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With these priorities in mind, three areas of
investment are likely to be particularly important:
1. Investment in
branding, marketing and raised
retail standards
will help ensure that consumers,
particularly among new generations and new
markets, do not drift away from the diamond
jewellery category in favour of competing
categories, such as travel, coloured stones,
electronic accessories or designer fashion.
2. Investment in
production
to drive innovation and
productivity in diamond supply. Diamonds have
always been a rare and precious resource, and as
mining moves deeper into the earth and towards
more remote locations, the extraction process is
now becoming increasingly complex, remote and
more costly.
3. Investment in
technology
will continue to be a
key differentiator across the value chain, while
also safeguarding consumers against the risk
of undisclosed treatments and synthetics, which
could undermine the long-term credibility of
the industry.
Lack of investment in these areas could hamper
growth for the industry as a whole.
The industry’s overall supply and demand dynamics
should generate value-creating business opportunities
that will enable such investments. However, scale and
differentiation will be increasingly important factors
for future success, across all parts of the value chain.
The industry is likely to continue to consolidate and
integrate (including through vertical integration).
It is also expected to continue professionalising,
modernising and becoming more transparent in the
years to come – to the benefit of all those involved
with this precious resource, from the geologist
seeking the next big find to the bride wearing her
diamond wedding ring.
SECTION 2: THE DIAMOND INDUSTRY VALUE CHAIN
Consumer demand
for diamonds has shown positive
nominal US dollar (USD) growth in the last five years,
with compound annual growth in diamond value just
under five per cent from 2008 to 2013. In this period,
growth was driven mainly by the emerging economies
of China and India, as well as the US, since 2010, while
Japan and the main European markets have shown
below average growth trends in this period.
The
diamond jewellery retail
sector is highly
fragmented worldwide with a variety of business
models serving a wide range of target consumers.
The sector has experienced a range of financial
returns. In developed markets, many jewellery
retailers are failing to cover their cost of capital,
resulting in negative returns and the closure of
chains as well as smaller jewellers.
The recent acquisition of jewellery chain Zale
Corporation by Signet Jewelers, another jewellery
chain, illustrates the potential for consolidation in
the jewellery retail sector.
Overall, retailers in emerging economies have
outperformed their peers in developed economies,
partly because of the recent fast growth of the
middle classes and partly because of the rapid
pace of store openings to supply growing demand
in new geographies.
The online channel is becoming increasingly
important around the globe, although consumers
are going online for different reasons in different
countries. In the US, the internet is becoming
important as a sales channel in its own right: more
than one-tenth of diamond jewellery sales in the
US were made online in 2013. While online is not
yet a significant sales channel in China, the internet
is used by a quarter of acquirers for research
purposes before purchase.
Many specialist fine jewellery retailers such as
Tiffany, Cartier, De Beers Diamond Jewellers and
Chopard continue to invest in product offers and
store modernisation to support the diamond dream.
Another major trend to watch is increasing activity by
global luxury fashion houses such as Dior and Chanel
in the sale of diamond jewellery. These global brands
also support the diamond dream, and are raising
consumer expectations of the store environment,
in new design generation and customer service.
Branded diamonds and branded diamond jewellery
present a growth opportunity for diamond jewellery
retailers in both developed and emerging economies.
Consumers worldwide increasingly prefer branded
products and services. Brands can also be an attractive
financial proposition for retailers because the brand
identity frequently offers differentiation from generic
propositions. The additional revenue that can be
generated from brands should make it possible for
retailers to invest in their store environment and in
promoting their businesses and the category, leading
to a virtuous circle of growth.
Cutting and polishing
remains fragmented, with
midstream companies under pressure from a
combination of increasing costs in the upstream, the
availability of credit and price-point requirements
from their retail customers. The financing challenges
are increasingly critical and could intensify over the
coming years, as banks apply more stringent lending
standards to the cutting and polishing industry. One
possible consequence is that some companies may
exit the industry, leading to greater consolidation.
Over time, those firms able to add significant value to
the diamond cutting and polishing process, and those
with transparent corporate and financial structures,
are more likely to be successful.