Diamonds bank on millennials, middle class
Image: Joe Kohen
But no one denies the beauty of a diamond - even though consumer demand is slow.
And over the past few years, it's a market that has experienced a lot of volatility, much like the fortunes of high-end consumers.
The diamond market largely moves in correlation with the prospects of the world's leading jewellery retailers, such as Tiffany & Co.
The US jeweller's stock has fallen by about 23% since June last year. The second-quarter results showed its worldwide net sales declined 6% to $932-million (about R12.6-billion) and comparable store sales declined 8% in the period.
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The share price of Compagnie Financière Richemont, chaired by Johann Rupert and the parent brand of leading jewellers Cartier and Van Cleef & Arpels, has lost about 21% since June last year on the JSE , while its shares listed on its home market in Switzerland shed 28% in the same period.
The millennial generation - representing 220 million consumers in the key markets of the US, China, Japan and India - are growing up , and being eyed as a new and lucrative market for the diamond industry.
"Millennials are already driving global consumer demand, and they also represent a considerable future potential for the sector," said De Beers Group spokesman in South Africa Tom Tweedy.
"In order to unlock that potential, the industry needs to find appropriate ways to engage millennials' inherent need for self-expression and interconnectivity."
After a period of being hit by slowing demand from Chinese consumers, diamond mining houses started to see the price of the rock stabilise in the second half of the year.
Petra Diamonds reported a production increase of 16% in the half-year and said the market had remained stable for its latest tender in September.
"Reports from the recent Hong Kong trade show, which is considered a bellwether for polished diamond demand, have been better than expected, with good activity in the trade of polished diamonds," said Petra Diamonds spokeswoman Cathy Malins.
In light of this, Petra Diamonds hopes to increase its production guidance to five million carats by 2018.
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A Goldman Sachs report predicts that the global middle class will grow by 664million people by 2025, with China contributing the largest number of new middle-class consumers, about 193million, over this period.
De Beers said the desire for diamonds remained strong in the US, Chinese and Indian markets, with the greatest growth - of about 5% - in the US, which is also the largest and most mature diamond market.
De Beers, which has experienced a growing demand for the rock in India, hopes that the growing middle class in that country will continue to provide growth opportunities.
Tweedy said India's middle class was growing rapidly, and the purchasing power of the highest-income households was expected to rise at the fastest pace.
"Diamond jewellery is an 'aspirational' product in India and is more desired than other luxury categories," he said.
The company's full-year guidance remains between 26million and 28million carats, subject to trading conditions.
Lorna Lloyd, CEO of the Jewellery Council of South Africa, said: "Most international markets are fairly flat at present in the face of the global recession, and proportionately the South African market reflects the same sentiment."
As the most important retail season approaches, Thanksgiving, Christmas and New Year can lift sales.
Atiyyah Vawda, an analyst at Avior Capital Markets, said that when people travelled in the holiday season they tended to spend more on jewellery.
Lloyd said in South Africa it was a tradition that around the holiday season, especially Christmas, retail sales performed better. "Christmas is the gift-giving season and sales are generally higher than usual. Retailers replenish their stocks between October and November to be ready for this season," she said.
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But for the very well-heeled, diamond jewellery is a must-have all year round.
Forevermark jewellery, whose parent company is De Beers, showcased at the Golden Globes and Academy and Emmy awards in the US.
And in the local market, Lloyd said, the pace of growth of the middle class in the past few years had definitely played a role in the demand for jewellery.
Despite a slow-growing middle class in South Africa due to the poorly performing economy, Taste Holdings - which owns the Arthur Kaplan and NWJ brands - reported that the luxury division contributed 54% to revenue in its financial year to end-February .
"Our growth in this segment, despite a difficult general South African retail environment, indicates that consumers are spending more wisely, with a shift to items of intrinsic value," said Dean Divaris, MD of Arthur Kaplan.
He added that although the weak rand worked against South African consumers, it assisted with exporting diamonds for miners.
TFG, which has more than 350 American Swiss and Sterns stores in South Africa, has also benefited somewhat from the growing middle class, with jewellery contributing 7% of total turnover for the group.
Petra's Malins said there was potential for the South African consumer market to grow, but it might take a while because this was largely dependent on economic conditions in the country.