WWD | SOPHIA CHABBOTT
Excess is out and prudence is in.
A year after the financial markets melted down and the days of freewheeling spending on luxury goods came to a grinding halt, top-tier jewelers have adapted to marketing their best pieces in this economy. In an era when conspicuous consumption appears on the wane, pitching diamond and gemstone jewelry that can sell for upward of $100,000 and go into the millions is definitely a challenge. Consumers’ new mind-set makes it even tougher, executives and retailers say, even as they stress consumers are getting more comfortable with spending again.
So fine jewelers are adopting two tactics. One is to market the pieces as an investment that can help diversify the customer’s financial portfolio. The other strategy plays on the limited nature of truly rare pieces: buy now or it may never be available again.
David Klein, executive director at Leviev, said clients come into the firm’s Madison Avenue boutique looking for value. “We have people that come in and say, ‘I want something special, something that’s going to keep the value,’” he said, noting that Leviev, which is known for its white and yellow diamonds, had several important sales in the past several months and that clients come in asking which pieces would be solid investments. “People are interested in seeing [what we have]. They want large, whites and yellows.”
One client is said to have come in with his wife a few months ago wanting to invest in diamonds and she got to choose the piece. Initially they spent $2 million, but after a few months of evaluating the purchase, he upped the ante with the purchase of a pair of $4 million diamond earrings.
Leviev is aggressively procuring new pieces made with ultrarare and pricy stones. Standout pieces include a collar of oval- and round-cut white diamonds interspersed with intense pink diamonds, and a 76-carat pink diamond that has been reset as a pendant surrounded by smaller colored diamonds in orange, green, yellow, pink and blue that retails for $18 million.
“We haven’t changed because times have changed and it’s serving us well,” added Klein.
Graff America president and chief executive officer Henri Barguirdjian said the London-based firm would never dream of selling its rarefied jewels from an investment aspect, saying, “It’s never a consideration.” But with diamonds and gems escalating in price year upon year, the investment aspect is not to be discounted.
Barguirdjian claims Graff’s business in America is good, although the nature of sales is different.
“My business has changed completely,” he said. “Most of the bread-and-butter [opening price point] business has disappeared, and we are selling only important pieces.”
The average price point at Graff is $200,000.
“It’s logical to a certain extent,” said Barguirdjian. “Clients realize that fine diamonds and fine colored stones keep their value.…When you think about it, each piece of jewelry [costs] more than a house.”
Barguirdjian noted a client to whom Graff sold a 5-carat fancy pink diamond four years ago doubled his investment when selling the stone through Christie’s in Hong Kong in December.
“They are buying, and in the back of their mind is an investment,” he added.
While diamonds are universally graded by carat, clarity, cut and color, their prices aren’t monitored like gold is on the commodities index. The international industry standard for a wholesale price gauge for diamonds is through a company called Rapaport. The “Rap Sheet” periodically lists diamond prices, offering a barometer for industry members. The October 2009 Rap Sheet printed wholesale prices of $23,100 for a 1- to 1.49-carat D-color, flawless stone and $121,500 for an E-color 10- to 10.99-carat round diamond, VVS1, meaning it has an inclusion invisible to the naked eye.
Even as fine jewelers target consumers with products that are either an investment or a not-to-be-missed one-off, there is no doubt the sector, like all luxury goods, continues to see tough times. In March, Bulgari SpA cut jobs, reducing the number of products and closing unprofitable stores after the company’s earnings fell 45.1 percent in 2008. In July, the Roman jewelry firm reported a net loss of $53.8 million in the first half ending June 30, citing a slowdown in demand for fine watches and jewelry in the U.S. Chopard, a privately held firm, cut staff and expenses in the spring and summer.
In August, Tiffany & Co. beat earnings estimates by cutting costs and expenses, but profits fell by 29.7 percent. In September, Harry Winston Diamond Corp., which supplies rough diamonds to the global market from its 40 percent ownership interest in Diavik Diamond Mine, reported an operating loss of $5.6 million for the three months ended July 31, versus an operating profit of $5.9 million a year earlier amid significant layoffs. In the U.S. alone, revenue decreased 48 percent to $15 million.
However, Winston, which controls the Harry Winston retail network, said it would resume production for winter at Diavik Diamond mine in Canada’s Northwest Territories, after planning to shut down for the season. Summer production was halted, affecting some 600 employees, in response to market conditions.
Diamond mining giant De Beers SA also cut production by 73 percent compared with the same period last year, to 6.6 million carats, and reduced the global workforce by 23 percent. In July, the company reported a 99 percent decline in first-half net profit citing “historically difficult trading conditions,” and, in the six months to June 30, net profit fell to $3 million from $316 million in the same period last year, while total sales fell 54.2 percent to $1.71 billion from $3.74 billion during the same period last year.
But Gareth Penny, managing director of De Beers Group, said American buyers are for the first time viewing diamonds as assets across the board.
“People want to invest in diamonds,” said Penny. “A year ago, no one asked if they were a good store of value.…People are conscious of lasting value.”
Industry consultant Robert Burke of Robert Burke & Associates, agreed. “Pitching [high-end jewelry] as an investment is going to make more sense in this economy and state of mind,” he said. “Passion purchasing or anything that is emotionally motivated or whimsical doesn’t feel correct right now.”
De Beers has launched a major marketing campaign called Everlon. The diamond-mining giant has partnered with several Sightholders and designers across many price levels to play on the motif of a round diamond being hugged by a rope of pavé diamonds inspired by the Hercules knot, an ancient symbol of strength. According to Penny, the styles symbolize hope, support and faith of a loved one in these uncertain times. Prices start as low as $249.59 for a pendant with diamonds totaling 0.2 carats at J.C. Penney to the high thousands for a one-of-a-kind pair of large diamond pendant earrings designed by venerable jewelry designer Martin Katz.
For Stephen Russell, the Madison Avenue jeweler specializing in top-quality, signed vintage pieces as well as new designs, the main selling is buy now, because pieces are one of a kind and won’t necessarily come back on the market in the near future.
Zelenetz told the story of a client who hemmed and hawed over buying a piece a year ago and ultimately didn’t. That same client came into the boutique recently and said he regretted he didn’t buy the piece, as the money he was bound to spend on it foundered in the stock market.
“[Jewelry] is not necessarily an investment instrument — it’s a passive investment,” said Zelenetz, who added he has seen clients pop up and move capital from the stock market into jewelry. “People are comfortable with spending money again, but it has to be the best. When you deal in unique things, it’s a double-edged sword: Pieces are hard to find, and when they become available, you have to buy them. If it’s something that’s manufactured by the hundreds, there’s no sense of urgency. They’ll always be available.”
Marc Hruschka, Chopard’s U.S. president and ceo, said discerning clients make all the difference. “We went from a nation of spenders to a nation of savers in a short period of time,” said Hruschka. “People will feel more comfortable acquiring things again, whether it’s cars, jewelry, watches or homes. You have to be a sophisticated and savvy diamond buyer, however beautiful, unique or special [an important] diamond is. They are still one in a million or one in 10 million.”
Then there are those firms, like Chanel, whose fine jewelry category is focused on distinctive design more than large stones.
“A stone is more a commodity. We are selling the creativity of the product,” said Benjamin Comar, international jewelry director at Chanel.
Comar shared an anecdote that there were two clients in July who wanted to buy the same one-of-a-kind high jewelry piece, adding: “It was difficult to arbitrate which customer would get the pieces.”
Ultimately, Chanel sold the piece to its longer-standing client and offered the newer one another exclusive piece to purchase. Comar said the high-end business is doing better in the U.S. than other segments.
“Clients are looking very carefully in the design component on the high end. It’s first and foremost jewelry,” said Thomas J. O’Neill, ceo of Harry Winston. “If customers are interested in buying jewelry for other reasons…we aren’t marketing our designs in that way.”
For Winston, pieces above the $1 million mark are what are selling well.
“The U.S. customer tends to be more sensitive than other parts of the world,” said O’Neill, noting business is stronger in Asia and Europe. “It’s the U.S. where the customer continues to think carefully about what they purchase and when they purchase. Are they going to get the piece they have their heart set on, or are they going to moderate the price?”
While business may show some bright spots for jewelers, it’s an uphill battle to begin to match sales figures from two years ago. Brands focusing on value overall and pedigree are seeing results. The fact that jewelry of such ilk is collectable, not trendy, bodes well for sellers. Verdura, for one, has sold out of the recently reissued limited edition run of the famous Maltese cross cuffs made originally for Coco Chanel, according to a company executive. The cuffs sell for $65,000 each.
Emmanuel Perrin, president and ceo of Van Cleef & Arpels North America, focuses on the value and design factors when selling any piece.
“In the heyday, you’d buy things without thinking,” he said. “The pattern of purchases is for fewer things, but better things. You’re going to look for maximum value for your purchase.…Life goes on; real estate is an investment. Jewelry always links back to an emotion or a celebration — birthdays, anniversaries, engagements. You can’t postpone the celebration, but you can always postpone an investment.”