Hope springs in winter. In the last few years, the luxury industry has witnessed the dance of death-- one step forward, two steps back -- treading through a landmine of economic emergencies, be it decline in demand, loaded inventories, drop in prices, business bankruptcies, or even a severe credit crunch, and survived. Finally, by the autumn of 2016, prices have ruled steady and diamond sales revenue has climbed cautiously. But, even as the ghosts of a financial crunch still haunt luxury players, clearly, only those who can perform the exorcism shall prevail.
“The luxury market has been suffering for the past two years. The strong U.S. dollar, strong crackdown in China against gifting, sanctions in Russia and low oil prices, are the reasons for the slowdown in luxury. But, once we reach a certain low point, the only place we can go is up. We hit this low point in 2015,” recalls Ramesh Barmecha, President, Niru group.
Growth Sighted
Truly, there are indications that the diamond industry is on a rebound. The recently released annual Global Report on the Diamond Industry, 2016, prepared by the Antwerp World Diamond Centre (AWDC) and Bain & Company, accounts growth of around 20 per cent in rough diamond sales during the first half of 2016. (See Report as Box Item). The report also predicts a positive outlook for the diamond market, with demand for roughs expected to recover and return to a long term growth trajectory. Major producers have experienced the glimmer of hope.
“We’ve seen significant improvements in rough diamond demand in 2016 compared with 2015. There is a steady, solid recovery. We anticipate a good year for the industry in 2017, even though there is some uncertainty,” informs Lynette Gould, spokesperson for De Beers, the diamond producers.
The Game Plan
While the luxury industry may be gearing up for clinking cash registers, there is a word of caution. The rules of the game are changing. As Gould states: The industry needs to continue to focus on greater financial transparency, enhanced professionalism and stimulating consumer demand – all of which are vital for maximising opportunities over the longer term.
Is it a perform or perish situation? “The luxury industry is reaching a point of no return, wherein brands that cannot pivot their market positioning to capitalize on emerging customer groups, will likely fall short of their goals, and companies that are willing to innovate rapidly in order to reach these new markets, will see more success,” predicts Caylee M. Kozak, fine jewellery worker and industry writer
Smart diamantaires are preparing to meet the future by weighing the value of operations, markets and target groups.
“Yes, sales are looking up since the last six months. While, there is movement and we do not anticipate a downward trend from now on, the market is still low key and we are being cautious, preparing for the uptake by looking inwards, becoming more efficient and organized, making ourselves internally strong. This is no time for adventurism, only calculated risks,” asserts Harsh Maheshwari, Director, Kunming Trading Company, Hong Kong. It is the time to assimilate and integrate and the industry is getting its act together by numbers crunching and data analysis to validate decisions taken on an emotional premise.
As Maheshwari explains, “With direct access to five markets across the globe, our group allows us to analyse data, which helps us internally. For example, by looking at numbers, we are checking the company’s preferences for specific vendors and clients, in terms of quicker deliveries and better margins, to justify the transaction volume. Also, by reviewing our markets, we shall better understand where to cut down, where to push and provide the products that are in demand, to fulfil the specific needs of each market.”
New Target: Millennials
Yes, the industry realises the need to be responsive to consumer demand and focus on target groups, especially millennials,that is those born between 1980 and early 2000s, in the largest diamond consumer markets of USA, China and India. The population of millennials in these markets is around 900 million and their combined gross income amounted to US$ 8 trillion. As per the latest AWDC-Bain report, millennials in China and India already rank jewellery as their number one gifting category while millennials in US rate it third, after money and electronics.
“Research conducted for our 2016 Diamond Insight report showed that Millennials around the globe have strong desire for diamonds and this generation will soon reach its maximum earning potential, meaning it represents a huge opportunity for diamond jewellery sales growth,” informs Gould. True to form, the industry is targeting Millennials as a compelling opportunity and an entirely new generation of consumers. Even the AWDC-Bain report has dedicated an entire section of its report on Millennials. For such potentially premium customers, the industry is investing in marketing, to reinforce the emotional connect with natural stones, which has taken off once again, with key outlays by diamond majors and players across the industry.
Marketing
De Beers invested around US$ 120 million in 2016 to stimulate consumer demand through category marketing in US, China, and in India, and DPA’s Real is Rare campaign, co-funded with other major diamond producers. The company has also invested in its capacity expansion projects, to ensure continuity of supply and is even going the extra mile, beyond supply and demand parameters, to its consumers. “In the mid-stream, we support customer needs through providing flexibility and tailored offerings, where possible. In 2017, we will continue to create and support industry value through a range of investments and innovations in areas such as diamond verification technology, diamond grading and new product concepts.,” said Gould.
Tailor-made Innovation
Other players are also taking marketing to the next level by preparing to go a step further, towards innovation. Some players plan to target millennials by tailoring diamonds with technology
Taking innovation to the next level, it may also be time to design a completely new range of innovative luxury products. “I anticipate some growth in the combination of wearable technology and jewellery, particularly in the middle and higher-end markets. As form and function continue to evolve, the two segments will need to combine in order to capitalise on their crossover targets, including wealthy Millennials,” Kozak states.
The Luxury Experience
At the higher end of the markets, the industry may consider upgrading the entire experience of luxury.
“Experiential luxury may be combined with tangible, more comprehensive offerings from both retail and hospitality, be it an enhanced instore experience with food, drink and music or even hotels offering targeted services as personal consultants and private viewing or buying opportunities. The lines between experience and acquisition will continue to blur, so that money spent on luxury will ultimately lead to a satisfying experience and a tangible purchase,” Kozak states. “The action plan may need to include the development of new products, to target buyers, whose interests no longer include branding or status as primary motivations to spend,” Kozak adds. Some industry players believe that it is possible for technology or ideas to replace branding or status as the new emotionally charged reasons for luxury purchase. “Millennials in particular have begun to disassociate from branded buying and instead choose to purchase from a range of companies that align best with the personal statement or message they wish to convey,” informs Kozak. “Jewellery is an extremely personal purchase and provides a form for communicating ideals and values,” she adds.
Value & Transparency
To move beyond branding and status, the traditional value propositions for jewellery purchase, will again bring the industry face to face with its ancient bugbear of transparency. Industry majors like De Beers are compelling other players to reform and restructure, by imposing tougher credit norms on its sight-holders, in conformity with international accounting requirements, to bring in the much needed transparency.
“Given the increasing challenges with midstream liquidity in recent times, it is important for the industry’s sustainability and reputation that our customers are financially strong and transparent. We have therefore introduced a requirement for customers to meet a number of rigorous financial criteria, including consolidation of group structures in line with IFRS compliance, maintaining a maximum debt to equity ratio and having an unqualified audit sign off on financial accounts – all of this is in line with broader trends regarding financial probity and therefore important to longterm industry prospects, as it will help the diamond industry to compete with other industries when seeking finance,” Gould stated.
Be it ethical sourcing or authenticity, or even price transparency, it is important for the customer to know where the diamond comes from, and understand its value proposition. To move towards this goal, De Beers is investing in technology to weed out the threat of lab grown or synthetic stones that have increasingly started getting mixed up with natural stones.
“To support value and transparency, we are bringing innovations in areas such as diamond verification technology, diamond grading and new product concepts,” mentions Gould.
The industry will also need to align its offerings 69 Diamond World • November-December 2016 with the market. While US will remain the major consumption market in 2017, China and India will remain the key growth markets, driven by the forecast for a continuing rise in middle classes in these countries. However, consumption growth in India may soon overtake Chinese demand. The industry is also looking at opportunities to capitalize on growth in emerging markets, be it Middle East, Vietnam or even South Korea. Recently, direct business to customer jewellery shows were held for the first time in Iran. Players state it’s important for the industry to invest in marketing and strategic tie ups to widen the distribution network. “To grow, we pursue strategic partnerships with jewellers. This helps us manufacture efficiently as we can shape demand,” states Barmecha.
Another sunrise sector for the luxury industry could be jewellery auctions that have taken even the auction houses by surprise, fetching record breaking prices. For the first time in 2014, Christie’s international jewellery auction sales totalled more than $750 million, that represented the highest figure in the history of auction sales. There has been no looking back since.
For example, a rare pink pear shaped diamond weighing more than nine carats went far beyond its estimated price and fetched US$ 18 million at a Christie’s auction in Geneva. This was the second highest price ever paid for a coloured gemstone, which was bought by an Asian investor. While jewellery sales at auction houses are booming, these are mostly privately owned piecesand the diamond industry is yet to develop an appetite for participating in jewellery auctions.
“Clearly, some auction houses, such as Sotheby’s and Christie’s, have seen significant success with their non-trade auctions for high value diamonds and diamond jewellery pieces, and recently their success has seen a continuing trend. But, involvement in such non-trade auctions is not something that De Beers has any plans for,” Gould stated.
However, De Beers does offer around 10 per cent of its rough diamond availability for sale through its own online trade auctions and has more than 850 registered companies as customers. Some jewellery houses also offer their pieces online or hold online auctions.
But industry players admit that while diamond and jewellery auctions are becoming popular, they lack an appetite for such high end auctions. The diamond or jewellery pieces would have to be so rare or high end, that auction costs and commissions are justified. On the other hand, the market at present, consists of the burgeoning middle class.
“I don’t expect the average high-end buyer to participate. Auctions can feel like a very highpressure buying environment, which is the opposite experience most jewellery buyers seek, when choosing to make a significant purchase,” states Kozak.
Moreover, auctions mostly feature super rare period pieces from high end jewellery houses or high end stones that appeal to a private list of select elite clients, who are so exclusive, that often even the seller does not know who is going to be present in the audience.
So, out of the box thinking for an enterprising industry, getting its act together may well make for an action-packed, sparkling 2017.
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