RAPAPORT... Loose diamond imports are now down to 1 trillion yen ($11 billion) from the peak of 3 trillion yen ($33 billion) annually in the early 1990s. Department stores have reported declining sales month after month for almost all of 2008. At storefronts, sales of costume jewelry were reportedly down by approximately 15 percent and high-end jewelry by 20 percent in 2008, compared to 2007 levels.
“In the spring, we predicted that business would be down by 20 percent compared to 2007,” said Teruo Kikushima, president of Gleam Kobo, a jewelry manufacturer in Kofu and also the president of Sokyo, a jewelry manufacturers’ trade organization. “Then came summer, and we adjusted our prediction to down by 30 percent, and now it’s down by 40 percent.” In early December, Japan’s bellwether corporations, including Sony and Toyota, announced that they would lay off employees by the thousands.
“I would like to think that wealthy customers are out there with enough money to spend on luxury goods but they just feel guilty doing so at this time with so many people suffering from the crisis,” said Motoji Kino, managing director of Omi Co., Ltd., which operates retail outlets inside department stores.
Luxury DownOverall, sales of luxury items in department stores are down, reported Kino, with the exception of bridal items. Those unit prices are slightly down. Sales of foreign name brands are also down, “but now that the yen has gotten stronger, the retail prices of imported goods may be marked down soon. Diamond importers may also benefit from the stronger yen,” said Kino. “We are hoping for a little sign that the crisis has bottomed out and that things will only go upward from here.”
“Companies like McDonald’s — ham- burgers — and UNIQLO — low-priced apparel — and other low-priced merchan-disers are generally doing very well,” said Hidetaka Kato, Kashikey Co., Ltd. chairman. And this appears to be the problem for luxury merchandisers. For the past decade, department stores have positioned themselves as high-end merchandisers. Some of them go back hundred of years in business and they have used their store names somewhat like name brands. Their names relate to the quality of the products they sell and they are names consumers feel comfortable with. “It would be very hard for them to veer in another direction at this stage,” said Kino.
During the past six months, more than 1,000 companies have gone bankrupt every month in Japan, noted Kato. November’s bankruptcy rate was 11.5 percent higher than in November 2007. Jewelers are being forced to face reality and they need to adjust their inventories, financing and personnel. Kato believes this trend will continue into 2009.
Some BenefitBut there are some who are benefiting from the drop in commodity prices. Masahiko Akaike of Orient 4Cs reported that November was the best month ever in the history of his company. Orient 4Cs now sells more platinum jewelry than gold jewelry, as the difference in price is about 150 yen per gram — $1.68 —between platinum and gold. He also shared an anecdote about a precious metals dealer who made more money in the month of October alone than he did in all of 2007.
In fact, Akaike was positively gleeful at his recent good fortune when interviewed by RDR. “First, foreign buyers and exporters disappeared from the market,” said Akaike.As they stopped buying, he went on to say, they left room for Japanese dealers to play “at unbelievable prices.”
Prices of diamonds are down across the board, from 30-pointers to large stones. Examples are: 30-pointers in F to G color VS are down nearly 30 percent; 50-pointers in high-color VS are down close to 50 percent and well-made 2- carat, high-color VVS are down nearly 40 percent. “At such prices, dealers are willing to buy and stock,” said Akaike, although he suspected that these stones are not moving down to consumers.
“Commodity prices are not necessarily determined by supply and demand,” said Kato. “Look what speculative hedge funds did to push the prices upward. Regardless of what the products are — from diamonds to oil, from precious metals to food items — dealers who are financially well off can now buy them cheap and use them to replace old, expensive products.”
Akaike added that “By replacing our inventory, we are in much better shape now and it helped our financing. We buy stones for cash, but those who are paying with promissory notes cannot do as well.”
“Consumers who bought diamonds at the height of the market may develop an allergic reaction to diamonds and not want to buy another one,” said Kato.“Survival is the key word of the industry. In five years, the world will be a different place.”
The Market Place
• Prices of diamonds have dropped across the board, from 30-pointers to large stones.
• F-G color, VS and better quality, in well-made stones are down by 30 to 50 percent
compared to three months ago.
• Demand has not improved for low-quality, poorly made stones.
• Melees and stars of high color in well-made stones remain high in price.
• Demand for yellow stones and fancy shapes continues to be weak..
Article from the Rapaport Magazine - January 2009. To subscribe click here.