Monday, February 10, 2014

Top ten trends for 2014 - Trend # 1 - Growth of recycling

I took a shot last year at the 'top 10 trends' for 2013.   So I am taking another shot this year.  But I thought I would do it as 'a trend a day' for the next ten days.

We continue to see the gem and jewelry business as a whole changing day by day.  The number of jewelry retailers and manufacturers in the US continues to slowly decline, now about a thirty year trend.  Diamond prices are volatile while colored stone prices reflect growing scarcities.  Diamond distribution still hangs onto the "sight" process, but there are more and more auctions and special sales.  Worst of all, there is no conference (no, not a trade show) where the pressing issues for all sectors of the industry are discussed openly and thoroughly.

In any case, I offer my Top Ten, in no particular order.  None of these are just for 2014.  All of them have been cooking a while and will be with us for some time to come.

Growth of recycling.  I remember my first road trip, a zillion years ago, and visiting a good retailer in West Virginia.  He bought a selection, but pointed out that the bulk of his jewelry needs, and particularly diamonds, came off the street.  It allowed him to make hefty profits, and to still easily undercut the mall chains.

If that was the case then, we now have a far more organized and wide-spread recycling.  My guess is that over the last four or five decades, there were some $150 billion is diamond jewelry sales in the US.  There has been a surge in recycling since the start of the great recession, boosted by the rise in precious metal prices.  Going forward, with well-established recyclers offering easy access to the public, we will see a portion of the US market self-sustain.  It will also offer opportunities for retailers to offer non-conflict "old" stones and metal.

Recycling will intensify for other reasons.  The almost certain decline in new productions over the coming years is one factor.  Diamonds of every quality will be sought to fill demand.  The current imbalance between rough and polished prices will enhance the value of recycled polished that will enter the market at initially advantageous prices.  Many people have made substantial profits that way, and that will continue to be the case.
The degree of markup from newly recycled to the new consumer will more accurately reflect the realities of market demand, but there will be the flexibility to do that, unlike the present miniscule margins available in converting rough.
We already see an important effect of both recycling and over-priced rough.  The closing or downsizing of factories, especially in India, is a strong sign that demand and margins are far too weak, and that these are not just transient problems.  There will be great difficulty in justifying the reopening or expansion of factories.  Employees are moving on the better wages in other growth industries in India and China.  And the tight margins in diamonds will not allow comparable wages to be offered to new employees, even if the market turns more positive. 

Factories will try and turn to those diamonds that have consistent supply and demand and generate reasonable profits.  Is there such a range today?  Is there a prospect of such a situation?  Not that we can see.  Moreover, can factory expansion be a reasonable long term investment when there does not seem to be any reasonable expectation that mining output will expand, or that the required bank financing will be available?  No, except for the prospect that productions of man-made diamonds will expand dramatically.

That's the next trend in the next blog.....

Please note:  If you are interested in seeing the subjects covered in these 10 days of trends, you might be interested in a full-day seminar being tentatively planned for later this year in New York.  We will expand the discussion, cover other issues, and include options for the future.  I would be happy to hear your thoughts.  Comment here or e-mail at benj@janosconsultants.com.  Thanks!

2 comments:

  1. I would be fascinated to attend any seminar you ran, Ben. You could read the phone book and I'd still come! ;}}

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  2. "It will also offer opportunities for retailers to offer non-conflict "old" stones and metal". How can one be certain of this when not all street purchases will be accompanied by certificates and there is an enormous volume of jewellery that simply pre-dates the relatively recent concept of 'conflict' product?
    Recycling conflict metal by melting into a new product reminds me of laundering!

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