Divine Solitaires sees hard times for diamond industry

NEW DELHI – The Indian diamond industry, which is already reeling under severe stress since last year, has more hardship in store as demand for luxury products will take a long time to revive in the post-COVID-19 world.

India is the global re-export hub of polished diamonds, and 90% of the world’s diamonds are cut and polished here.

India’s Export Of Cut And Polished Diamonds Fell By 40% On Year In February, Rapaport Said A Recent Report.

With the novel coronavirus spreading across the world and many countries under lockdown, diamond exports have seen a sharp decline.  Export of cut and polished diamonds is likely to remain lower and exporters may see sales falling to barely a fifth of their average exports, said Jignesh Mehta, founder and managing director of Divine Solitaires.

In Apr-Feb (2019-20), India had exported cut and polished diamonds worth $17.69 bln.

India’s export of cut and polished diamonds fell by 40% on year in February, Rapaport said a recent report.

However, prospects of the precious stone gaining prominence as an investment asset may be on the cards after the spread of the virus is under control, as spending towards travel and tourism may be diverted towards diamonds. In addition, a surge in prices of gold may push investors towards this asset.

“There may be slight pessimism over the next few weeks till everything is fine,” Mehta said. “However, in the long term, there will be a strong revival and spending may surge again and show an upward trend.”

He believes retailers must focus on the path to recovery, and evolve with the changing times to grab market once they return to business.

Following are edited excerpts of the interview:

Q. What is your sense of the potential impact of coronavirus on the diamond industry?

A. In the coming few months, there will be a momentary lull in spending, which will take some time to recover. This is mainly the case with spending on luxury products, which includes diamonds and solitaire jewellery.

We are heavily an export-dependent industry as far as our diamond cutting and polishing is concerned. On an industry level, I see a dent due to the slowdown in global trade. There will be little softness as retailers will be more cautious in stocking up their inventory. They will be more prudent and logical in having a flow of inventory instead of stock building. So, I see this affecting the local industry for a short term, maybe another three-six months.

I don’t see India covering even 20% of its total exports during this time of crisis as major importing countries such as the US, China and Hong Kong, and Europe would be very cautious. Until things recover, the diamond business is going to take a huge hit.

Q. What are the challenges that international diamond trade may face?

A. Internationally, there will be many challenges. More so, on a business-to-business level as it involves travelling for displaying inventory and designs, interacting with decision-making authorities, and so on. This is why travel restrictions will impact international businesses because of this traditional model. This will also mean that there will be a restriction on finances.

Q. Where are we heading in terms of imports, given we import our rough diamond requirements?

A. In February and March, there were very little import of rough diamonds. Until the global markets open up, I don’t see any huge rise in import of rough diamonds. Around May, things should start picking up.

Q. Do you foresee concerns of huge layoffs in the Indian diamond industry due to a liquidity crisis and fears of a potential recession?

A. The industry has always been seen as a black sheep in the past and banks are not favouring it much. Also, there is pressure on liquidity. The core diamond industry is likely to have a lot of layoffs. This is mainly because the industry is heavily reliant on exports, and there is a problem with liquidity and the business, which will continue to show a downward trend.

I don’t think this virus effect has anything special to do with overall people working in the industry on a long-term basis. On a short-term basis, there will be less employment as factories have shut down and would start taking corrective measures once it reopens.

Though factories will continue to work, the efficiency of scale will be reduced. Overall, more use of technologies and processes in the system would emerge, which means no need for extra staff for stocking to be done. Overall, the industry has to be more efficient now and people working in this industry will have to think differently. A lot of focus will now go towards developing a structured process as against mass production earlier, which used to involve more ‘kaarigars’ (artisans), and few managers and planners. But now, this proportion would change as we may need more people in planning and management roles.

Q. Once the nationwide lockdown is lifted, what are the prospects of diamond buying?

A. Once all is normal, there is a good scope of a revival. There may be slight pessimism over the next few weeks till everything is fine. However, in the long term, there will be a strong revival and spending may surge again and show an upward trend.

Spending in industries such as leisure travel and entertainment will take a hit hereon even after the virus outbreak is controlled as people would be cautious. Therefore, people would not splurge on a big holiday trip any more in the next six months or so, and all that money could probably be spent on a few options such as diamond jewellery. Buying diamonds will also give them (people) the confidence in owning an asset. Higher gold prices also may prompt people to buy diamonds. My understanding is that things will revive and come back even more strongly.

Q. How do you see the Indian diamond industry improvising in these tough times?

A. The industry has very little innovation in the cutting and polishing segment. It has always taken the traditional path and hasn’t been sufficiently consumer-centric. There is hardly any out-of-the-box thinking. The industry has to build consumer-centric models.

We need to focus on how can we give confidence to the customer, or what can excite the customer. I don’t think the manufacturing industry is really thinking in that way. Manufacturers only indulge in cutting and polishing, while they should focus on connecting with the customer, provide fair pricing and confidence in buying a real diamond.

Solitaire diamonds are not only rare and precious, but everlasting and recyclable. So, they automatically have an asset value. People purchase solitaire jewellery more for emotional value and for securing themselves with a beautiful and reliable asset.

Courtesy: COGENCIS