Market Overview of US Diamond Purchasing Trends by Edahn Golan

Retail and Consumer Confidence
02/11/2016 12:23

Diamond industry analyst Edahn Golan takes a close look at US consumers' polished diamond purchasing trends based on data that retail metrics research firm NPD collected from nearly 4,000 specialty jewelry retailers. Golan says that, "One of the biggest issues in the diamond industry, especially in the manufacturing sector, is a lack of impartial and detailed data about consumer purchasing habits. The need to bridge the gap between the information retailers supply and what consumers actually buy is essential." Golan therefore compares the value and nature of diamond sales in 2015 to those in the first seven months of 2016. In 2015, the value of natural polished diamonds sold by specialty jewelry retailers in the US was $14.98 billion, derived from the sale of 3.67 million carats at an average value of $4,078 per carat (p/c). Meanwhile, the total cost of polished diamonds purchased by American specialty jewelry retailers was $8.71 billion, averaging $2,370 p/c. The average retail margin ($1,708 p/c) was 42%. 

Comparing just the first seven months of 2016 to the same period in 2015, the total cost of goods purchased by retailers fell 8.6% to $3.97 billion, and the average value of wholesale purchases softened 0.6% to $2,421 p/c. At the same time, the total value of polished diamond sales declined 7.1%, and the volume of sales fell 8% to 1.64 million carats. However, offsetting these declines was the average value p/c of diamonds sold, which increased by nearly 1%, leading to a 2.2% rise in retail margins. The first factor Golan identifies that likely contributed the rise in average value sold is a shift in the volume of sales of smaller goods (under 0.90 carats) compared to larger goods. As the volume of stones <0.10 ct to 0.89 ct fell an averge of 12% (see PDF attached), pockets of growth emerged in carat sizes 0.90–0.99 (+9.3%), 1.40–1.49 (6.9%) and 1.90–1.99 (4.6%) and >3.00 carats (+16.8%). This tell an interesting story: they are all just shy of popular round sizes: 1.00, 1.50 and 2.00 carats - sizes where price per carat jumps. It will seem that American consumers are trying to save money by purchasing diamonds that look the same as 1, 1.5 and 2 carats, but cost less. The second reason retail margins rose is simply that retailers acted to recover some of their lost revenue, which they did not share with wholesalers.

Shapes and Brands

According to Golan's research, "Round-shape diamonds are the most popular diamond shape among consumers, representing more than 71% of all diamonds sold. Trailing this cut is princess and then far behind are ovals and cushions. Together, these four shapes represent some 92% of all diamonds sold in the US by specialty jewelers. All other shapes collectively represent only about 8% of sales by unit count." Golan also highlight the increasing market share of branded diamonds, a trend that is on the rise. "While averaging only 6% of sales during the January–July 2016 period, branded diamonds are set to take up a growing share of sales because they represent an area for wider gross margins for retailers, as well as being in rising demand by consumers...From a retailer’s perspective, this is an important opportunity to improve sales at a time when fears that purchases by 25–35-year-olds are diminishing. There is growing evidence that when uncertain about a purchase, Millennials will turn to a brand despite their jaded view of marketing."

Synthetics Capturing Market Share

Amid the debate about synthetic diamonds, their (lack of) value, marketing strategy and transparency of disclosure, Golan writes that, "The prevalent sentiment on the part of many traders is that 'synthetics' must be blocked at all cost", which, of course, is not happening. "During 2015, consumer purchases of lab-grown goods increased sharply. Sales of units increased 230% between January 2015 and January 2016. In the first six months of 2016, sales increased by another 80%." Golan notes a massive upturn in unit purchases in December 2015, but rightly points out that, "A rise in December indicates overall holiday demand, not necessarily a peak in interest in lab-grown." So what is the level of interest? "Consumer demand started out very limited. In January 2015, sales of lab-grown goods represented less than 0.25% of total loose and mounted diamond sales by US specialty jewelry retailers. However, as the months went by, relatively more items were purchased. In January 2016, the market share quadrupled, and for the first time crossed the 1% mark. The growth trend continued, and during July of this year, market share of lab-grown goods surpassed 1.6%. Based on August trends, it is not unreasonable to expect market share to double again by the end of the year."