Avi Kravitz: Five Takeaways From Hong Kong Trade Fair

Market Analysis
09/03/2017 09:38

Diamond industry analalist Avi Krawitz takes stock of last week's Diamond, Gem & Pearl Show in Hong Kong, as many in the industry were looking to the event for telltale signals of the prevalent mood in early 2017. All reports from the show have been positive, "as Chinese jewelers were looking for goods after being absent from the market for some time", and it was clearly a buyers' market, says Krawitz. "Suppliers took the opportunity to reduce stock and generate some cash flow, and they were therefore prepared to accept offers at slightly higher discounts in certain categories," he writes, and while, "the first quarter is supposed to be an upbeat period for diamond dealers ... inventory replenishment hasn’t yet happened in a significant way, there was sufficient activity at the show to inspire optimism about the short term." Krawitz identifies five trends to be aware of as we move forward after the show.

1. Retailers Don’t Want to Overstock: jewelers are reducing inventory and taking more goods on memo, he notes, citing over-enthusiatic expansion on the Chinese market let to the purchase of too much stock for all the new stores, but demand never met supply. "Jewelers have consequently been working through excess stock and only replacing what they need," he writes. Stéphane Fischler, president of the Antwerp World Diamond Centre (AWDC), note, "There’s been a clear destocking trend among the major jewelry retailers", adding that,  "Dealers, meanwhile, are [for now] focused on moving greater volume, rather than maintaining their prices."

2. Jewelers are Shifting to Lower Price Points: "Jewelers are also replacing their higher-value inventory with lower-priced goods," Fischler noted. Vincent Yiu, a manager at Hong Kong-based diamond manufacturer Brilliant Trading Company, said, "larger jewelers are shifting to lower-end products, which are their fastest-selling items." Lower-level color and clarity are also in greater demand.

3. There’s a Cash Crunch in Asia: The yuan's depreciation against the dollar has led to lower budgets and margins, as wholesalers buy in U.S. dollars but sell in their local currency. "The bureaucracy involved in importing goods to China, and a 4-percent import duty on polished diamonds further limits their budgets, exhibitors observed."

4. Lab-Grown Diamond Suppliers Are More of a Presence: "There was a notable rise in suppliers of lab-grown diamonds exhibiting at the show," writes Krawitz. "Furthermore, lab-grown providers were positioned alongside natural diamond dealers." As Stéphane Fischler said, “This is an issue for us, as we don’t see it as the same product.” He adds, “In previous years, there’s been a clear separation between the lab-grown and natural diamond suppliers.” 

5. The Trade-Show Business Model Has Peaked: "The Hong Kong show is a well-timed opportunity for dealers to tap demand after the Chinese New Year jewelry-selling season," writes Krawitz, "But diamantaires have acknowledged that there are simply too many shows on the calendar, and they are reassessing which ones are worth their while to attend." Jeremy Medding, owner of EMA Diamonds, states what many in the industry have been saying for a while now: "The show model has passed its peak in terms of generating new business and excitement,” Medding said. “Apart from the expense of your booth and staff flights and accommodation, there’s also a sizable inventory cost, as your goods are in transit for nearly two weeks around the event, and not available in other centers.”