PART 4 OF A 4-PART SERIES
It is, as they say, the most lucrative meter in entire diamond pipeline. Following a journey that began deep below the earth’s surface, the stone, which by now has been cut, polished and set in a ring, pendant, brooch, chain or bracelet, travels across the counter in a jeweler’s store, and instantly adds more than 50 percent to its value. Indeed, during the final two stages of the pipeline, where the diamond is set in a jewelry item and then sold to a jewelry consumer, its value may climb has high as 160 percent, and sometimes even more.
It is worth noting that no two jewelry items are created equal, and likewise profit margins both at the manufacturing stage and retail stage can vary dramatically, with lower-cost and massed produced items typically providing considerably lower profits than higher-end bespoke jewelry carrying prestigious brand names. What is indisputable, however, is that, whereas the diamond is treated much like a commodity during upstream and midstream sections of the pipeline, when you get downstream it most definitely considered a luxury product.
According to TACY’s 2016 diamond pipeline breakdown, in 2016 the value of rough diamonds produced equaled $13.14 billion. That same year, TACY estimated, the value of polished diamond production stood at $20.35 billion, and the value of diamond jewelry sold at retailed totaled $74.3 billion. For its part, De Beers estimated global diamond jewelry sales to be higher, around the $80 billion mark.
Examining a center stone, before it is set in jewelry.
Diamond jewelry has been prized by wealthy and powerful for centuries, but its transformation into a luxury product with mass appeal dates back fewer than 70 years. In September 1938, a 29-year-old Harry Oppenheimer, the son of then-De Beers chairman Sir Ernest Oppenheimer and a future De Beers chairman himself, journeyed from South Africa to the United States for meetings with the N. W. Ayer advertising agency. It was the first step in a process that was to change the diamond business forever.
Magazine ads from a De Beers ‘A Diamond is Forever’ campaign in the 1950s.
N.W. Ayer suggested to Oppenheimer that a carefully designed advertising and public relations campaign could influence social attitudes in the U.S. market. More specifically, it urged the strengthening of the association of diamonds with romance. Since diamonds were a gift of love, N.W. Ayer felt, it stood to reason that the more valuable the diamond, the greater the expression of love.
The slogan than came out of the campaign represented a moment of advertising brilliance. Penned in 1947 by Frances Gerety, a young copywriter working for N. W. Ayer, it declared “A Diamond is Forever,” and expressed in four words the understanding that love, like nature’s hardest mineral, is eternal. In 2000, Advertising Age magazine declared “A Diamond Is Forever” as the best advertising slogan of the 20th Century.
The association of the diamond with love and marriage was a master-stroke on a number of levels. Bridal jewelry and other gifts of love rarely enter the resale market, meaning that most diamonds are sold only once. Also, since love and marriage never really go out of fashion, diamond jewelry has remained a constant, decade after decade. Furthermore, since people hitch up all through the year, the bridal jewelry business is not seasonal.
But what De Beers also managed to do was create a market sector that has a built-in safety-net, which is unlikely to budge or fluctuate significantly. People get married whether the economy is good or bad, and while the prevailing economic climate will influence the types of diamond that are purchased, it is unlikely to affect whether diamonds are bought or not.
The concept of bridal jewelry was essentially a Western one, but in the 1960s De Beers realized that the largest regions for potential growth were outside of North America and Europe. Japan was targeted as a market of tremendous potential.
Until the mid-1960s, there was no real tradition in Japan of buying diamond jewelry to celebrate a marriage, and when the campaign kicked off in that country in 1967, fewer than 5 percent of Japanese women received a diamond engagement ring. By 1972, figure had climbed to 27 percent. Six years later half of all Japanese women who were married wore a diamond, and by 1981 the proportion stood at 60 percent.
China was another country with no real history of diamond being used to celebrate a marriage. But there was a practice of giving a wedding ring at the marriage ceremony, and for that reason De Beers targeted the development of diamond wedding rings. Again, the campaign was tremendously successful. By 2005, the average diamond wedding ring acquisition rate in the top 25 cities in China was 51 percent.
Fast forward to 2017, and what has been perceived as a possible ambivalence on the part of the industry’s increasingly dominant market segment, the Millennials, about diamond jewelry.
Several hypotheses have been offered, such as inclination of members of Millennial generation to rebuff conventional tradition, such as the institution of marriage, and to shy away from practices associated with conspicuous consumption.
There are economic factors at work as well. As noted De Beers in its 2016 Insight Report, the belief that younger generations are turning away from diamond jewelry stems from the fact that, despite being on average better educated than people of the same age were in previous decades, lower proportions of Millennials find themselves employed.
Consequently, Millennials have progressed more slowly along the traditional life path of college, job, marriage and children. In 2014 only 28 percent of Millennials were married, a figure which is more than 40 per cent lower than it was for the Baby Boomer generation, the report stated.
Olympic and diamond history was made at 2016 summer games in Rio de Janeiro, Brazil, when Qin Xai, a member of China’s men’s diving squad, proposed publicly to silver medal winner He Zi. Dropping to one knee, Qin popped open a box with a diamond ring inside, and before an astonished crowd and an audience of hundreds of millions, asked for her hand in marriage. Pictures of the event, which went viral around the world, underscored the degree to which the diamond has become part of China’s marriahge tradition, and also how it remains a symbol for China’s Millennial generation.
But, as the Insight report demonstrated, while Millennials do not necessarily consume traditional luxury products in the same way as their Baby Boomer parents did, research consistently shows that when they reach demographic and financial maturity they display strong demand for diamonds, as did their parents and grandparents.
Indeed, according to a 2016 report on the diamond industry by Bain & Co., jewelry remains one of the top three preferences among all consumers when it comes to giving or receiving gifts, ranking third in the United States and first in China and India. Millennials in China and India rank jewelry highest as their gifting category, while non-millennials in those countries ranked it second. In the United States millennials place jewelry as their number three choice.
So while the jeweler’s counter may not always be there, and sometimes be replaced by the screen of a computer or mobile device, for the foreseeable future the most lucrative stretch of the diamond pipeline will remains the space between retailer and consumer.