Rough diamond miners are seen increasing their marketing spend by about 50 percent over previous years to promote diamond jewelry sales, according to Bain & Co’s just released seventh annual Global Diamond Report.
Diamond producers had a strong year in 2016 with a 20 percent rise in revenues as demand increased and mining companies sold stocks that built up in 2015, the report said.
But with lackluster consumer interest in diamond jewelry and strong competition from other luxury products, rough diamond producers understood they had to invest significantly to promote diamond sales.
Diamond jewelry sales globally were roughly stable in 2016. The U.S. remained the largest global diamond jewelry market, but sales were flat after several years of consistent growth. China’s sales declined, as the yuan posted its largest decline in value in 10 years and consumer confidence waned.
Meanwhile, in India, a nationwide strike by jewelers and the introduction of demonetization hit India’s market.
As for Europe, sales were turgid as tourist numbers dropped.
Sales in Japan provided a bright spot, with growth in U.S. dollar terms.
Overall, the slowdown in global diamond jewelry demand and the resulting downward trajectory of polished diamond prices translated to a slight revenue drop in the midstream segment in 2016. However, midstream players’ profitability improved in 2016, supported by declining rough diamond prices.
“The midstream players are maintaining intensive operational improvement drives, focusing mainly on reducing days to market, shortening cutting and polishing cycles, and securing financing," said Olya Linde, a Bain partner and one of the authors of the diamond report. "They are also implementing new technologies, such as automated cutting processes and advanced digital mapping and modeling of diamond cutting, to optimize yields."
Global rough diamond production volume remained relatively flat in 2016 at 127 million carats, extending the trend of the last eight years.
High stakes for the global diamond industry
Rough diamond firms invested about $150 million in both generic and private brand marketing in 2017. Bain’s research suggests that sum is a 50 percent increase over previous years. The industry is also renewing its approach to marketing taking into account evolving customer preferences and marketing channels.
“Increasing demand for diamonds is a high stakes game for the entire diamond value chain,” said Linde. “Retailers are of course focused on making diamonds more attractive for consumers, but that’s only part of the story. Continued softening demand could have significant economic implications for entire nations that depend on the industry as one of their sole sources of revenue.”
The outlook for 2017 and beyond
The outlook for 2017 is stable across the diamond value chain. Rough diamond suppliers posted a 3 percent revenue decline in the first half of 2017, as lower priced assortments made up an increased share of their sales. Bain expects that the cutting and polishing segment’s revenue will stay flat in 2017. The revenues of major retail chains in key markets are trending up amid healthy macroeconomic fundamentals. Retail demand in India turned upward in 2017, after demonetization of large-denomination currency notes at the end of 2016 supported strengthening of organized jewelry retail.
Bain’s projections over the longer-term are upbeat, supported by positive economic and demographic indicators. However, future growth rests on two key assumptions: continued demand for diamond jewelry and a limited substitution of natural diamonds by lab-grown stones.
