The diamond pipeline is undergoing significant changes, JCK Columnist Ben Janowski said in a presentation on “The Diamond Pipeline” at the JCK Las Vegas show.
He said that De Beers’ transition away from a monopoly has “been difficult, painful, and not completed yet by any stretch.”
Recent changes for De Beers include testing its Forevermark brand in Asia, being prohibited by the EU from buying from Russia, and getting pressured by African governments to increase local cutting.
JCK columnist Ben Janowski spoke to retailers on Thursday entitled The Diamond Pipeline.
“All these efforts have been costly, and De Beers has borrowed heavily,” he said. “We still have yet to see how De Beers will meet upcoming debt rollover.”
He noted that, currently, “availability of credit is a major factor” in the industry.
“Banks are pulling back, cutting lines, and possibly exiting the industry,” he said. “Banks are supporting companies now mostly out of fear of a radical collapse. Terms, rates and availability will become far more stringent.”
He noted that “sales volumes in the cutting centers are off steeply – one estimate is that they are off 75%.”
He said there are still successful companies out there, but they are primarily those that “sell lower priced pieces with higher perceived value.”
He said the jewelry manufacturing sector is “being impacted by excess capacity. We saw over-expansion in the boom years. Now, with the situation critical, and we are seeing sharp declines in numbers.”
He noted that many retailers are cutting back, and have become determined to live off their inventory, at least in the first half of the year.
He added that 1,500 jewelers closed up in the first half of this year – which is more than in all of last year.
“I wouldn’t be surprised if we were looking at 15,000 operations by the end of 2009 – which is half of what it was in 1996,” he said.
He noted that in the future years, it’s possible that demand will outstrip supply, because supply is declining, while the U.S. market will rebound, and the Asian and Middle East markets will open up.
“You are going to see more and more people becoming diamond buyers,” he said. “We are looking at a growing market. In the face of declining supply, there is going to be a lot of pressure.”
At this point, he asked, “will the sources really need the sight system?”
He predicted at that point, producers might “move to an auction process” – which will involve hundreds of companies throughout the world, and generate maximum value for the goods.
“At such time the diamond business will become a normal commercial venture,” he said. “And at that moment, will there be any need for the Diamond Trading Company?”
With this in mind, he recommended jewelers buy more “off the street.”
“What the American public holds by way of diamond stocks is massive,” he says.
Looking at the future, he predicted “price volatility will become the rule,” which means thinner inventories.
In addition, the current consolidation “will continue at all levels. Local jewelers that survive this will have a larger pieces of a smaller pie.”
The only exception to this, he said, is the Internet. “The Internet is flourishing,” he said, and likely won’t be impacted by the passing of a national sales tax for Internet retailers. He said the Internet will become “the replacement for the Rapaport price list,” as it’s where people will look to check up on prices.
Other issues include a change in consumer behavior. He said that consumers were staring to experience “luxury shame.”
“It begins with a question: Am I doing the right thing?” he said. “It’s not just a move away from ostentatious display when so many are suffering. It’s a reevaluation of personal values.”
He called the “advent of man-made stones” the “dark horse in this race.” He noted that De Beers “has been able to produce man-made diamonds for years,” and think that business could be “De Beers’ future.”
Despite all the changes, he ended on an upbeat note.
“Diamonds are still symbol of love, family, achievement and lasting value,” he said. “And if we concentrate on those aspects of it we are still going to be here.”