Diamond Business Absorbs Blows

Diamond Business Absorbs Blows
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The diamond business has continued to absorb the repercussions of the global pandemic. Polished diamond wholesale prices, after a small improvement in June, continued to mostly slide in July. This coincides with an ongoing decline in jewelry share of wallet.

The ensuing economic meltdown, caused mainly by a vicious drop in retail sales, is hurting the diamond industry from top to bottom.

Diamond Business Supplying Only Against Known Demand

Retail demand for polished diamonds is razor-sharp specific. Retailers are willing to order goods from their vendors only against consumer orders. There are practically no opportunity purchase and inventory replenishments. This focuses demand in the wholesale sector to the point of creating deep shortages in those specific areas. And these shortages, ironically, drive up diamond prices in a time when overall demand is especially low and inventories relatively high.

Polished Diamond Prices Keep Sliding

Month over month, wholesale polished diamond prices declined an estimated 1.4% in July. Since February, prices declined on average by 1.6% every month. Is the price decline easing? It’s too early to say.

On a month-over-month basis, wholesale diamond prices declined in every single key category, with one exception: half-carat goods rose a small 0.4%. This is the second month in a row that 0.5-carats posted a price increase after rising 2.1% in June.

Round Polished Diamond Prices MoM Change July 2020 - Edahn Golan

The decline in diamond prices in July was somewhat surprising after the small revival in prices in June. The reversal in price movement for 0.30-carat, 0.70-carat, and 1-carat round diamonds is not a positive sign. The hope in the diamond market was that prices had hit bottom and would mostly rise from there on.

However, this was not the case, and at this point, prices are even expected to decline a little more. Historically, consumer demand tends to rise in August due to tourism traffic. In a post-COVID-19 world, international summer travel is down to a record low and, with it, the tourist expenditures that accompany it. Without tourists shopping in the US, total retail sales are expected to shrink further this year.

Long-Term Diamond Price Trend: Downward

Much of the blame for the price declines should be placed on the pandemic. However, COVID impacted retail sales only starting in March, coming into full effect in April. With polished diamond prices falling for much longer than this, we can’t place the full blame on lockdowns, social distancing, and fears of getting infected with the virus.

Polished Wholesale Diamond Prices June 2019-July 2020 - Edahn Golan

As seen in 2015 and again in 2017, wholesale polished diamond prices have been declining on a year-over-year basis for a stretch lasting more than a year. In the current stretch, wholesale diamond prices of most items have been declining since February 2019, as the polished diamond price index above shows.

Underlying Diamond Industry Issues

The long-term price declines were only exasperated by the outbreak. The underlying issues that plagued prices prior to March 2020, and which hurt the diamond business from every possible direction, are still very much there.

The lack of attractive marketing, slow response to the shift in consumer demand, and lack of attentive care of consumers that resulted in growing interest in lab-grown are some of the underlying factors. Diamond traders may blame lack of financing, high rough diamond prices, or limited government support, but that is not what is stalling the diamond business.

At its most fundamental, diamonds are a consumer product. If the diamond industry forgets to tend to consumers, all the bank financing and favorable tax regimes won’t help the diamond business one bit.

US Jewelry Sales Drop 15% YTD

According to the latest US Department of Commerce data, total jewelry sales rose 1.9% year over year and 13.2% month over month in June. That brought jewelry sales during that month to $4.6 billion. The rise in activity may seem encouraging; however, US jewelry business shrank 14.9% in the first half of 2020. The rise in June was just a reflection of temporary pent-up demand. Worthwhile, but not a game changer.

As expected, the Department of Commerce revised its retail figures. The revisions cover January 2015 to May 2020. It mainly revised jewelry sales figures downward. As depressing as figures already were, they now appear even worse.

US jewelry sales Jan 2017-Jun 2020 - Edahn Golan

Jewelry Share of Wallet Declining

Share of wallet, the percentage of consumer expenditure on a certain category, is an important way to measure consumer sentiment. A rise or decline in the ratio of available money consumers are willing to spend on a category can tells us how much interest consumers have in that item.

In 2006, some 15 years ago, jewelry share of wallet was 0.7%. Since then, it slowly declined to 0.5% in 2019. In the first half of 2020, jewelry share of wallet fell further, currently standing at 0.45%. Simply stated, consumers are less willing to spend on jewelry.

The impact on the diamond business can’t be overstated. We know that by number of items sold, consumers did not decrease their jewelry purchases so much. They are just unwilling to spend as much per item as they did in the past. The first victim of this trend is diamonds. Thus, some serious soul searching on the part of the industry is required.

Consumer expenditure erosion - Jewelry share of wallet 2006-June 2020 - Edahn Golan

Diamond Business Outlook

Our forecast remains unchanged. The worst of COVID-19 seems to be behind us. Stores around the world are re-opening, and consumers are returning to spend, albeit, cautiously. Although unemployment is sky high, weddings will still be held and bridal jewelry will still be purchased. Spend on jewelry may be lower than before, but volume is expected to be higher.

Once consumers start buying, it will start a chain reaction. Retailers will pull goods from wholesalers which, in turn, will start up polishing and buying rough diamonds, and mining will resume. Order restored, sort of.

Much will need to be fixed. Many companies will exit the diamond business, resulting in a leaner pipeline. That is part of a healthy process.

Most importantly, we need to keep our collective ears wide open to what our clients really want and need. Marketing absolutely needs to be in place – powerful, precise, engaging, and effective. Without it, there is no diamond business, and everyone needs to contribute their share.

Edahn Golan
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Edahn Golan has 20 years of experience as a diamond industry analyst. He has a unique ability to provide a global view with context to the exclusive granular data he shares. The New York Times, Wall Street Journal, Business Insider, and other leading publications quote him regularly.

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Comments 6
  1. Dear Edahn, would you link us to the dataset on jewelry sales from the US Dept. of Commerce? I cannot locate it. I usually access the jewelry stats on Census.gov (Monthly Retail) but the jewelry stats have been suppressed for months now.

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  2. Hi, Would you be able to send the link to where the chart came from on jewelry sales from the US Dept. of Commerce?
    Thank you!

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