Industry Analysis

Jewellers Seek to Overcome Weak Numbers in 2016 Holiday Season

Russell Shor

December 12, 2016

A woman holds the “Blue Sky” diamond ring. Her face is obscured, but there is a close-up of her fingers holding the ring.
The 8.01 ct Fancy Vivid blue Sky Blue diamond sold for $17 million (£13.4 million) at Sotheby’s Geneva sale on 16 Nov. It is set in a ring surrounded by brilliant cut and baguette cut colourless diamonds. Photo courtesy of Sotheby’s

Year-end forecasts remain mixed as large jewellery operations, including Blue Nile, reported tepid sales numbers as the holiday season began. Economic indicators, however, continue to point to a strengthening U.S. economy, and store/cyber traffic has been encouraging during the early weeks of the season.

The latest quarterly financials from Signet (Kay, Zale, Jared) and Blue Nile show sales declines of 2% and 4.3%, respectively, while Tiffany & Co. eked out a 1% sales increase after posting declines in the two earlier quarters. Hearts on Fire, the diamond brand owned by Hong Kong retailer Chow Tai Fook, saw a 9% decline worldwide in the autumn quarter. And Chow Tai Fook’s Hong Kong and China sales fell 23.5% in the last quarter.

Balanced against this, however, are optimistic reports from higher-end independents. A Centurion Magazine survey reported that 60% of luxury jewellers reported sales gains through Black Friday and Cyber Monday, with 28% reporting increases over 10%. Some 25% reported sales declines of 5% or less. In addition, a survey by the “The Street”, a stock market news site, found a 7.1% increase in combined store and online holiday sales.

Beyond the holiday season, a report from ABN Amro, the leading diamond industry lender, sees the U.S. economy improving (and a slight upturn in China) throughout next year, bringing with it an increase in diamond demand that will reverse the slow but steady erosion of polished prices that has occurred over the past 18 months. A Bain & Company report cautioned, however, that diamond producers have been selling more rough than demand can absorb, leading to a potential supply glut next year.

The pear-shaped pink diamond is set in a ring and flanked by two colourless baguettes.
The 9.14 ct GIA-graded Fancy Vivid pink diamond drew a final price of $18.2 million (£14.3 million) at Christie’s 15 Nov Geneva sale in which 35 lots exceeded $1 million (£800,000). Photo courtesy of Christie’s

AUCTIONS

After a slow start, and several important diamonds and gemstones not selling, the autumn auction season was successful with a number of multi-million-dollar fancy colour diamonds changing hands.

At Christie’s 29 Nov Hong Kong sale, a GIA-graded 4.29 ct Fancy Vivid blue diamond sold for $11.8 million (£9.3 million; $2.7 million/£2.1 million per carat), while the 10.7 ct “Ratnaraj” ruby sold for $10.2 million (£8 million). At Sotheby’s Geneva sale, which totalled more than $136 million (£107 million), the 8.01 ct “Sky Blue” diamond, graded Fancy Vivid blue by GIA, drew a winning price of just over $17 million (£13.4 million; $2.1 million/£1.7 million) per carat). A 7.74 ct Fancy Deep blue diamond also went for $3.7 million (£2.9 million; $1.7 million/£1.3 million per carat).

Christie's 15 Nov Geneva auction saw 35 lots exceed $1 million (£800,000), including a 9.14 ct Fancy Vivid pink pear shape that  sold for $18.2 million (£14.3 million; $2 million/£1.6 million per carat), and a GIA-graded pair of pear-shaped D Flawless diamonds weighing 52.55 carats and 50.47 carats that sold for $17.6 million (£13.9 million).

TRADE

The abrupt action by Indian Prime Minister Narendra Modi to ban cash transactions with 500 and 1000 rupee notes ($7.35/£5.79 and $14.70/£11.58) by 30 Dec has caused chaos in the country’s retail and wholesale markets because these notes comprise 86% of the cash in circulation by value. The move has forced the cancellation of several end-of-year gem and jewellery trade fairs. The largest affected show is the 23-26 Dec Jaipur Jewellery Show, which has been postponed to an as-yet unspecified date next year. Gemfields, the coloured stone miner, has also cancelled its Jaipur auction of emerald and beryl, which was scheduled for the same time.

Those holding these bills have to deposit them in their bank accounts by 30 Dec with strict limits on bank withdrawals. The government’s Ministry of Finance also tightened reporting requirements for cash transactions over $3,000 (£2,300).  

The ministry said the prime minister has taken the action to crack down on “unaccounted wealth and to curb the financing of terrorism and other subversive activity”. While the ban will have little effect on India’s export-oriented diamond trade, retail sales in the country remain largely a cash business and economists predict the action could reduce growth by as much as 1%.

Russell Shor is senior industry analyst at GIA in Carlsbad.