Industry Analysis

2017 Vegas Outlook: Decent, But Cautious, Buying

Russell Shor
May 31, 2017
Sotheby’s May 16 Geneva auction featured the Apollo Blue (14.54 cts) and Artemis Pink (16 cts) as an earring set. The pair drew a total of $57 million – $42.1 million ($2.9 million per carat) for the Fancy Vivid blue and $15.3 million ($958,000 per carat) for the Fancy Intense pink. Photo courtesy of Sotheby’s

First quarter U.S. retail jewelry sales showed a slight increase, according to the U.S. Department of Commerce figures, though most gains appeared to be at the higher and lower ends. Larger U.S. jewelry chains, which generally serve the middle class market, are expected to again report soft numbers for the first half of the year. Tiffany & Co. reported that its latest quarterly U.S. same store sales were 4% below the comparable period last year and Signet Corp., parent company to Kay Jewelers, Zales and Jared Galeria, said its first quarter sales plunged 11% compared to last year.

It’s likely that buyers at the upcoming June 5-8 JCK Las Vegas show will stick to their open-to-buy plans, but take relatively few chances on new lines or extra stock. Business at the boutique shows just before JCK should be a little stronger, however, because these shows are geared to the higher-end independent retailers who generally outperform the chains.

The results from the large retail jewelry chains, which have been lagging several percentage points below last year, show they are not immune to the difficulties confronting U.S. retailers these days.

RETAIL WOES

According to the Wall Street Journal (WSJ), some 8,600 retail outlets of all types are expected to close this year, a number surpassing the 2009 recession year. Entire shopping malls have closed or converted much of their retail space to non-retail activities, such as movie theaters and restaurants. While many analysts blame online shopping for some of the decline, clearly other factors are at work as well, as e-commerce sites have not been growing strongly either.

CEOs quoted in the WSJ article said fierce competition has kept prices low across the board, while costs rise. The CEO of Calvin Klein/Tommy Hilfiger noted that a pair of men’s dress pants costs less today than in 2007.

Consumers face increased costs of their own while wages remain stagnant. New cars, for example, are becoming less feasible for some would-be buyers, according to Michelle Krebs, a senior analyst with Cox Automotive. “It’s not just the price of the cars – it’s the price of everything else,” she said. “The price of things like health care, shelter – all of that is fighting for the budget.”

MODERATE MAY SIGHT

De Beers’ May cycle (sight) was moderate at $520 million, with apparently few additional deals struck outside the process. The total was about 12% below April’s cycle total of $586 million.

De Beers’ executives said in interviews that sales totals for the remainder of the year should be at “normal” levels following larger-than-expected allocations during the first quarter.

The early-year sales were directed mainly at some leading Indian manufacturers who had significantly cut their purchases late last year in response to the Indian government’s “demonetizing” higher denomination rupee notes. While the government action created some short-term turmoil in the country’s economy (many contractors and workers were paid in cash), business there adjusted much more quickly than expected.

The large sights made it possible for the company to clear a 6.7 million carat stockpile of lower value diamonds that had accumulated during the demonetization last year.

To further its “mine to market” initiatives to guarantee the supply chain of its diamonds, De Beers announced it would begin test-selling a wide range of qualities and sizes of polished stones in periodic auctions beginning in late June. The company said the test was to gauge demand for diamonds “with a clear and attractive source of origin” and “to offer the assurance of product integrity that dual certification provides.” The diamonds are graded by GIA and DeBeers gemological labs, according to a DeBeers’ press statement.

AUCTIONS

Prices for top gems at auctions have not continued at the record-breaking pace of the past few years where every sale saw a new benchmark, but they have remained solid.

The headliners for the spring season were a pair of fancy color diamonds sold at Sotheby’s Geneva on May 16: the GIA-graded Fancy Intense pink 16 carat (ct) Artemis Pink ($15.3 million /$958,000 per carat) and the 14.54 ct GIA-graded Fancy Vivid Apollo Blue ($42.1 million/$2.9 million per carat).

At Christie’s Geneva the following day, the 92 ct D flawless La Legende diamond brought in $14.98 million. The $163,000 per carat price was a record for a heart-shaped diamond, but well below prices that other large D flawless diamonds have achieved.  

As reported last month, the auction season began with a record at Sotheby’s in Hong Kong: at $71 million the 59.6 ct Pink Star diamond was the most expensive gem ever auctioned. Its per-carat price of $1.2 million, however, was less than half of what similarly graded smaller diamonds have achieved at auction.

Prices for such top stones can vary widely because the market is thin at that level and is usually dependent upon two or three bidders running prices up after they pass the reserves. If even one of those buyers does not bid, then the prices can be 20% to 30% lower.

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