Industry Analysis

2017 US Holiday Jewelry Sales Rise, Reports Indicate Continued Economic Growth

Russell Shor
January 19, 2018
A male retail jeweler helps a woman look at a diamond through a loupe.
A recent survey finds that jewelers remain a critical part of the jewelry buying process. Consumers who speak to a jeweler during the research process are also more likely to buy from a local store rather than online. Photo by GIA

Holiday jewelry sales in the U.S. increased 5.9% in 2017, according to a Mastercard-SpendingPulse survey, and outpaced spending in general, which increased 4.9%. The survey found that jewelry buying was running behind other retail categories until the week before Christmas when sales surged. Mastercard’s survey results are typically a bit higher than others.

A Centurion survey of primarily upscale jewelry retailers found that nearly 60% reported sales increases (one-third of those over 10%), but many noted that the gains came despite decreased customer traffic – fewer buyers were spending more money.

Signet Plc, the largest jewelry chain, turned in a disappointing season, however. Declining traffic at shopping malls and problems with its credit program resulted in a sub-par season: a 5.3% decline in its same store U.S. sales and an 8% decline overall.

Signet, the parent company to Kay Jewelers, Zales and Jared the Galleria of Jewelry, outsourced its credit card division amid allegations of improper practices that remain under investigation. Signet claims the allegations lack merit. Some 62% of the company’s sales are made on credit.

While retail sales continue to migrate to e-commerce outlets, jewelers remain a critical part of the jewelry buying process, according to a survey by Jewelers of America.

Conducted by Provoke Insights, the survey found that the jewelry purchase process is different from other high-priced luxury items: 64% of consumers who purchased jewelry visited a retail outlet to speak to a jeweler during the research process, a number that is 26% higher than other luxury items.

The study, which polled both consumers and retailers, also found that consumers who speak to a jeweler during the research process are also more likely to buy from a local store rather than online.

U.S. ECONOMY

Most economic forecasts predict the stock market and U.S. economy will continue its long growth cycle through 2018.

The Conference Board, a global, independent business membership and research association, forecasts that the unemployment rate will fall to 3.5% and GDP will grow 2.8% this year. The reason for the optimism is that economists see expansion widening into sectors that had been lagging behind the general recovery.

“The U.S. economy continues to fire on all cylinders with consumption, business investment and external trade all showing strength entering 2018,” the association reported. “Overall, expect 2018 to be a year where both growth and profits are plentiful. Spending growth should remain robust beyond the holiday season into 2018.”

DIAMONDS

The rough diamond market remained soft in 2017 as inventories accumulated some four million carats in the cutting centers between the beginning of 2016 to mid-2017.

De Beers sold an estimated $5.3 billion worth of rough diamonds in 2017, about 5% below 2016 levels of $5.6 billion. The company curtailed its allocations in the third quarter of the year because prices began to decline at the same time banks were reducing available credit to the industry.

Polished stocks in the cutting centers increased about two million carats (+12.7%) between early 2016 and mid-2017, as production outpaced demand.

Alrosa forecasts that 2018 will be “stable” with moderate growth compared to 2017. The Russian diamond producer said its sales declined 5% to $4.17 billion this past year because of increased demand for smaller, lower-cost diamonds.

The Letseng Mine in Lesotho, which had produced some of the world’s largest rough diamonds during the past decade, yielded its largest diamond yet, a 910 ct stone its owners claim is D color, type II. The crystal is the fifth largest diamond ever found.

CHALLENGES FOR DIAMOND INDUSTRY

While the economy seems robust, the diamond industry will continue to face challenges, according to a report from one of the industry’s top lenders, ABN Amro.

The bank’s report noted that synthetic diamonds will make ever-increasing inroads into the natural diamond industry, forcing substantial changes in both the rough and polished sectors. The report noted that production of gem quality synthetics totaled between 2.5 and 4.4 million carats in 2017, representing. 0.1% of all synthetic diamond production, with the balance destined for industrial use.

The bank maintained, however, that gem quality synthetics are more profitable than industrials, making it likely that some producers will convert some production to those better qualities. ABN Amro predicted that if gem quality production accounts for just 5% of all synthetics manufactured, it would exceed the total of all natural diamonds mined by 1.5 times.

The bank also noted that the increased production of synthetics, along with improvements in the process that will bring larger, better quality stones to the market at ever-cheaper prices, could present a fundamental challenge to natural diamond producers.

Natural rough diamonds remain a sellers’ market, lodged in the hands of relatively few producers, according to the ABN Amro report. As lower-priced synthetics assume a greater share of the market, however, competition will increase and prices for both classes of diamonds will fall, putting pressure on profits all the way around. Therefore, profitability will be more difficult and force producers of natural diamonds “into fundamental changes in their supply strategy.”

The laboratory-grown diamond producers have seized an advantage in their marketing strategy: emphasizing claims that laboratory-grown diamonds are more sustainable. Laboratory-grown diamond producers have been able to connect with the millennials by promoting themselves as high-tech, innovative and clean.

“The natural diamond producers are facing a challenge to improve the sentiment towards mined diamonds with that generation,” the report said.

In response, the Diamond Producers Association (DPA) has increased its marketing budget to spur diamond demand among younger consumers and to counter the messages from the synthetics producers.

The ABN Amro report also noted that diamond manufacturers will probably have to seek alternative funding from venture capital firms, from mining companies and even, possibly, crowd funding.

Finally, the report noted that it’s unlikely that diamonds as an investment vehicle will gain serious traction in the near term because valuation remains opaque. The possible exception is large diamonds or fancy color diamonds – where auction houses provide public price guidance.

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