Industry Analysis

Retail Jewelry Sales Up in US, But Wage Gains Drag

Russell Shor
October 23, 2017
192028-636x358-large-rough-lucara
The 1,109 carat gem quality, Type IIa, Lesedi la Rona diamond, which originated from Lucara's Karowe Mine in Botswana, is the world's second largest gem quality diamond ever recovered. It recently sold to Laurence Graff for $53 million. Photo by Lucian Coman/© Lucara Diamond.

The U.S. Department of Commerce reports that retail jewelry and watch sales from all outlets have been running about 5.6% ahead of last year, with August significantly higher at 6.8%.

The National Retail Federation believes the year will finish strongly with sales increases of all merchandise up 3.2% to 3.8%. Employment numbers have been good but wages still lag, limiting the disposable income available for consumer products. This has been a drag on retail sales all year.

De Beers October cycle (sight) sales were $370 million, the lowest sight in nearly a decade. This was also well below September’s total of $505 million, which was well below earlier cycle sales.

In addition, Alrosa, the world’s largest diamond producer by volume (but well behind De Beers by value,) sold $305.8 million worth of rough diamonds in September. The volume was similar to the previous month, but the value was higher because the company sold a number of “specials” – diamonds larger than 10.8 cts.

After starting this year with several large allocations, the company reduced its sales volumes during the second half of the year. Rough sales have totaled $3.29 billion for the first nine months of 2017, similar to last year.

The short term reason for the reduced sales by De Beers and Alrosa is the Indian holiday of Diwali that began Oct. 19, which is about 10 days earlier than usual. Typically, diamond firms close their operations for two weeks during and after the holiday, but diamond manufacturers often delay their return to work if orders have been slow and they have sufficient inventory.

For the longer term, inventories of polished have been mounting – rising by an estimated 30% to 35% this year – while credit lines shrink and polished prices soften. The $50 million-plus bankruptcy of Exelco, an Antwerp diamond company, is the latest incident in diamond industry banks pulling back from the industry.

Analysts believe more bankruptcies may follow. The key worry, of course, is that these companies have tens of millions of dollars in outstanding trade debts and a default could send other companies into bankruptcy.

THE BIG DIAMOND

The 1,109 ct Lesedi la Rona went to London mega-jeweler Laurence Graff for $53 million, or $47,800 per carat, which is significantly less than its owner, Lucara Mining, wanted for the stone. It is the second largest gem-quality rough diamond ever found.

At this price, the stone will be economical to cut – the polished will bring about $100,000 per carat, assuming a 40% to 50% yield. Very large D-E color, flawless diamonds have been selling for $140,000 to $180,000 per carat at auctions.

Lucara tried to sell the diamond at an auction in Sotheby’s London salesroom, but bidding fell way short of the $70 to $75 million the company was reportedly seeking. (Sotheby’s 12.5% buyers’ commission plus VAT of 5% to 15% would have pushed the price past $80 million). This made the diamond uneconomical to cut, pushing the price of the resulting polished past $150,000 per carat.

Is Another 1,000 (or 3,000) Carat Diamond Around the Corner?

Is Another 1,000 (or 3,000) Carat Diamond Around the Corner?

Find out why the number of very large diamonds entering the market has increased sharply in the last few years.

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Major Diamond Find Brightens Market

Large Rough Lucara

The discovery of three huge diamonds – 1,111, 813 and 374 carats − all in the same week, brighten an otherwise lackluster diamond market.

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Why Didn't That 1,109 Carat Diamond Sell?

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The failure of the second largest gem quality diamond to find a buyer at a well-publicized public auction on June 29, 2016 touched off a great deal of speculation.

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