Are people falling out of love with diamonds?

The famous scene starring Audrey Hepburn in American romantic comedy film Breakfast at Tiffany’s shot the actress to stardom and eventually led the jeweller to open The Blue Box Café, where visitors can literally have breakfast at Tiffany’s. The world had fallen in love with Hepburn and Tiffany’s – but is it still in love with the diamonds?

“Diamonds have been considered the ultimate beauty for thousands of years due to their brilliance, so it’s difficult to imagine that now people don’t like diamonds anymore,” says Tiffany and Co. global CEO Alessandro Bogliolo, referring to “very positive sales” of diamond engagement rings in 2018.

In fact, Bogliolo says, unlike Golightly, who received diamonds as gifts, women today are “much more empowered” to make self-purchases and buy diamonds for themselves, without the need for a special occasion.

This makes it difficult, indeed, to imagine diamonds as anything but the valuable and glorious stones they are portrayed to be. Dubai alone has seen everything from a $17m pair of diamond shoes to a $2m diamond guitar and $1m diamond-encrusted cake displayed in the city. It comes as no surprise given it is the world’s third biggest diamond trading hub after Belgium and India.

The UAE’s imports make up 7.1 percent – $8.4 bn to be exact – of the global total. In 2017, Dubai traded a whopping $16.7bn of rough diamonds. During the first nine months of the following year, the Dubai Diamond Exchange (DDE), a subsidiary of Dubai Multi Commodities Centre (DMCC), sold over 2 million carats in collaboration with Stargems Group. It recorded a 75 percent increase in total sales of just under $200m compared to the same period in 2017.

From 2013 to 2017, however, its imported diamond purchases declined 42 percent, according to figures by independent education and research website World’s Top Exports (WTEx), with experts blaming harsh economic conditions for lower consumer spending.

Bogliolo says Tiffany is a powerhouse and an authority in the global jewellery industry

In January this year, Tiffany & Co.’s holiday performance came short of the jeweller’s expectations as it reported flat same-store sales in the last two months of 2018. Its share prices dropped from nearly $140 last August to hover in the $80-$90 mark at the time this article was sent to print. Bogliolo himself predicted “moderate” growth for 2019.

Rough times

Tiffany & Co. is not the only one experiencing a slowdown. While De Beers’ iconic 1947 marketing ploy “A Diamond is Forever” saw the company’s US diamond sales surge to $2.1bn in 1979 from just $23m in 1939, it reported a 25 percent drop in rough diamond sales in the initial cycle of 2019, according to majority owner Anglo American PLC. The jeweller sold $505m in rough diamonds in the cycle ended January 28, compared to $672m in the year-earlier period.

The drop is largely due to lower demand and higher supply for smaller and cheaper stones, forcing De Beers to cut prices and offer concessions to buyers. Moreover, January 2019 saw shares of South Africa-focused miner Petra Diamonds Ltd fall the most since May (18 percent) in London after it dug up diamonds worth considerably less than expected, according to Bloomberg.

Not so rare?

The numbers imply that the idea of a “forever diamond” is seemingly losing value with today’s generations. Not only can diamonds be discoloured, shattered, chipped or incinerated, but the idea that they are rare and valuable (otherwise known as diamond invention) was boosted by advertising campaigns including De Beers’.

The problem with the campaign is that diamonds haven’t been rare since the 1870s, when massive diamond mines were found in South Africa and mined by the ton. Unlike gold, which is a commodity that retains its value and is bought by investors to protect against currency devaluation and inflation, diamonds reportedly lose a large percentage of their value upon consumer purchase.

Whereas the price of gold has risen nearly 9 percent in the past six months, the actual price of diamonds depends largely on their scarcity. In 2015, jeweller Vincent Taylor in York told The Guardian that diamond rings are only worth investing in if bought at the right price. “Profit margins on the high street are so big that the price you pay is a false price,” he said. But it might not matter for one particular segment: millennials.

Are millennials buying diamonds?

While over a third of millennials today prefer to spend on experiences rather than possessions such as diamonds, according to a 2017 survey by the Harris Group, the younger generation perceives diamonds as accessories rather than investments, according to Karim Merchant, Group CEO and managing director of Pure Gold Jewellers.

He tells Arabian Business: “Millennials do not perceive diamonds as an investment but as a fashion statement – just like celebrities who buy diamonds for the most important occasions.”

Diamonds have been considered the ultimate beauty for thousands of years due to their brilliance, so it’s difficult to imagine that now people don’t like diamonds anymore

Millennials have also become shrewder with their purchases, according to Fergus James, founder of Dubai-based online diamond platform FergusJames.com.

“My main observation is that millennials are increasingly sophisticated in the way they research and make their purchases. It’s not necessarily that they don’t want to buy. You just need to work harder to convince them,” he says, adding that they make up 60 percent of the website’s customer base, with the percentage continuously increasing. Heritage brands such as Tiffany and Co. are also adopting strategies to lure in millennials who wear jewellery in a more informal way.

Bogliolo says Tiffany and Co. is working on positioning  itself as “the next generation luxury jewellery” by creating products using sterling silver, platinum, gold as well as diamonds. Moreover, the US giant launched on the online platform Net-a-Porter in 2016 to broaden its customer base.

Cartier followed suit by launching on the e-commerce platform in 2017 after a surge in sales of its entry-level Love bracelet (from $4,660) among millennials. Others, such as Swiss luxury jeweller De Grisogono even unveiled a chatbot in 2017 to offer consumers purchasing advice via Facebook.

Unbranded jewellery

While the decades-old jewellers are winning hearts of millennials through the use of technology and affordable pricing (Tiffany & Co. has products starting at $250), there is one part of the world they’re struggling to reach: the Gulf.

“We have a lot of work to do because there is huge potential and the brand is known, but is not known in its full reach. We have to be better at communicating to GCC customers. People [in the region] hardly know that Tiffany is one of the oldest brands in jewellery. It is 182 years old,” Bogliolo says.

But do they care about Tiffany’s legacy? According to the company’s MENA vice president Joe Nahhas, customers in the GCC have a preference for unbranded, traditional jewellery sold at lower prices in gold and diamond souks across the region. “People are familiar with [Tiffany & Co], but a lot of regional clients make purchases that are more traditional… There’s definitely an opportunity to grow here. The brand is not as established as it is in America,” he says.

My main observation is that millennials are increasingly sophisticated in the way they research and make their purchases

Could we blame them? According to Bain & Company, a diamond engagement ring by Cartier may typically enjoy a 40 percent premium compared to an unbranded ring featuring nearly the same stone. Furthermore, a 2014 study by consultancy McKinsey found that global brands made up only 20 percent of the jewellery market, although the figure is expected to double by 2020. Tiffany & Co. are expected to grow their own figures in the GCC, where it has 11 stores and concessions including seven in the UAE alone.

“In the GCC, you find both a huge tradition for fine jewellery – and Tiffany is definitely a leader in that area – but also you find a particularly vibrant middle class in the UAE and Saudi Arabia. For those customers, Tiffany is definitely a brand of choice,” says Bogliolo, adding that the firm is opening a new store in Saudi Arabia by 2020, and is looking at potential openings in Kuwait, Bahrain and the Levant. It is also working on introducing its e-commerce service to the Gulf in both Arabic and English languages, although Bogliolo did not specify a date as to when online purchases will be made available.

The tax issue

While retailers in the GCC long enjoyed a relatively tax-free business environment, the UAE reported a 60 percent drop in trade following the introduction of VAT in January 2018. Fortunately, authorities later exempted gold and diamond merchants from paying the tax. However, the founder and chairman of Pure Gold Group, Firoz Merchant, said the market needs an exemption for consumers too.

“One of the major tourist attractions of the UAE is the jewellery sector that generates billions of dollars in revenue every year, and by exempting tax, the benefits to the business and the overall economy are immense,” he said in May 2018.

“I hope that the UAE government extends a similar exemption to the retail sector, which will not only benefit the jewellery retailers but also tourists and consumers.”

Shamlal Ahamed MP, the managing director of international operations for Malabar Gold and Diamonds also reported a 30-40 percent decline in sales, and says consumers need to be exempt for business to recover.

“Dubai is known for gold and jewellery and it is the effort of over 20 years that the industry has come to this level, but we are losing ground due to taxation. If consumers also benefit from the exemption, then the business will come back to its previously high level,” he says.

Gaining momentum

Despite a market slowdown, jewellers in Dubai are still opening up shop. Indian-born multibillion-dollar global brand Malabar Gold and Diamonds runs 53 stores in the UAE alone and last year announced plans to open eight new showrooms in the Gulf.

One of the major tourist attractions of the UAE is the jewellery sector that generates billions of dollars in revenue every year

My main observation is that millennials are increasingly sophisticated in the way they research and make their purchases

Dubai-based diamond trading company Nemesis International also announced the opening of a new diamond polishing factory in 2017, expecting to turn over about 150 carats of diamonds per month and up to 3,000 carats within the first two years. Nemesis had bought an 813-carat diamond (The Constellation) for a record $63 million, or about $77,500 a carat, in 2016. Furthermore, start-up FergusJames.com secured over $400,000 in August 2018 to help it expand operations across the Gulf to Saudi Arabia over the next 24 months, with operations in the UK and US already up and running.

Lab-grown diamonds: challenge or opportunity?

But there’s another challenge facing the diamond industry. De Beers claimed in 2010 that the world might be running out of diamonds in the next 20 years as mines are being depleted, with jewellers such as Tiffany & Co. suggesting it would sustain the value and alleged rarity of diamonds. But they didn’t factor in lab-grown diamonds, which cost on average 30-40 percent less than natural, mined diamonds.

While Tiffany & Co. declined to comment on its approach to lab-grown diamonds when contacted by Arabian Business, De Beers has embraced the technology, having launched Lightbox, a line of lab-grown diamonds targeted at younger consumers, with prices starting at $800 per carat compared to approximately $8,000 for a one-carat mined diamond. The diamonds are created in a $94m facility in Oregon which aims to produce 500,000 synthetic rough carats a year. And despite the synthetic category accounting for only 2 percent of the global diamond supply, according to Citi analysts, the number could rise to 10 percent by 2030, reported Financial Times.

So it seems the marketing campaign which once fetched De Beers billions in dollars may need some updating. As for Tiffany & Co.? They’re focusing on a diamond provenance programme which will identify the stone’s entire (ethical) journey, including where it was mined, cut, polished and set. But for those who have fallen out of love with diamonds altogether, they can always grab a $29 breakfast at Tiffany’s. This includes coffee or tea, croissant and seasonal fruit and a choice of a buttermilk waffle, smoked salmon and bagel stack, truffle eggs or avocado toast, but sadly no diamonds.

Transparency initiative

Tiffany & Co. to disclose information on diamond origins

Tiffany announced last month that it would identify the origin of diamonds, a transparency move to assure customers worried about so-called “conflict diamonds.”

Tiffany said it will provide sourcing information for diamonds 0.18 carats and larger and will in 2020 share information about the “craftsmanship” journey of the jewel, such as cutting and polishing workshop location.

“Diamonds, formed up to 3 billion years ago and brought to the earth’s surface by a miracle of nature, are symbols of the most important moments in our lives,” said Tiffany & Co. Global CEO  Alessandro Bogliolo.

In cases where a diamond’s provenance is unknown, such as with stones that predate the policy, Tiffany will assure that the diamond was sourced with industry leading practices, the company said.