RAPAPORT... Diamond wholesalers are doing everything they can to adapt to their clients’ budgets and tough competition in the marketplace. Fortunately, many U.S. diamond dealers have always primarily served the bridal market, which seems to be the only segment that is selling right now.
A Return To Bridal
After years when the record profits went to speculators who traded at the high end, U.S. dealers who work in bread-and-butter merchandise are reaping some benefit from their steadier clientele, though demand is much lower than in the past. “People still get married. They might not buy a 5-carat VS, but they are buying something,” explained Ami Koret, vice president of Davidoff Diamond Corp. in Houston, Texas.
“Diamond gift shopping has pretty much come to a crashing halt. Nobody is buying those fashion gifts,” concurred Lior Sofer, vice president of Beny Sofer Inc. in New York City. “At the end of the day, I don’t think there is demand for much else besides bridal. Maybe some earrings, but that’s about it,” said Nitesh Daga, vice president of Houston, Texas–based Real Gems Corp.
Unfortunately, even solid midrange dealers are struggling to survive. Sam Nazarian, president of A&M Diamond and Jewelry Inc. in Los Angeles, California, recognized that “it is very difficult to make money” and that his clients come to him with “their budgets all calculated.”
Some sales seem almost based on luck. “We sell for specific calls, if we are fortunate enough to have the merchandise,” reported Ernest Slotar, president of the self-named Chicago, Illinois–based firm. But no one is willing to stock up and hope for requests amid the current uncertainty.
“I just came from a show and two of my clients called and said ‘Don’t ship the order; I lost my biggest customer,’” recounted Bill Levine, president of Bill Levine Diamonds in New York City.
Dealers reported that today’s retailers are more likely than ever to accept lesser-grade diamonds in order to keep costs down. “They are buying lower qualities. Before I had a lot of VVS sales; now I have SI1, SI2 clarities and H to I colors,” one wholesaler specified. “People want better, but when they see the price…,” Levine trailed off. “We had a customer who wanted a 4-carat diamond. After giving him three choices, he went with a 3.5-carat to save himself some money,” Sofer illustrated.
AdaptationDealers are working on editing their stock wisely. “We are trying to focus our energies on those items that sell. We are just trying to move our dollars to more appropriate places,” Sofer reasoned.
Sofer noticed an additional challenge, as well. “The most frustrating thing is that people are asking for off-sizes. Those goods have always been popular, but there is even more demand for them now. How many of those stones can a company have?” he asked. But there is an upside, Sofer admitted: “Those goods are still bringing a premium.”
Koret saw two factors converging. “In the better makes, the less expensive goods are going to start to become scarce, because a lot of people aren’t cutting right now. I think we are going to have a shortage in the nicer SI1s to SI3s.”
Heated CompetitionBuyers are so scarce that dealers are scrambling to offer low prices — even for memo goods. “If you have a memo call, you treat it almost like they are buying. You have to offer a good deal,” Sofer pointed out.
Bankruptcies also drive prices down. “There is a problem with dumping — those goods from people who are going out of business. No one is going to turn down those deals and we are competing with that. People have tons of 2-caraters,” Sofer proclaimed. Daga was also concerned. “Yes, we see a lot of dumping and that’s a problem. When your customers can get diamonds practically for free, it’s a big problem.”
Credit issues persist. “We pay in cash, but our clients can’t get credit and neither can their customers,” Daga conceded. Levine remarked “Is there a credit squeeze? I would say yes. The first payment from my clients has to be up front.”
Bottom Line
Wholesalers continue to whittle expenses wherever possible. “We are cutting down on the size of the office and not hiring, for sure. We are focusing on debt collection. We are trying to keep receivables down as much as possible and just sit tight and wait for everything to get better,” Daga noted. Slotar contended “I think my skill is that I watch every penny and I am very cautious.”
“We are not showing. I don’t think there’s anything new to see at shows right now, anyway,” remarked Koret. Sofer took the opposing view. “Shows are important. The handshake part of the business is just as important as the invoice part of the business. If you can’t afford to do shows this year, something is wrong with your business. What are you going to do next year, when we are 1½ years into a recession?”
The Marketplace• Select sales for 1- to 3-carat diamonds are meeting some bridal demand.
• SI1 diamonds are selling better, while VS2 and better qualities are not moving much.
• Most buyers are seeking G, H and I colors.
• Buyers are looking for off-sizes.
• Demand for ½ carat and smaller melee has plummeted.
• 4-carat and larger stones can be sold when offered at bargain prices.
• Rounds are still the majority of the market, with princesses and cushions in second place.
• There is very limited interest in fancy shapes.
Article from the Rapaport Magazine - April 2009. To subscribe click here.