Rapaport Magazine

Business Lags

Japan Market Report

By Kazuko Ito
RAPAPORT... The Cabinet Office reported that in November the country’s economy stretched into its 58th consecutive month of expansion, making it the longest growth period in Japan’s history. The business press reported that year-end bonuses paid to government workers and major public company employees are the most sumptuous they have been in a decade. Name-brand marketers are tirelessly running their commercials on TV and in fashion magazines.

So, was business brisk this Christmas season? Motoji Kino of Omi Co., Ltd., who sells his nonbranded diamond jewelry in Tokyo’s most fashionable department stores, reported that his sales are good.

“Who says business is brisk?” snapped Teruo Kikushima, president of Kobo Gleam, a jewelry manufacturer in Yamanashi and also the president of Sokyo, a trade organization whose members are comprised of 17 jewelry manufacturers in the Yamanashi Prefecture. “I have not heard of any name brand doing extraordinarily well this year, neither for national chains nor individual mom-and-pop stores.”

There are testimonials to support Kikushima’s statement. “When jewelers say they are doing well, they mean they are maintaining last year’s levels,” said Tsutomu Fukuda, chairman of Tom Fukuda, a retailing chain-store owner in Yamaguchi. “Many of my cohorts are making barely 60 percent of previous years.” Hidehiko Muramatsu, manager of Muramatsu Jewelry and Watches in Yaizu, who tackled a new merchandising strategy this season, admitted that the traffic was more than he had expected, but that the sales were anything but brisk.

Promoting the Season

As in the U.S., department stores and retailers start their Christmas sales campaigns right after the Labor Thanksgiving holiday in Japan, which fell on November 23 in 2006. But as the prices of precious metals and diamonds have gone up substantially, jewelers, as well as wholesalers, have resisted carrying costly inventories and start stocking them as late as possible, closer to Christmas day. The costly inventories have dampened marketers’ willingness to market products aggressively.

The recently released Department Store Association’s report provided the proof: “The sales of all department stores reporting to the association dropped by 0.2 percent in November. The drop was larger in the Kansai area —3.8 percent—than in the Tokyo area —1.3 percent.”

Even Kino admitted that certain segments of his customers have gone to international name-brand marketers from around the world. He said that his lines are not branded but are benefiting from the Diamond Trading Company’s (DTC) generic advertisements. He said his customers are comfortable in buying his pieces when they associate his products with DTC advertisements. In addition, his diamonds are hallmarked with DTC’s Forevermark, a sign of legitimacy and conflict-free status. Kino said only privileged importers can buy from sightholders who place the mark on their diamonds.

“But how much is the general public aware of the Forevermark?” questioned Masahiko Akaike of Orient 4Cs, pointing to the fact that the mark is not advertised in the Japanese media. “The hallmark strategy should work only partially. If De Beers controls only 40 percent of rough diamonds of the world today, how effective could ‘Forever’ marketing be? And what about tens of millions of stones that are already in consumers’ hands and circulating in distribution pipelines?” said Akaike.

“Blood Diamond” Coming

The trade is concerned about the impact of the movie “Blood Diamond,” which is scheduled to be released at the end of April 2007. Leonardo DiCaprio, who plays the leading role in the movie, is one of the most popular actors in Japan and quite influential among the diamond-buying generations.

According to Yasuo Watanabe, secretary general of Japan Jewelry Association (JJA), the probability that conflict diamonds land in Japan is only one-fiftieth of 1 percent, and the trade considers the volume too tiny to make an issue of it. “Both the Japan Jewelry Association (JJA) and the Tokyo Diamond Exchange (TDE), a sister organization of JJA and a member of the World Federation of Diamond Bourses (WFDB), are concerned about conflict diamonds. The DTC in London has provided us with instructions on how to deal with consumers, should they bring the issue up at storefronts, but the question is: Is it appropriate that we warn the public about conflict diamonds at this stage, when they are unaware that conflict diamonds exist?” asked Watanabe.

“We have had meetings with trade members and studied probable cases that might provoke media and consumers, and circulated materials in question-and-answer forms to the trade members,” said Michio Fukui, president of the TDE. In the meantime, the trade is sitting tight and watching carefully how American consumers react to the movie.

The Marketplace

• Demand is strong for larger stones of 3, 5 and 10 carats.
• Pointers larger than 0.50 carats are increasing in strength, due to shortages.
Smaller pointers continue to be weak.
• High-grade smalls, stars and melees of 1/200 and smaller have increased in price. Low-quality smalls are weak.
• 4/4 grainers continue to be weak. The exceptions are piqué and SI qualities.
• Fancy shapes and cape colors are popular, as their prices appear reasonable compared to white.
• It is suspected that stones of I-K colors in VS, VVS qualities are being shipped out of the country to the U.S. and Hong Kong. Prices for these stones are strong due to heightened demand.

Article from the Rapaport Magazine - January 2007. To subscribe click here.

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