Diamond sales fall in 2020 but survive the crisis better than the personal luxury market

1. Status

Although the diamond industry has suffered during the Covid-19 crisis, it has managed to maintain its brilliance. Lockdowns, travel restrictions and economic uncertainty caused diamond jewelry sales to fall 15 percent in 2020, with most of the drop occurring in the first and second quarters. But with stores closing, diamond retail sales took place online and have benefited from consumers choosing diamond jewelry by not being able to spend on travel or other experiences. Demand returned during the fourth quarter, culminating in a strong holiday season around the world.

The industry has proven resilient in the face of an economic downturn as consumers continue to see its value. The boost came from Christmas jewelry sales, particularly in the United States and China, which posted year-on-year increases of 5 to 10 percent and 15 to 20 percent in the fourth quarter, respectively. Diamond jewelery has outperformed the global personal luxury market in 2020, with just a 15 per cent drop compared to a 22 per cent decline in luxury.

Rough diamond production continued its downward trend, with the drop reaching 111 million carats. After peaking at 152 million carats in 2017, rough diamond production has declined by about 5 percent each year. In 2020, production decreased 20 percent compared to 2019 levels. Despite the changes, the diamond mix remained largely constant, with medium and large diamonds accounting for 25 percent of production volume. in carats, but about 70 to 80 percent in US dollar value.

These are some of the conclusions of the annual global diamond industry report, the Global Diamond Report 2020-2021. developed by Bain & Company and the Antwerp World Diamond Center (AWDC).

"The diamond industry as a whole unexpectedly benefited in 2020 as consumers unable to spend on travel or other experiences did so on items like diamonds, which are seen as a tangible physical investment," said Olya Linde. , a partner in the energy and natural resources practice of Bain & Company. "Our analysis shows that more than 75 percent of consumers intend to spend the same amount or more on diamond jewelry than they did before the crisis , indicating a strong and continuing emotional connection to the history of diamonds."

Consumers continue to value diamond jewelry as a desirable gift and a key element of marriage. In Bain & Company's 2020 survey of customer confidence, American consumers said that jewelry and watches are among the top four gifts they would like to receive ; consumers in China and India ranked them in the top two. In the United States, China and India, between 60 and 70 percent of those surveyed believe that diamonds are an essential part of the marriage commitment.

Sustainability and social consumerism increasingly influenced diamond purchasing decisions, with social impact being the top sustainability concern for US consumers. In China and India, consumers care more about preserving the environment , conflict-free supply chains, and carbon footprint.

Although prospects in key markets are good, Cira Cuberes, a partner at Bain & Company's Madrid office, commented: " In the case of Spain, the pandemic came at a time when the industry was not at its best and in which significant price drops were observed. With the restrictions associated with the Covid-19 pandemic, the strong impact on various sectors of the economy and the lower confidence derived from the current uncertainty, sales have not been favored."

Online sales increased, but physical stores remain important

Covid-19 has accelerated the convergence of online and physical channels, forcing retailers to reorganize operations and refocus the customer engagement experience.

In 2020, up to approximately 20 percent of diamond retail sales were made online (compared to around 13 percent in 2019). The majority of consumers (70 percent) use digital tools to get information and choose jewelry before making purchases in the store. As this trend is unlikely to be completely reversed after the pandemic, retailers need to invest in digital capabilities, delightful online shopping experiences, and seamless omnichannel or physical-digital interactions.

Despite the rise in online sales and a strong preference for online information before making purchases, almost all consumers (90-95 percent) still prefer to buy diamonds in brick-and-mortar stores, and they remain central to retailers' omnichannel strategies. retailers. Consumers value the opportunity to see and touch jewelry, and benefit from in-person advice and other more personal services. The online share of diamond jewelry sales remains low compared to other luxury and consumer products.

Flexibility helped the industry weather the storm

When the Covid-19 crisis began in the first half of 2020, major mining companies canceled sales and allowed customers to postpone purchases. This response helped midstream companies weather the worst of the storm. However, rough diamond inventories rose to 65 million carats at the end of the third quarter , before being lowered by fourth-quarter sales to 52 million carats, or more than 17 percent of the inventory level at the end of 2019. .

Covid-19 caused structural changes in the diamond industry that will help it recover from the recession. Due to the crisis, midstream inventories are at healthy levels and better aligned with consumer demand. There are more partnerships between upstream and midstream players regarding technology, go-to-market strategies and marketing. A more transparent and digitally enabled supply chain has been created in the rough and polished segments, and we see innovative new approaches to customer engagement. Bain & Company believes these changes will help the industry emerge from the crisis in a stronger position.

The diamond industry is poised for recovery in 2021

The new year began with a good track record and growing market confidence. Most mining companies reported a 5-8 percent improvement in rough diamond prices and sales in January, while major miners also maintained a flexible sales policy that contributed to a solid start in 2021.

Bain's outlook is that China's diamond jewelry retail market will recover in early 2021, while other developed countries will reach pre-pandemic levels in 2022-23. The retail recovery in emerging countries will continue a year later.

There is still a lot of economic uncertainty ahead. The current crisis could be more severe than the one in 2009 and a double dip recession is possible. A full recovery and return to the historical growth path is not expected until 2022-24. Three factors will affect the pace and shape of the recovery: epidemiology, government policy response, and consumer response.

Buoyed by year-end performance, the long-term outlook for the diamond market remains positive. In volume terms, rough diamond supply growth is forecast to be -2% to 2% per year. Following a short-term recovery accelerated growth, demand for rough diamonds is expected to fall back on its historical trajectory, growing between 1% and 3% annually.

"The diamond industry has shown remarkable agility in the face of crisis and the pace of change has accelerated," said Ari Epstein, executive director of the AWDC. "Throughout the diamond value chain, players have adapted quickly and diamond jewelry consumers have shown that they value the end product and are willing to invest in it, even in difficult times. We hope the industry bounce back and come out of the storm stronger.

Related