Diamond and diamond jewellery markets will shrink due to the impact of the coronavirus pandemic, Rapaport Senior Analyst Avi Krawitz told Jewellery Outlook Editor David Brough.
Avi and David discussed the “Outlook for Diamond Markets” in a complimentary Jewellery Outlook webinar .
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Avi outlines his views in the interview below:
Avi, in the context of the coronavirus pandemic, what is the near-term outlook for diamond and diamond jewellery markets in your view?
We face a reality that the diamond and diamond jewellery markets will shrink because of the economic fallout resulting from the pandemic.
We’re in a recession and some companies just won’t make it through, including in the mining, manufacturing, dealer, and retail sectors.
That said, periods of crisis tend to inspire innovation and creativity and the industry will adapt to the changes in society that took hold in a very short period.
Much depends on the recovery in the United States and how quickly retail can return to operations, what that will look like given the new social distancing and hygiene requirements, and the extent to which consumers there will be willing to spend on discretionary items.
In these conditions, it would take a brave person to make a definite prediction on how or when the market will return to normalcy.
Will there be a divide between East, notably China, and West in terms of the response of the markets?
For some reason, the industry has relied on one or the other in recent years.
When the United States was weak after the 2008 recession, China was strong, and the reverse was true as the U.S. gained traction while China had to adapt to Premier Xi Jinping’s anti-corruption campaign, the country’s transition from an export-based economy to a consumer-centric one, and more recently to the trade war.
One of the great pities of the Covid-19 crisis for the diamond industry is that it hit when both the United States and China were showing some relative strength. A trade agreement was in place, inspiring some renewed confidence among Chinese consumers, and the United States had a good 2019 holiday season.
China is ahead of the curve in its recovery from the virus, given that it was the first to have to deal with it.
There are reports of some pent-up demand there, while Hong Kong seems to be the most active trading hub at this point.
But overall, I think both markets will exert some caution moving forward.
I also think there will be some renewed tensions between the two given recent developments in Hong Kong and the United States’ mistrust of China’s handling of the pandemic.
If those trade and political factors play out, I expect it will impact confidence in the East.
In contrast, history has shown how resilient and independent the U.S. consumer is, which would point to a more sustainable recovery there.
Do you foresee more e-commerce in both wholesale and retail trade in diamonds and diamond jewellery? If so, what forms will it take?
The acceleration of digital has been the most important development to come out of the Covid-19 crisis for all industries, including diamonds and jewellery.
At a consumer level, it has been the one bright spot with jewellers reporting significant growth in their online sales channels given it is the only way they could sell during lockdown.
They quickly recognized the need to invest in their digital platforms and that will continue as consumers become accustomed to a new normal that emphasizes e-commerce.
The same is true in the B2B market, where several trading platforms have sprung up, hoping to capitalize on the only way to do business while in quarantine – online.
I expect the emphasis will continue for some time as people are cautious to travel again, and they also realize that they can actually get by just fine without having to incur the travel expense.
All that will require diamantaires to instil more trust about their product and their service, in order to inspire a sale online where the buyer doesn’t necessarily get to touch and feel the piece before making the purchase.
Know-your-customer and diamond provenance programmes gain added importance in such an environment, while technology will play a bigger role in enhancing the sales experience.
What is the outlook for lab-grown diamond and LGD jewellery markets?
I’m no expert on lab-grown diamonds as my focus has been on the natural diamond market and I see them as separate products.
I think the crisis will further differentiate the two categories as consumers will want cheaper affordable products (i.e. synthetics) during the recession.
But they’ll also want to experience meaningful moments after this weird period of isolation, and they’ll look to natural diamonds to express that emotion.
Natural diamonds also tick all the boxes of holding value and representing the values that today’s consumers require.
That said, I believe the same economics for lab-grown applies as before. We expect supply to rise as technology improves, which – along with the Covid-effect – will put pressure on prices.
It is still a small market so we do expect demand to rise in the near term.