U.S. Wholesale Market Report

RAPAPORT… Some U.S. wholesalers were seeing signs of stability in recent weeks, but all conceded they are continuing to operate their businesses conservatively and with caution. “Starting in September, we saw some bright spots in South Florida. Airfare is cheaper and gas prices are a little bit back to normal,” specified Lior Sofer, vice president of Beny Sofer in New York City. He went on to say that the Wisconsin and Michigan area “has taken a very big hit.”

Jay Mehta, director of operations and partner, Varsha Diamonds, Inc., in Los Angeles, noted, “Many jewelers are still recovering. One of my clients, in Houston, was closed two weeks in 2008 due to a hurricane. But he still did better last year than this year.”

Hope Rises With Dow
As the Dow Jones Industrial Average (DJIA) stock market index hit 10,000 for the first time in more than a year, diamantaires welcomed the news. “I’m sure the Dow has an effect on our business,” explained Mehta. “It is good news for all industries. But unemployment is still high and people are watching their dollars. There is demand — it’s just unstable and unpredictable.”

Reports of shortages are circulating, but the situation seems to vary greatly based on clientele. “Anything above 3 carats is much more scarce than I’ve been used to. But I don’t think it’s an extreme lack of supply like some are saying,” Sofer stated. “Bread-and-butter supply has picked up because the U.S. has more of those goods,” he added.

But Nilesh Sheth, president of Nice Diamonds in New York City, attested that “Basically, whatever is selling is a certain price point. This is affecting people who have signed contracts with the major retailers. The vendors supplying them are grabbing whatever is there in the market.”

In contrast, Adam Mirzoeff, vice president of East Continental Gems, Inc., hasn’t run into difficulty, remarking “I don’t see a problem with finding material right now.”

Derek Parsons, vice president of British Diamond Import Company, in Fort Lauderdale, Florida, was quick to point out that certain shortages don’t necessarily produce price increases. “As the mines stop producing, the jeweler has the power to switch customers from a princess to a radiant or a cushion. So that does not mean that prices will go through the roof.”

Parsons stressed the importance of keeping diamonds affordable in comparison to other jewelry products. “We must not let the price of rough influence it. Rough is artificially high. It’s a speculative product right now.”

International Competition
Competition from overseas markets, which are recovering more quickly than the U.S., is beginning to have an effect. Sofer recognized, “If I see a good deal, I do pick it up, because there is definitely a price increase overseas. The recovery of the Asian and European markets is making it more difficult for the U.S.”

Despite much talk about the importance of cash, sales are still primarily driven by memo. Parsons reasoned, “Cash is king when you have to pay your rent,” but was quick to add, “Anyone who’s got cash can get bargains.”

The Cash Advantage
Sheth says cash is an important part of his business plan. “That’s how I get the advantage. When people know you are buying for cash, they come to you.”  

As the November 1 deadline set by the Federal Trade Commission (FTC) for enforcing the Red Flags Rule approached, many in the industry appeared unaware that all wholesalers who offer memo or any type of credit are required to set up a written identity theft prevention program by that date. Suzan Flamm, the Jewelers Vigilance Committee’s (JVC) assistant general counsel, commented, “There is a low level of awareness, judging by the calls we’re getting.”

However, one week before the rule was to go into effect, the U.S. House of Representatives passed a bill that would allow many wholesalers to apply for exclusions from the rule. In the bill, companies would be able to apply for exclusions if they know all their clients individually or if they have never experienced incidents of identity theft and identity theft is rare for businesses of their type. If approved by the Senate and signed by the president, the exclusions will become official. Flamm urged anyone with questions to visit the JVC’s website, www.jvclegal.org, or contact the JVC at 212.997.2002.

Parsons didn’t welcome yet another government regulation. “When the Patriot Act came into effect, we understood the concept of that. We are now under an administration that would like to control our lives and I don’t like to encourage them.”

Some Restocking
Regarding Christmas season, Mehta is optimistic. “I do feel that jewelers are restocking. Pricing has been more stable than the first half.” The challenges are that “Everything you buy is short term or on a cash basis. You have to be able to invest a lot of money to remain active.”

Sofer contended, “We had a better September this year than in 2008. Now we are just trying to create some sort of normalcy. Our real knack is our service and relationships. Any company that thinks it’s going to make an easy buck is not going to make it.”

The Marketplace

• 1-carat diamonds in the range of $2,000 to $2,500 are meeting moderate demand.
• Most diamonds sold are in the range of ¾ to 2 carats.
• Clients are looking for clarities from SI2 to VS1.
• Color tends to range from I to F.
• Rounds are the most popular shape, with princesses second, followed by radiants, cushions and Asschers.