Diamond sector rethinks strategy
New generation of buyers needs to be wooed and won, writes Thomas Biesheuvel
IN THE diamond industry, even the crooks are old-fashioned. Diamonds are losing their allure for many consumers more interested in spending money on holidays and hi-tech gadgets.
IN THE diamond industry, even the crooks are oldfashioned. The ringleaders jailed for a $20m jewellery heist in London last year were in their sixties and seventies, so it is no surprise that they would go after the gems. They are old enough to remember when advertisers said diamonds were forever and Marilyn Monroe sang that they were a girl’s best friend.
Not any more. Diamonds are losing their allure for many consumers more interested in spending money on holidays, fancy handbags and hi-tech gadgets.
Mine owners such as De Beers, which helped dream up those successful marketing campaigns in years past, have been unable to prevent prices from dropping below where they were a decade ago, a sign the industry is failing to maintain the cachet of its brand.
“I’m not really a jewellery person,” says Catherine Weir, 32, who was window shopping last month with her fiancé in Hatton Garden, London’s jewellery district, just yards from the site of last year’s Easter weekend jewellery heist. “It was always diamonds for an engagement ring, maybe for a wedding band and that’s it.
“iPads and things like that are much more accessible.”
Diamonds are cheaper now than they were in 2006, data from PolishedPrices.com show. Over the same period, the price of fine foods and luxury cars and shoes have risen at above-inflation rates, according to a Forbes index.
Demand for luxury jewellery rose just 1.9% a year from 2004 to 2013, trailing high-end beauty products, tobacco and watches, according to De Beers’s 2014 Insight Report on industry trends.
Efforts by producers including De Beers and Alrosa to push prices higher in the past five years unravelled last year. Polishers that buy the raw gems and sell to wholesalers and retailers were unable to pass on the higher costs as consumers baulked.
A threat to boycott auctions of rough gems by buyers in India — where almost 90% of the stones are cut — ended with De Beers lowering prices 15% for the year and another 7% in January.
“Producers cannot simply just increase rough prices and expect consumers to pay more,” says Anish Aggarwal, a partner at industry consultant Gemdax in Antwerp.
“Consumer demand cannot be taken for granted, even in mature markets and especially with millennials.”
Earlier generations were easier to influence.
The monopoly of De Beers on diamond supply in the 20th century meant money spent on persuading consumers to pay high-end prices for commodity minerals paid off in surging sales. The investment led in the 1940s to the creation of the slogan “A diamond is forever”, and the industry heavily promoted the gems for engagement rings.
Jewellers lent pieces to celebrities such Monroe and 1944 best actress Oscar winner Jennifer Jones to create a buzz around the product as a luxury item.
The new millennium brought the monopoly to an end, meaning other suppliers were able to piggyback on advertising by De Beers. The company cut its marketing budget in half to about $100m a year through the 2000s.
“The industry is a victim of its own history,” says Charles Wyndham, a former sales director at De Beers and founder of WWW International Diamond Consultants.
“Everyone had a pretty easy ride when De Beers had its monopoly. Everybody has got to think how they can turn it around. It requires a huge cultural change.”
De Beers is getting the message. On top of its global advertising, the company ploughed tens of millions of dollars into a push to spur jewellery sales in the key US and Chinese markets last year.
Last year’s creation of the Diamond Producers Association, bringing De Beers and Alrosa together with Rio Tinto, Dominion Diamond, Lucara Diamond, Petra Diamonds and Gem Diamonds, seeks to revive the kind of industrywide advertising seen during the monopoly years.
In one early positive sign, De Beers managed to raise rough prices by as much as 2% in a sale last week, the first increase in more than a year.
“It’s got to come down to adspend,” says Ben Davis, a mining analyst at Liberum Capital. “They just need to bite the bullet.”
Everyone had a pretty easy ride when De Beers had its monopoly