04 June 2008

Diamond Prices Predicted to Fall Modestly in June 2008

Great news for consumers looking to buy diamond wedding rings and diamond wedding bands.

You've likely never heard of Martin Rapaport but to the diamond world he's famous. Rapaport is to diamonds what Robert Parker is to wine, a person of tremendous influence. He runs Diamonds.Net and his Rapaport Index defines diamond pricing for the world. On Monday, Rapaport spoke to the packed room at the JCK jewelry show in Las Vegas delivering his pronouncements on the diamond market at an annual breakfast event. Right now, the diamond industry is facing similar challenges seen by the rest of the luxury market. Rapaport feels that the current economic climate offers both opportunity and pitfalls for those in the diamond business.

The news is conflicting, larger stones have been getting higher and higher prices and the huge wealth in China, Dubai, India and Russia is creating a hunger for luxury goods and diamonds and diamond jewelry specifically. This is also a time when the plummeting real estate market in the U.S. and Europe means that the Western world, which fueled the global prosperity in the beginning, is now cutting back on spending. Independent stores and small chains are having a tough time and the news is full of stories of stores having bankruptcy sales where goods are being sold off at below cost. This means that diamond prices are coming down worldwide and the best prices on diamond wedding bands are at designbands.com.

As of 2007, the U.S. still made up the bulk of diamond jewelry sales, clocking in at 43%. China brought in 8.5%, Europe did 11% and the Middle East was responsible for 4.6%. Until recently, the U.S. had been on a path of prolonged economic growth and our prosperity fueled the global economy expanding the middle class in India and Africa. Small jewelers in the U.S. are now competing with a global market. As I've heard mentioned at other conferences such as the Luxury Summit, the number of millionaires and billionaires is growing worldwide. This might be one reason why the price of big stones is going up far faster than the prices for smaller stones, especially those under a carat.

For jewelry sellers, as I heard in other sessions at this show, branding is more important than ever, especially to new luxury spending markets. Rapaport cautioned though that branding is a "trojan horse" for the retailers. First the retailers convince their customers which brand to buy and then the seller of the brand raises that price. Many stores are worried about the new DeBeers Forevermark, a branded diamond sold by DeBeers. Now the considerable advertising budget of DeBeers will be aimed at marketing that diamond which will be sold at premium price. Rapaport's answer to those competing against this new stone? Hang a sign in your window advertising that you are selling for diamonds for 10% less than Forevermark.
Overall, Rapaport is bullish about the future of diamonds. His data shows that over time global demand for diamonds will outpace supply by an increasing margin. He made the analogy that just as a forest fire is a way of the forest ecosystem, righting itself for greater growth, the current economic climate will eventually be good for the diamond market as a whole and will benefit the smaller jeweler if they realize that flexibility is power. Just as I heard Nick Failla say about gold at an earlier session, Rapaport too believes that most stores should be buying back jewelry as well as selling jewelry especially since the amount of jewelry being sold back to jewelers will likely hit record rates in the coming years.

One of the big questions about the diamond market is whether prices are being raised by those who are speculating or investing. Before the JCK Show, Rapaport raised his pricing index 25%, a fact which didn't sit well with those hoping to do major business during the show. Rapaport defended his decision saying it was a correction based on a steady supplier price raising. Facing increasing hostility from the audience he stated frankly that he couldn't give a damn about suppliers or buyers, it's his job to watch the prices people are getting for diamonds and reflect what is out there. Rapaport says the non-mining profit in the diamond business comes from finding the right buyer for the right diamond at the right price and that he is advocating for free, fair, open, competitive markets. This information didn't sit well with those in the audience who feared that their buying power had been dropped by one quarter based on Rapaport's guidance.

Rapaport urged the jewelry retailers in the audience to remember that "diamond dream" what is being sold is the idea behind the jewelry, the emotional power behind the diamond remains, the real business for jewelers is to believe in what diamonds mean to people not just the romance angle but also the sense of the diamond as a global industry, it can do good for the people involved. In fact, Rapaport says that jewelry stores have a responsibility to make sure the diamond industry does well, because the industry also supports the diggers in other countries. It can be a tool for good. His own passion for finding ways to make sure the diamond industry is a benefit to diggers in Sierra Leone and other places has led him to be a leader in the fair trade jewelry movement. I'll be reporting in-depth on the fair trade jewelry conference which he moderated later this week.

Overseas Demand Polishes Tiffany

Asia, Europe Strength Offsets Softness in U.S.; Sales Outlook Cautious

Tiffany & Co's fiscal-first-quarter profit rose 19% as higher demand in Europe and Asia helped make up for soft sales in the U.S.

In addition, the New York jeweler raised its full-year earnings outlook while noting it maintains "a cautious outlook for U.S. sales" and doesn't expect an improvement until later this year.

Tiffany also said it plans to introduce a "new, smaller store format" in the U.S. later this year, in addition to its plans to open about 24 new stores world-wide.

Sales at stores open at least a year rose 21% in Europe and 15% in the AsiaPacific region, driven by demand in areas from London and Italy to Hong Kong and China. Adjusted for currency effects, same-store sales rose 12% in Europe and 4% in the Asia-Pacific region.

Overseas sales helped offset flat sales in the U.S., the company's larg market, where a slowing economy' curtailed spending on jewelry , other discretionary items.

International shoppers taking vantage of the weak dollar also hel) Tiffany'S domestic sales. The com ny's New York flagship store saw a: jump in same-store sales, driven by demand from foreign tourists. Meanwhile, sales at branch stores declined 4% as the company experienced soft sales of items below $500.

Sales in the quarter ended April have been driven by engagement rings in the U.S., silver jewelry outside of U.S. or designer collections such as Elsa Peretti jewelry.

Chief Executive Michael J. Kowalski said strong sales growth despite "only modest growth in the U.S. due to challenging conditions reflects the benefit of globally diversified distribution."

"Tiffany is becoming a truly global brand," said Pali Research analyst Stacey Widlitz, who has a "buy" rating on
the stock. "The strength in international and the size of it is enough to offset however long the U.S. consumer weakness is lasting. International consumers love this brand."

World-wide sales so far in May have met the company's expectations, Tiffany said. While U.S. same-store sales for the year are expected to rise, the company said it expects second quarter U.S. sales to decline, which will pressure profit in that period.

Tiffany raised its full-year outlook it boosted in March an additional five cents and now expects earnings of $2.80 to $2.90 a share, maintaining its forecast for net sales growth of about 10%. The latest mean estimate of analysts surveyed by Thomson Reuters was for earnings of $2.73 a share on 10% sales growth to $3.23 billion.

By: Andrie Cheng & Donna Kardos
Wall Street Journal; May 31-June 1, 2008