U.S. Wholesale Market Report

RAPAPORT...Identifying trends or sales patterns proved difficult in the U.S. in October, as wholesale markets took a bumpy ride and dealers struggled to determine what it all means for Christmas sales. Ernest Slotar, president of the self-named Chicago-based company, described the market as “very difficult, to say the least” and noted “a strong sense of anxiety” among wholesalers.


Volatility
The sheer unpredictability of sales has left some players feeling adrift. “There’s no momentum. You’re not sure. You’re not confident for next week,” Slotar reported. Parag Jain, director of operations at Paramount in New York City, conceded, “I must say that we don’t know what to expect. In the past two weeks, we weren’t as strong, then today, we got about 30 calls. We don’t know if that reflects a change in the market or not. We can’t figure it out right now.”

Andrew Rickard, vice president of operations at RDI Diamonds in Rochester, New York, reported similarly. “We’ve had more quiet weeks and then we’ve had killer days. It definitely has roller-coastered a bit.”

Pinpointing stronger regions of the country has been equally challenging. Many agree that Florida is among the hardest-hit states, while Jain noticed weakness in areas “that rely on local business more than tourist markets.”


Contradictions Abound
Conventional wisdom holds that Michigan is suffering right now, but Rickard observed that orders for four of the six largest stones his company sold in the past month have come from that state. “There are a lot of strange anomalies,” he concluded.

However, all the wholesalers RDR contacted stated that they were surviving. “We’re up, we’re happy,” clarified Jain, “but that’s the mood out there in the market.” Rickard explained, “We’re working harder to stay in front of people, I don’t think there’s any doubt about that. Still, we are up year-over-year.” No one had dramatically changed sales strategy, except, as Jain remarked, “You just have to hustle right now.” Rickard noted, “We are contacting more people.”


The Mental Game
Some believe that fear is a bigger stumbling block than the economics of the U.S. “I think the mood is worse than the actual business. That’s how I see it. In spite of everything, there’s still business being consummated,” contended Slotar.

“There’s never a time when my sales reps don’t hear that it’s dead. We hear that all the time, whether it’s great or not,” stressed Rickard. “At RDI, we have found that the jewelers who are more focused on diamonds are doing better than the jewelers for whom diamonds are a smaller piece of their daily business.”


Credit Tightens
Others see the realities of a credit crunch beginning to bog down the sector. Amit Patel, president and chief executive officer (CEO) of Gold Star, a Diamond Trading Company (DTC) sightholder based in New York, explained, “All the customers want more generous terms. We’re doing less financing and that is affecting our business.”

Many feel that a correction in the memo system is long overdue. “People only want the merchandise if we want to give it to them on memo,” noted Virendra Kothari, president of Diagem Imports in Los Angeles, California.

With fewer holiday sales, there are concerns about the consequences of excess inventory. “I know a lot of dealers are liquidating at any price possible. I know people are stuck with big inventories. There are going to be a lot of returns coming to the big guys. It’s going to be a pretty vicious cycle, with a lot of merchandise in the pipeline, especially on the jewelry side,” Jain cautioned. Kothari heard rumors of diamond prices falling “crazily” in all qualities.

“Watching and waiting” is a common refrain among both buyers and sellers. Slotar advised, “I think it would be naive to expect a strong Christmas season. We’re not optimistic. If we can do steady business, we’ll be more than fortunate.” Jain predicted, “Christmas will be better than expectations, but that is because we have extremely low expectations.”

The Marketplace
• Promotional merchandise is picking up.
• High-quality 5-carat-and-larger diamonds have slowed from their brisk pace.
• Buyers are willing to sacrifice clarity for size.
• Rounds continue to dominate the market.
• Princess cuts have gained a bit in popularity.
• Demand for Asschers and emerald cuts is quiet right now.

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