Hurricanes Harvey, Irma May Wreak Havoc on Luxury Sales, Too
September 18, 2017
De Beers announced that it will spend $140 million on diamond advertising this year. Some of these funds will go toward the Diamond Producers Association generic diamond jewelry advertising, but the majority will go to its ForeverMark brand.
Advertising may not help lift U.S. demand this coming fall season because of the devastating damage of Hurricane Harvey in eastern Texas and Hurricane Irma in Florida, particularly in the affluent western coast areas. The damage and disruption of both hurricanes will likely take a toll on luxury sales.
Texas, particularly the Houston area, has always been a center for luxury sales, including larger diamonds and significant jewelry pieces. Many of the jewelers serving that area escaped the worst of the flooding from Harvey, but a significant portion of their clientele will likely face huge rebuilding and repair costs.
Although Hurricane Irma spared the Miami area the worst of its effects, wind damage was still immense and many communities were totally destroyed throughout the state. Obviously, there will not be a full damage assessment of either Texas or Florida for months, but it’s certain these two hurricanes will be the most extensive and expensive disasters ever to hit the U.S.
While the storms may initially impact jewelry sales in these regions, jewelers have noted that after similar destructive storms, a boom in rebuilding ultimately brought more money back to the region.
De Beers’ August-September cycle (sight) totaled $505 million, a reduction of 21% from last year’s sale for that period and 12% down from the July cycle. The reasons, according to De Beers’ CEO Bruce Cleaver, were two-fold:
- De Beers front-loaded goods to Indian clients in anticipation of an early Diwali holiday, which begins Oct. 18, one or two weeks earlier than usual.
- Prevailing caution in the market in the run-up to the Sept. 13-21 Hong Kong shows.
On the first point, Indian diamond manufacturers typically close for two weeks during the holiday. If the market is slow, they will often stay closed for a longer period to let inventories subside and to bolster polished prices.
On the second point, rough sales and manufacturing have been running ahead of polished demand for most of the year in most size and quality categories. While there are spot shortages of very specific goods (medium-color melee sized SI stones, for example), in general there is an oversupply of inventory that is softening polished prices. Estimates are that inventories have increased 25% to 35% in the past 18 months, without a corresponding increase in demand.
Additionally, the diamond industry credit crunch continues to squeeze a lot of firms – even some big names – and softening processes do not help their case with the banks. As with the previous few years, the opening of the Hong Kong show will bring a dash for cash, with a lot of firms selling excess goods at a discount to keep their standing with the banks.
Regardless of the inventory situation, demand for rough has remained robust all year – as it has since the late 2015 “price rebellion,” when a number of De Beers’ clients refused to buy goods at then-current prices. De Beers, followed by Alrosa and Rio Tinto, lowered prices by an average of 15% early in 2016. Prices of polished stones, however, have slowly ebbed this year.
Retail sales in China have taken an encouraging upturn. Chow Sang Sang, the country’s second largest jewelry retailer, logged a 3% same-store increase for the first half ending June 30. Sales in the mainland rose 8%, but continued slow tourism in Hong Kong and Macau caused declines of 4% and 5%, respectively.
Russell Shor is senior industry analyst at GIA in Carlsbad.