The Year Ahead: Plusses and Minuses - Feb.2008
Usually at this time of year we offer forecasts for the year ahead. But at
this, our 40th year, we are very uncertain of how things are going to look.
So instead, we decided to list the positive and negative indicators:
Negative Signs
It is clear it is going to be a difficult year ahead. A lot of bad news has
come out for our industry, including lower sales for Zale and other retailers, a
bankruptcy for Friedman’s, and, as we go to press, reports about a buyer for
local retailer Fortunoff, which is close to bankruptcy.
These problems are along the lines of the general pessimistic outlook for our
economy in general. Goldman Sachs recently said that a recession is inevitable,
while other economists put the chance of a downturn as "50-50."
Usually, in downturns, the jewelry market is the first one to suffer, since
jewelry is not a necessity but a discretionary item.
Most of the downturn seem to be from what is called the "mid-tier luxury
consumer." A New York Times article noted that the downturn has impacted
retailers like Tiffany, with purchases between $1,000 and $10,000 the hardest
hit.
The government want to help the economy with a "stimulus package"
of tax rebates, but we don’t think a few hundred dollars in everyone’s
pockets will make people run to buy expensive jewelry.
Positive Signs
Despite all this, it is not all doom and gloom, and there are reasons to feel
optimistic. People will always get engaged, and will mark those engagements with
diamonds, even if there may be some downgrading. For example, when Japan had its
recession, brides and grooms still celebrated engagements with diamonds. But
where they used to want only flawless diamonds, after the recession they started
to go down in quality.
We also note that commodities have risen recently — gold rose to over $900
an ounce on January 11, a psychologically important milestone. Some think it may
go even higher. Diamonds may eventually follow suit. In the 1970s, when gold
also was at record highs, a one carat D-Flawless sold for over $60,000. We just
received a call from a commodity broker in Chicago. He said that while other
commodities had gone up, most diamonds had not yet, so he wants to buy while
they were still reasonably priced.
In addition, the dollar’s fall has made diamonds cheaper for many people
from overseas. Many tourists are now coming from overseas to New York to
purchase jewelry at prices cheaper than they could at home.
Even with the downturn, as the Times article notes, the very wealthy will
continue to have money. Even though the market is slow, prices of big stones are
extremely strong and going higher.
Finally, the emerging markets of China and India will likely insure that
there are healthy markets for diamonds, even if the market in the U.S. is
experiencing a bit of a bump.
So in conclusion, we are going to lay off making predictions this year —
already this year many predictions (like election polls) have been way off. We’ll
just wish everyone the best in 2008. v
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