Millennials could give a further boost to the diamond
Global diamond market sees moderate growth
DUBAI, February 19, 2017
The global diamond industry performed moderately well in 2015, led by diamond jewellery retail sales, which grew 3 per cent at constant exchange rates, a report said.
However, currency depreciation, as well as slower demand in China, contributed to a decline in global revenue of about 2 per cent in US dollar terms, according to the sixth annual report on the global diamond jewellery market, prepared by the Antwerp World Diamond Centre (AWDC) and Bain & Company.
Similarly, in the midstream, US dollar revenues dipped by 2 per cent and rough diamond sales fell nearly a quarter (24 per cent). That decline was the result of reduced purchasing volumes in the cutting and polishing sector and the release of about $5 billion of their inventories into the downstream markets.
The diamond jewellery market demonstrated relative stability in the year. The US remained the global sales growth engine, as mainstream jewellery retailers benefitted from strong demand among middle-class buyers. Elsewhere around the world, Greater China continues to rebalance as slowing tourist flows to Hong Kong and Macau offset otherwise positive dynamics in Mainland China.
This shift in tourist spend benefitted Europe and Japan, as reflected in positive consumption growth in local currencies. In India, strong macro-demographics, particularly the growing middle-class, supported positive gains. Yet, even these positive trends were no match for the strong US dollar, which drove global markets into negative growth rates.
Additional findings from the report reveal revenues in the cutting and polishing subsector declined by about 2 per cent in 2015 due to the slowdown in global diamond jewellery demand, which increased retailers’ inventories. This scenario forced the midstream segment to reduce rough-diamond purchase volumes and unload inventory surpluses accumulated in 2013 and 2014. Combined with the demand slowdown, the move contributed to a decline in polished-stone prices of about 10 per cent in 2015.
Rough-diamond producers reacted to their customers’ challenges: reducing output, increasing their own inventory levels and providing more flexible purchasing terms while cutting rough-diamond prices.
“In 2015, the diamond jewellery and midstream segments showed relative stability, but the same cannot be said for rough-diamond producers, which experienced a double-digit revenue decline,” said Olya Linde, a Bain partner and lead author of the report.
Even though the industry may be poised for a modest rally, several key headwinds persist – secure access to financing within the midstream sector; slowing consumption in China; and the ongoing threat of synthetics and counterfeit diamonds. However, the sheer number and growing spending power of Millennials, as well as strong overall macro fundamentals present a glimmer of hope over the mid- to long-term.
Bain and AWDC conducted a survey of more than 1,500 Millennials in China, India and the US and found that they are similar to previous generations in terms of size, current and future spending levels and positive attitudes towards diamond jewellery. The population of Millennials in these countries totalled roughly 900 million in 2015, and their combined gross income amounted to approximately $8 trillion.
Taken together, they are the fourth largest economy, behind the US, European Union and China, and are likely to double to some $16 trillion, or 38 per cent of total gross income, by 2030. Like earlier generations, they rank jewellery high among their gifting preferences—it is first in China and India and third in the US, behind money and electronics.
However, differences in shopping behaviour suggest that revised marketing and customer acquisition strategies are needed to reach this group of customers effectively. In the US, Millennials actively use the internet for jewellery purchases; in India they tend to prefer department stores. Chinese Millennials, like other age groups in China, prefer specialized retailers for jewellery shopping and tend to make their purchase decisions in stores. To fully capture Millennials’ demand over the longer term, industry players need to invest in marketing and brand-building efforts and redefine the customer’s retail experience.
“As this new generation of consumers’ heads toward its prime spending years, the diamond industry needs to find ways to effectively engage with them now,” said Linde. “Smart producers and retailers are actively looking for ways to appeal to them. Those that don’t will encounter yet another hurdle to overcome in an already-turbulent market.”
Looking ahead, the outlook for the diamond industry in the medium-term remains challenging, as new supply is expected to come on line and uncertainties cloud the social, political and economic environments in key markets. Over time, however, the positive macroeconomic outlook is expected to work in the industry’s favour—as long as diamond producers behave responsibly and industry players sustain their marketing efforts to support diamond jewellery demand, especially among Millennials.
Longer term, the diamond market will trend in a positive direction. Within the Gulf region - as in other markets around the world - Bain analysis found that GDP is expected to boost personal disposable income growth from $1T in 2015 to more than $1.5T in 2030, which will form the basis of for diamond demand over the next 15 years.
Using its proprietary forecasting method, Bain projects rough-diamond supply and demand to be tightly balanced through 2019-2020. Demand for rough diamonds is expected to recover from the recent downturn and return to a long-term growth trajectory of about 2-5 per cent per year on average, relying on strong fundamentals in the US and the continued growth of the middle class in India and China. The supply of rough diamonds is expected to decline annually by 1 to 2 per cent in value terms through 2030.
“AWDC is pleased to present the results of our collaboration with Bain in this, our sixth annual report on the global diamond jewellery market. AWDC initiates these reports, which are distributed freely, out of the firm conviction that an informed diamond industry will make more intelligent decisions to the benefit of all. It is in this spirit that we have launched our ‘Diamonds and Antwerp: It’s in our DNA’ campaign; namely, to generate a global commitment to the principles underpinning a sustainable, ethical and thereby profitable diamond industry – again in the interest of all,” concluded Ari Epstein, CEO of the Antwerp World Diamond Centre. – TradeArabia News Service