Work hard and you will find success

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De Beers Expects Brighter Christmas

19 june 2009

De Beers remains optimistic about the future prospects of the diamond industry during 2009, and is expecting the Christmas season to be “in line with if not better than last year.” Speaking in Israel at the second of the company’s series of town hall meetings with the industry, Gareth Penny, De Beers managing director, observed that the diamond sector may be on its way out of the downturn, but with “great caution,” RAPAPORT reported.
He reasoned that consumer confidence is rising, polished prices are stable, demand for De Beers rough has improved in the past few months and the diamond mines have resumed production. “We have returned to more normal levels where rough and polished [are] better aligned in the market,” Penny told the audience of concerned diamantaires. As a result, he added, the company is “not pessimistic” about Christmas, especially since the 2008 season was so weak. Nevertheless, Penny gave the impression that while things have improved, real, sustainable growth will be more evident down the road — in the fourth quarter of 2010.
The diamond industry has been encouraged by a surge in demand for rough diamonds in the past month, with the De Beers Diamond Trading Company (DTC) sight in June rising about 70 percent from May's sight, to an estimated value of $425 million. Compared with June 2008, however, this estimated sight value was down 39 percent. Other diamond miners have also reported improved sales recently, and rough prices have risen by approximately 15 percent compared with one month ago. 
While some have expressed concern that the spike in demand for rough may be deceiving as it has been spurred by shortages of rough rather than stronger demand for diamonds at the retail counter, Penny agreed that the recovery was dependent upon the consumer. “The problem is demand-driven, not supply,” he said. “In the end, it is consumer confidence that will pull us out of this crisis.”
To boost consumer confidence for diamonds for Christmas, Louise Prior, De Beers spokesperson, told Rapaport News earlier this week, the company is planning a major advertising campaign in the U.S. for the fourth quarter, as it had in 2008. Prior said she could not disclose details of the program at this time.
Penny suggested that the pessimistic outlook for retail may have been exaggerated, pointing to average sales declines in the first quarter of around 5 to 10 percent. However, Rapaport records show steeper declines. Among the larger retail chains, Tiffany & Co.'s first-quarter sales were down 22 percent, Zale by 20 percent, Harry Winston’s fell 30 percent and LVMH's watch and jewelry sales declined 27 percent, while Signet and Blue Nile had more modest declines of 7 and 11 percent respectively. Most retailers reported that these steep sales declines have not deteriorated further during the second quarter, although they still have a high bar to reach even to match receipts from one year ago.
Penny said that as financial markets bounce back and U.S. consumer confidence rises, the verdict is still out on whether the economy — and the diamond industry — is in a bubble, and should expect another downturn, or not. He did, however, provide historical data to support his assertion that “post-recession,” there is usually a strong bounce-back for the industry — in terms of both demand and prices.
To weather the current slump, he explained, De Beers has taken a five-point approach and urged the industry to do the same: confident leadership, a focus on cash management, acting swiftly to reduce overhead costs, a focus on core business activity and solidifying partnerships with customers. “We need to remember that over 120 years of the diamond industry, we have faced crises before, and the industry always has proved resilient,” Penny said.