When, 10 long years ago, the diamond industry began the second decade of the 21st Century, indicators of some of the changes that were to impact it during the 2010s already were apparent. Others were not. What is a definite, however, is that the industry that now enters the 2020s is greatly changed from the one that existed at the start of 2010, and many of these changes will decide its future over the coming 10 years.
How did the industry evolve? The following is the first of a three-part series, and looks at the impact of the changing of the diamond-buying generations, and how the newcomers’ values affected and will continue to affect the ways in which diamond jewelry is sold.
BRICK AND MORTAR’S DEVASTATING DECADE
The 2010s were a devastating period for the traditional brick and mortar retail sector in the major Western markets. In the United States alone, as many as 9,300 stores were expected to close in 2019 alone, with some 1.3 million retail workers losing their jobs over the past 10 years.
The reasons for the downturn were partly economic. In the wake of the global financial crisis of 2008, a group of private-equity firms began buying up retailers struggled to get back on their feet. In some cases, these buyouts saddled retailers with massive amount, which started to come due in in the latter part of the 2010s and will continue doing so into the early 2020s.
Toys R Us, which closed its doors in the United States in June 2018, was emblematic of the private-equity problem, but there were a good number of other major players that fell by the wayside. These included firms like David’s Bridal, Sports Authority, and Payless Shoe Source, many of which were help anchoring shopping malls across the country.
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PRICE DIFFERENTIAL BETWEEN SYNTHETIC AND NATURAL GROWS
The fixed pricing structure did not come as good news to the other synthetic producers, who believed that the market value of natural diamonds would always be the benchmark for the price at which they can sell their own products.
Indeed, a good number of the laboratory-grown diamond companies that had set up booths at the 2018 JCK Show Las Vegas most likely wished they had done otherwise, as the public largely kept away, unsure where prices of the new product category would go.
It took several months before that became obvious, and the answer was downward. The price divide between laboratory-gown and natural diamonds grew ever wider.
According to Bain & Co., during the fourth quarter of 2016, the price of laboratory-grown diamonds at retail was about 80 percent of the price being paid for natural goods of equivalent size and quality. By the fourth quarter of 2017, the figure was down to 65 percent, and a year later it stood at about the 50 percent mark. It fell about 5 percentage point over the next 12 months.
From a wholesale perspective, the growing price differential between rough and polished diamonds was even more stark. According to the Bain, during the fourth quarter of 2016 the price of laboratory-grown diamonds was about 70 percent of the equivalent prices for polished, falling to 55 percent over the next 12 months and plummeting to about 20 percent of the value by the fourth quarter of 2018, which was in the months after JCK Show at which Lightbox Jewelry was introduced. Today it is closer 15 percent of the value of an equivalent natural stone.
THE RISING FORCE OF E-COMMERCE
But it was not only financial consideration that placed pressure on traditional retail. Technology was a major factor as well. In 2010, e-commerce accounted for 7.2 percent of the total retail sales in the United States, up from one percent in 2000. By the end of 2019, e-commerce was on course to account for 16 percent of total U.S. retail sales.
Over the course of the decade, the rate growth in e-commerce in the United States never fell below 13 percent through the course of the decade, while the overall rate of growth retail in general never one rose above 5 percent.
Total e-commerce sales in the U.S. were $165.4 billion in 2010 and they rose to $517.4 billion by the end of 2018, representing a 313 percent growth rate. in revenue over the course of the decade. During the same period total retail sales grew by 42 percent.
Worldwide the e-commerce growth figures were even more impressive. Whereas they had stood at $572 billion in 2010, they were forecast to reach $3.46 trillion by the end of 2019, with China being the largest market. This translates into 504 percent growth in the decade.
ONLINE PURCHASING CATCHES ON IN THE DIAMOND BUSINESS
The 2010s put to rest any suggestion that e-commerce would not translate well to the diamond business. There is still a significant different between online and offline sales, but it is narrowing.
According to Bain & Co., online diamond jewelry sales currently account for between 5 percent and 10 percent of the total of but, but in the United States they are growing at a pace of 13 percent percent per annum, while in China growth stands at 11 percent. By way of comparison, e-commerce accounts for 12 percent watch sales, 17 percent of footwear sales, 19 percent of apparel sales, 28 percent of consumer electronics and a whopping 70 percent of book sales.
For many of the jewelry companies that took the giant leap into e-commerce, the new medium was in many a leveler, often reducing the built-in advantage that larger brick and mortar retailers traditionally have held. E-commerce has a wider geographic reach, getting to clients that under the old rules would not have been consider. Many of these are Millennials and Generation Z buyers, who are already accustomed to online functionality.
Importantly, online diamond retailers can showcase goods on their websites that they have not yet purchased, closing the detail once the know the cash is in the bag. Among the world’s largest wholesalers that has adjusted its operation to adapt this business model is MID House of Diamonds, which employs a team of computer programmers on a full-time basis in its own offices, whose primary goal is to deliver, via an application programming interface (API), in real-time, up-to-date listings of the thousands of polished diamonds that it is holding in its inventory at any given point in time.
What the API allows is for retailers to list diamonds, pricing them with their own markups, enabling their customers to search and locate specific items. In the meantime, the goods remain in the possession of the supplier, meaning that retailer has made no financial obligation until his or her own customer has expressed interest in a specific stone. When a transaction comes to fruition that same diamond can be delivered in a matter of hours or days.
In this way, at a time when financing is tough for members of the jewelry trade, e-commerce allows jewelers to reduce their standing inventory. As a consequence, its share of the business will likely grow even quicker over the coming decade.