- In the year 2020, the surge in the Diamond Jewellery demand from the Lockdown lows was initially supported by the economic stimulus in the developed markets (substantial chunk of support directly being given to individuals) and lack of other avenues to spend due to various Pandemic driven restrictions – thereby handing a structural wallet share gain advantage to the Diamond Industry
- It is imperative to note that it is only now that the all-encompassing economic growth has started taking a foothold in large developed economies as well as emerging markets. The effect of unprecedented and continuous fiscal and monetary support over the last 12-14 months has clearly started trickling down to the individual consumer level. This is manifested in the most recent readings of consumer confidence indices – across prominent markets – being sequentially higher and now touching or crossing the pre-pandemic historic highs
- Large swathes of Middle-Income Consumers – forming the bulk of the aggregate demand in any large economy – are now confident about their economic well-being, given the overall higher job openings and that too at higher wages. Recent reports about record high job openings in US and businesses having to pay higher wages to retain and hire workers is a case in point. The same phenomenon in different facets is being witnessed in China and other markets as well. This is directly creating long-term positive prospects for larger proportion of population in these market economies. This consumer segment has understandably been circumspect over the last one year and thus has amassed record high savings – as evidenced by the record high savings rate in USA
- Higher cumulative aggregate demand for discretionary purchases from these consumers – who are now confident about their prospects and are sitting on record savings – is going to be prevalent for a sustainably long period ahead
- This bodes extremely well for a higher long-term sustainable demand for the Diamond Jewellery as higher aggregate discretionary spend across the globe is going to create a parallel shift upwards in demand across all lifestyle related goods
ROUGH SOURCING & MANUFACTURING
- Manufacturers are concentrating more on higher-value goods to compensate for the restricted production as they are still facing some pandemic-driven constraints in achieving peak factory production levels
- The above can create heavy shortages in the smaller sizes from -2 up to 25pts across the quality spectrum. The closing of ARGYLE mine has created additional shortages in the lower to mid-segment goods
- It is expected that there would be a further upward trend in rough prices, this would be over and above the recent spikes – in last two to three months – of 10% to 35% in most articles
- Labour Availability – Effect of Pandemic driven reverse migration of workers to the hinterland is still being observed in the availability of skilled labour pool as the lucrative government schemes are keeping them engaged at their native places for longer. Separately, some portion of skilled labour has moved to other segments within the Jewellery domain. These two factors have resulted in an overall shortage of skilled labour for Natural Polished Diamonds manufacturing. To counter this, manufacturers are offering various incentives and wage hikes enabling workers to earn 25-35% higher than the pre-pandemic levels
- Skilling efforts are underway for enhancement of labour pool supply base but it is a gradual process and would take considerable time to make up for the shortfall on its own
POLISHED GOODS – ROBUST & INCREASING DEMAND WITH PRICES YET TO CATCH UP!
- As mentioned in our previous newsletters, midstream inventories are depleting at a rate faster than earlier anticipated, which in turn is creating a very healthy future demand outlook
- The flow of goods to the retailers and their sales to the end consumers have maintained a sequential and YoY growth even in the April – June period, coming on back of strong demand in the previous quarter. This is remarkable as generally overall polished goods demand in the April – June quarter is slightly muted relative to other quarters due to seasonality, but this year, demand even in this period has been extremely robust and continues to be buoyant
- This has created an extremely strong outlook for overall polished goods demand in the September – February season, as on one hand the USA retail sales (incl. discretionary items) continues improving, pointing to a healthy holiday season demand and on the other hand China market continues growing resulting in higher sales across all Jewellery counters. Since the peak demand season is yet to come, accumulation of goods has emerged in some categories in preparedness for the season.
- While sustainable demand is clearly being observed in the US and China market, additional demand growth is now showing up elsewhere as overall volume requirements have increased in Japan, Singapore, Thailand and Korea as well. Indian market is gradually recovering post the second wave and the Organised Jewellery retailers’ current month sales have been promising – thereby showing immense potential for the upcoming festive and wedding season. Demand growth is expected to happen in other markets as more countries open up completely and widespread economic recovery takes hold – directly improving the long-term economic prospects and confidence of the end consumer
- All the above factors point to a possible shortage of goods in the VVS-VS spectrum as premium discretionary spends is expected to increase at an above trend rate and widespread demand is getting added to an already buoyant market. Separately, due to various factors affecting manufacturing, polished goods output would not be able to maintain pace with the continued surge in demand for better quality goods
- The overall price of polished goods is yet to catch up with the continuous spurt higher in the rough prices. Higher raw material cost along with higher labour expenses and overall lesser volume of manufacturing output, while polished goods demand sees a sustainable uptrend – all this is creating a perfect storm of sorts for the polished prices across all sizes, quality, and colors to keep on trending higher
MARKETING – OPPORTUNITIES TO CAPTURE THE FUTURE CONSUMER
- It is clearly evident that Diamond Industry is in the midst of a remarkable landscape with multiple phenomena aligning to create a sustainable long-term higher demand, hence it is all the more important that the industry leverages this unique opportunity by focusing on marketing. The industry and retailers need to think out-of-the-box and create new-age engagements for the current and the future consumer
- The era of “one size fits all” marketing is long gone. Customised & consumer preference based, analytics driven diversified micro level strategies are the way forward. Digital first approach with the objective of continuously improving the consumer experience across all aspects of engagement has to be the key action for the industry. Ease of purchase, utmost information efficiency for the consumer and post sales life-cycle engagement to create repeated and higher purchases should become a core component of consumer engagement going forward
Insights by
Mr. Dinesh Lakhani
Director of Kiran Gems Private Limited
