A couple of weeks into the all-important Holiday Season, diamond analyst Paul Zimnisky examines diamond demand going into the year-end.
Global inflation, which has reached multi-decade highs this year, as well as expectations for a potentially severe economic slowdown, is impacting the discretionary spending of diamond consumers.
At the Goldman Sachs Global Retailing Conference held in New York in early fall, a Signet Jewelers executive noted, “we are (currently) seeing a challenged consumer at the low end, particularly at price points under $500…(most notable with the) discretionary self-purchase customer.”
In August, Signet, which considers itself “the world’s largest retailer of diamond jewellery,” dropped sales guidance for the full fiscal-year ending January 2023 to $7.7 billion, a 6% cut from prior guidance – which forecasts a 2.3% year-over-year sales decline.
In November, Brilliant Earth, the fast-growing online diamond retailer, also cut sales guidance for calendar 2022 due to “macro headwinds (that) are more difficult than earlier in the year.” The company is still guiding sales growth of 16% year-over-year, although the guidance is down from 20-30% growth earlier in the year.
During a recent analyst call, the company’s management said that while customers are still buying diamonds, they are “lengthening (their) decision-making process,” which contrasts to behaviour a year ago.
That said, given record performance in 2021, even a low-single digit sales decline for the industry in 2022 could be viewed as a relatively good performance – and it is certainly possible that diamonds and jewellery as a category outperform other consumer products, especially at the high end.
Notably, both LVMH and Richemont, the world’s top-two luxury conglomerates, and parents of Tiffany & Co. and Cartier, respectively, have seen very strong year-to-date performance.
In LVMH’s most recently concluded quarter ended-September, “watches and jewellery” sales grew 16%, which rounded out a record first nine-months of the year for the company. Sales at Richemont’s “Jewellery Maisons” grew 29% in the comparable quarter – thanks in part to a return in tourist spending in markets like Europe and Japan.
In recent weeks, LVMH’s CFO Jean Jacques Guiony optimistically noted, “luxury is not a proxy for the general economy…we don’t necessarily sell to the average households, we sell to affluent people…(and) our client base reacts to different stimulus, (not necessarily) GDP changes.”
Guiony described the current economic condition as a “pre-announced recession,” adding that “when things are announced in advance they usually don’t happen.” Guiony added, “I am not saying there won’t be a recession…(but) everybody is talking about the recession, but no one has seen it yet.”
Central banks around the world are walking a fine line attempting to slow economies in order to stymie inflation without causing a severe recession following record economic stimulus and supply-chain disruption during the pandemic years.
Notably, in mid-November, inflation data in the U.S. signalled that the rapid pace of inflation this year may have peaked. Following the data, U.S. stocks rallied almost 10% in just two days, marking the strongest two consecutive days for the market since 2008.
The Fed Funds futures market, a predictor of U.S. Central Bank policy, is currently forecasting that the current monetary tightening cycle will peak within the next five months, followed by a reversion to easing by year-end 2023 – which could be a catalyst for renewed economic growth.
Paul Zimnisky, CFA is a leading independent diamond industry analyst and consultant based in the New York metro area. For regular in-depth analysis of the diamond industry please consider subscribing to his State of the Diamond Market, a leading monthly industry report; an index of previous editions can be found here. Also, listen to the Paul Zimnisky Diamond Analytics Podcast on iTunes or Spotify. Paul is a graduate of the University of Maryland’s Robert H. Smith School of Business with a B.S. in finance and he is a CFA charterholder. He can be reached at email@example.com and followed on Twitter @paulzimnisky.
Disclosure: At the time of writing, Paul Zimnisky held a long equity position in Lucara Diamond Corp, Star Diamond Corp, North Arrow Minerals Inc, Brilliant Earth Group and Barrick Gold Corp. Paul is an independent board member of Lipari Diamond Mines, a privately-held Canadian company with an operating kimberlite mine in Brazil and a development-stage asset in Angola. Please read full disclosure at www.paulzimnisky.com