Industry Analysis

U.S. Retailers Continue to Cite ‘Challenging’ Environment; Synthetic Melee Detected


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Good demand for diamond jewellery at the March Hong Kong Gem and Jewellery Show helped to buoy industry sentiment. Photo by Russell Shor/GIA

U.S. employment figures continue to rise along with the stock market – and other economic indicators remain strong – but Signet Group’s latest lower results continue to point to a “challenging” retail environment. Signet is the largest jewellery chain in the U.S., and other large retail jewellers are seeing sales decline as well.

So, what are the issues here?

Signet’s CEO Mark Light spoke of weakening traffic in shopping centres, where nearly all of its stores are located, and a move to “omni-channel” retailing, which includes physical stores, online shopping and mobile phone/tablet buying. Signet’s online sales are down as well, however, and Blue Nile, which is expected to report later this month, may show stagnation or a decline in sales.

Signet’s Kay/Jared division sales declined 4% while transactions declined 11%. Its Zale division fell 2.5% while e-commerce sales fell by 1.6% all in the fourth quarter, which ended on 25 Jan.

Economists, both liberal and conservative, are recognising that the decline in middle-class purchasing power is directly affecting some consumer products – and jewellery is one of those categories. This trend is accelerating, they note, because millennials are making less money than the previous generation did at the same point in their lives. In jewellery, retailers serving the top end of the market have generally kept their numbers up, and brands like Pandora are seeing large sales increases at the lower end. This is what drove the 3.8% increase in overall jewellery sales for 2016 that the U.S. Department of Commerce reported.

In addition, diamond producers and other segments of the industry are trying to develop marketing campaigns designed to appeal to a millennial audience, which is besieged by competitive products and experience-oriented (travel, dining) opportunities, with incomes that have not kept pace.

A fairly positive Hong Kong show this month lifted the spirits of the diamond trade and helped keep prices firm for most categories of polished stones. While there was some downtrading and discounting, Chinese retailers have reported demand improving after a long slump.

De Beers remains optimistic and its $545 million (£440 million) February cycle (sight) saw prices slightly higher on average with few deferrals. Its January sale of $727 million (£587 million) was the highest in several years. Alrosa sold $390 million (£315 million) worth of rough and $12 million (£9.7 million) in polished during the same period, saying “demand appears to be stable”.

Both DeBeers and Alrosa noted that the results of the Hong Kong Show give reasons for optimism.

The upcoming Baselworld Fair should provide a bell-wether for the luxury market; the early June JCK Show in Las Vegas will be a good indicator of the U.S. market.

SYNTHETIC MELEE

GIA’s lab in Mumbai flagged more than 100 synthetic melee diamonds in a parcel of 323 stones in early March, which brought home trade concerns that parcels of melee that normally do not go through grading labs could contain synthetic stones.

The GIA Melee Analysis Service, which provides an automated analysis to identify possible synthetic and treated diamonds in melee-sized parcels, found 101 chemical vapour deposition (CVD) melee diamonds in the parcel, which averaged 0.14 and 0.15 ct. stones.

Dr Wuyi Wang, GIA director of research and development, said that the Melee Analysis Service launched in December has regularly identified small numbers of synthetics mixed into parcels. This, however, is the first time that such a large percentage of man-made material has been identified.

A 25.27 ct. emerald cut diamond ring.
The Jonker No. 5 diamond – to be auctioned by Christie’s on 30 May – is a key part of a legendary collection of diamonds from the world famous 726-carat Jonker rough, discovered by Jacob Jonker in 1934. Photo courtesy of Christie’s Images

AUCTIONS

Christie’s will auction the 25.27 ct Jonker V in Hong Kong on 30 May. It is the fifth largest diamond from a piece of rough that made headlines when it was found 93 years ago.

The 1934 discovery of a 726-carat diamond in South Africa by an artisanal miner named Jacob Jonker made global headlines that followed the diamond to New York, where it was purchased by Harry Winston. Winston entrusted the job of cutting it to the master diamond cutter Lazare Kaplan, who studied the diamond for several months before attempting to cleave it, according to a 1936 article in National Geographic Magazine.

At the moment when Kaplan was about to strike the first blow, he noticed a slight bend in a surface crack that told him his calculations were wrong. After recalculating, he successfully cleaved the diamond into 13 stones – including the 25.27 ct diamond that Christie’s will auction.  

The D colour, VVS1 diamond, graded by GIA, is a rectangular cut and is conservatively estimated to sell for between $2.2 million (£1.8 millon) and $3 million (£2.4 million). 

Russell Shor is senior industry analyst at GIA in Carlsbad.