced to pay their secured creditors with any and all assets–including memo merchandise.

Yet some industry players fear their colleagues might have short-term memories.

Hasenfeld says the amount of memo in the industry has decreased and long-term memo agreements, in which retailers could hold onto goods for years without payment, are a “dying breed.”

“It will not return to the ‘old’ way in the near future,” Hasenfeld says. “It is not the recession that caused the paradigm shift away from memo. It’s the lack of credit. As the banks tighten credit, there is not enough money to support enough inventory for both the memo [customer] and the buying customer … Jewelers realize that they must buy to fill their shelves.”

Retailers will be able to call good suppliers for a stone or two, but they won’t be able to use it to stock their showcases, he says.

However, Jeff Fischer, president of Fischer Diamonds in New York, says some players might choose to forget what happened in 2009.

“Memo is not going away,” Fischer says. “At the very best, it will be utilized more responsibly. At the worst, people will have no memory.”

Diamond tips for 2010

  • Pricing: As demand increases, so will polished prices. Meanwhile, experts anticipate a correction in rough prices, which began shooting up after mines that were shut down in early 2009 reopened.
  • Demand: Expect a moderate resurgence of demand for non-bridal diamond jewelry.
  • Merchandising: Stock classic diamond styles with a modern twist. David Peters, director of member services at Jewelers of America, says De Beers’ Everlon Diamond Knot Collection, which offers a new take on the familiar love knot motif, is a good example of this.
  • Social issues: Keep tabs on the situation in Zimbabwe, where one mining area has drawn Kimberley Process scrutiny amid local violence. Some customers might ask where your diamonds are sourced.

courtesy of National Jeweler

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