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Will diamonds shine brighter than other luxury items?

28 september 2020

Image credit: Cartier

According to Bain & Company (The Global Diamond Report 2019), the global jewellery market in 2019 was estimated at approximately $330 bn. Diamond jewellery sales are estimated at $80 bn, and its luxury segment accounts for about 10% (~$8 bn) of the sum. For comparison, the luxury watch market is at $39 bn over the same period, leather goods at $57 bn, and the apparel market at $64 bn (Luxury Goods Worldwide Market Study, Fall-Winter 2019).

The fashion market accounts for about a quarter of the total luxury goods market. According to the experts from the McKinsey agency (A multifaceted future: The jewelry industry in 2020), the jewellery market should develop following the luxury apparel market and go through the following stages on its way:

Internationalization of brands

While in the 1980s, the companies producing luxury (and not only luxury) clothing sold it in certain countries, but almost all of them have entered the international level by now. For example, the share of Hugo Boss brand sales outside Germany has grown from 50% in the 1990s up to 80% in the 2010s. The main jewellery market is currently provided by large national retail brands (such as Chow Tai Fook in China or Christ in Germany) as well as by small and medium-sized businesses. Ten largest jewellery groups account for only 12% of the global market, and only two of them - Cartier and Tiffany & Co. - are in the Interbrand rating of the top 100 global brands.

Jewellery branding

In the wristwatch market, the branded goods accounted for about 60% of sales, while the share of branded jewellery is only 20% of the total volume. However, it has doubled since 2003. The main consumers of the branded jewellery are affluent buyers from the emerging markets, for whom the well-known brands are a way to show off their material status. According to experts at McKinsey, while in the past, the branded jewellery growth was provided by such world-renowned brands as Cartier and Tiffany & Co. as well as some new market players (Pandora and David Yurman), in the future, the main role will be played by the companies producing luxury clothing and leather accessories like Dior, Hermès and Louis Vuitton that also offer their jewellery collections.

At the same time, it should be noted that, unlike clothes, accessories and even watches, the brands of which are often immediately seen (Louis Vuitton bags, Burberry trench coats, Rolex watches, etc.), the jewellery brands are not so obvious. In addition, diamond jewellery is normally not for daily wear (except for the engagement rings, the number of which - ideally - does not exceed one in a woman's life), but involves social events, which limits the chances of consumers to show their status.

Reconfiguring Sales Methods

According to Bain & Company, online sales account for almost 12% of the luxury goods market (~$33 bn in 2019). At the same time, most of the online sales market is provided by trade in the accessories (43% of the online luxury goods sales), apparel (27%) and cosmetics (19%), while watches and jewellery goods combined account for 11%. According to the researchers at McKinsey, the share of the jewellery sales in the nearest future is unlikely to exceed 10%, since it is extremely important for a buyer to carefully consider and touch a jewellery piece when choosing it. At the same time, many customers use online platforms before going shopping to make it easier to take a decision at the store. Jewellery sellers are expected to benefit most from the expansion of mono-brand boutique chains as well as carefully selected multi-brand stores.

Expanding the circle of consumers

Recently, one can observe a mixture of luxury and non-branded goods. The current trend towards ‘smart consumption’ is one of the reasons for this. So, celebrities can walk on the red carpet wearing luxurious diamond jewellery and a mass market dress and vice versa. The so-called ‘Swarovski phenomenon’ plays an important role, that is, when fashion jewellery is sold at the prices comparable to the cost of items made of precious metals and stones, while being in great demand. In view of these trends, jewellers may consider launching their new product lines at affordable prices and providing an opportunity for younger or less affluent consumers to purchase brand jewellery items. Many companies producing luxury clothing and accessories have such ‘affordable price’ lines - ‘Just Cavalli’ by Roberto Cavalli, ‘See by Chloe’ by Chloe, etc.

Alternatively, jewellery manufacturers can operate exclusively in the high-end segment convincing their customers through advertising and high-level servicing at their stores that offering low-end jewellery pieces lowers the value of the goods they offer, thereby reducing the ‘elitism’ of the consumers, and this is a way Harry Winston does.

Focusing on the fast fashion

The so-called ‘fast-fashion’ originated in the mid-1990s has captured not only the mass market, but also some high-end brands (Diesel, Juicy Couture) releasing several collections a year. For the luxury segment jewellers offering maximum two collections annually, such rates are too fast, which is not the case with the fashion jewellery or inexpensive jewellery manufacturers using semi-precious and synthetic stones. According to McKinsey analysts, the innovative jewellery brands would act like the fast-fashion companies by responding quickly to the changing trends and making their production cycle shorter. The main burden will be on the shoulders of designers. Interestingly, according to the Bain & Company study conducted back in 2016 (The Global Diamond Report 2016), the buyers in the USA and China had chosen the design as the most important characteristic of the diamond jewellery goods (along with a stone size, colour, clarity, price, jewellery brand, etc.).

Whatever changes the jewellery industry undergoes, the promotion remains the main engine of the diamond jewellery trade. After all, it was the advertising slogan ‘A Diamond is Forever’ launched in 1947 that became the driver of the rapid growth of the diamond jewellery market, and it was recognized as the most successful marketing slogan in the history. It was so excellent that has remained unsurpassed for almost three quarters of a century. In the 1990s-2000s, the advertising campaigns under the slogans ‘For your past, present and future’ and ‘Celebrate Her’ were held, but they were not very successful.

In 2016, the Diamond Producers Association (DPA) launched an advertising campaign ‘Real is Rare, Real is a Diamond’, which was aimed primarily at the so-called ‘millennials’, or the ‘Generation Y’ consumers, born between 1980 and 1994. The millennials are now the main consumers of the diamond jewellery. At the same time, as the 2016 Bain & Company study shows, there are no significant differences between the preferences of the millennials and non-millennials (the so-called ‘Generation X’ born from 1965 to 1979, and earlier generations), and the existing differences mostly lie in choosing a way of purchasing their jewellery pieces. The only exceptions are the US millennials preferring electronic gadgets to diamond jewellery as a gift, in contrast to the non-millennials who put smartphones and other gadgets in fourth place on their lists of preferred gifts. Probably, this is why, the advertising slogan for the millennials contains almost the same values that inspired the Generation X consumers - the authenticity, rarity, eternity.

However, this may change in the future. According to the 2019 Bain & Company study, by 2030, the millennials will still have most of the income, but in addition, the income of the new ‘Generation Z’ born between 1995 and 2015 will significantly increase. This is the so-called ‘Internet generation’ that is much different from the previous ones. This generation has its own culture, values, and it requires a unique approach.

Therefore, the main task of the jewellery marketers is to develop a fundamentally new strategy aimed at popularizing diamonds among these - still very young - people in the future. In many ways, it depends on them what they would prefer - an up-to-date electronic gadget, a fashionable handbag, a cruise liner ticket or ... Eternity.

Anastasia Smolnikova for Rough&Polished