U.S. Wholesale Market Report

RAPAPORT... Market trends continued in April, with big stones seeing all the action and smaller goods relegated to the sidelines again. But wholesalers who spoke to RDR weren’t as grim about the future as one might expect, with many recalling that they’ve seen worse conditions and indicating they plan to ride out a situation they see as temporary.

David Goldstein, president of Goldstein Diamonds in Scottsdale, Arizona, stated that “Large is driving the market and bigger stones, from 7 carats up to 20, are always out.” He described demand for regular goods as “sporadic,” which he attributes to a shrinking middle class in the U.S. Lately, one effect of the sluggish economy has surprised him. “In my 25 years in the business, this is the toughest I’ve seen from a credit standpoint. There have been too many scams with fake credit references.” He also noted that dealers are not as speculative as they were just a few months ago, and they have become more flexible on stones of 4 carats or less.

Watchful Waiting
At A & M Diamond and Jewelry in Los Angeles, California, Sam Nazarian, the chief executive officer (CEO), concurred that 5 carats and above are the hottest items right now. “You don’t know whether to sell it or keep it, because you don’t know if it may be a mistake to sell,” he commented. Though rough prices remain high, Nazarian noticed increased calls from Australia and Hong Kong as U.S. buyers have fallen off. “In an ideal world, we would have a lot more large stones,” he remarked. Nazarian believes that “In the coming year, shortages and demand will get worse. The strategy is to be patient. We are in a down cycle and have been for some time. Hopefully, it will come back up.”
Jeff Gottlieb, a vice president at Gottlieb & Sons, based in Cleveland, Ohio, declared, “If you follow metals prices, I think we were importing too much gold and not exporting enough. When the dollar rebounds — and that might not be for several years — you’ll see metals soften.” For now, “Even the guys who always buy, with the worst credit ratings, are holding off. So I think that’s a sign. But I think the second half of the year will pick up.”

Predictions Abound
With the economy seemingly in a holding pattern, all eyes turned to BaselWorld 2008 for clues to future activity. Gumuchian, based in New York City, participated for the first time this year. “We were on a new floor in Hall 3, above packaging. Most exhibitors were very unhappy with the traffic there. It was disappointing being on a floor that people didn’t know about,” confessed Myriam Gumuchian, vice president and owner. Despite that, Gumuchian asserted, “Basel was an interesting experience and we’ll be back to tackle it again next year.” She didn’t see many U.S. buyers at the show, but it didn’t concern her much. “I wasn’t there to see Americans. I’ll see them at JCK.” Gumuchian added, “I think the mood among jewelry retailers is not as bad as you might read in the papers every day.”
At Bayco in New York, Giacomo Hadjibay, one of the firm’s owners, enthusiastically reported on a “very good show, very high end, and there is plenty of demand.” Hadjibay noted that “Russia is becoming very important” for his business. He was also firmly optimistic about prospects at home. “In the U.S., there is plenty of wealth. Buyers are being cautious because of bad news, but that will be forgotten by summer.” But he does have one worry, and that is the price of diamonds. “They keep going up. It’s a little scary.” Looking ahead to JCK Las Vegas, Hadjibay believes “It should be a cautious event, but if there are foreign buyers, it could make a big difference.”

Hope for the Long Term
“If strong prices carry through to Las Vegas, we will know if prices will stay strong or if there will be a lull in the market. But just based on recent auction prices, there does seem to be a carry-through,” observed David Scarselli, a managing partner at Scarselli Diamonds in New York, which specializes in fancy colored diamonds. “At JCK, we hope to have decent turnout. Everybody’s kind of nervous,” remarked Gottlieb. “People who are selling well will show up and buy. People who are weak will write off the trip and take a vacation. But I think that’s been going on for years.”

The Marketplace
• Demand for rounds is softening a bit, with cushions and radiants picking up the slack.
• European shoppers are seeking out pears.
• Mid-quality stones are slightly more desirable.
• At Basel, large, high-quality rounds were very popular.
• Marquises remain slow.

Article from the Rapaport Magazine - May 2008. To subscribe click here.