Diamond Retailers Battling Shrinking Diamond Margins

Just read an interesting article on shrinking retail margins for Brick and Mortar diamond retailers.

Overall gross margins for the diamond industry are only down slightly from last year to this year. However, gross margins for diamond jewelry sank from 51.6 percent in 2002 to 48.9 percent in 2003, while margins on loose diamonds dropped nearly 8 percent, from 47.4 to 39.7 percent in 2003.

The article asserts that diamond retailers are faced with the pressures of a tough economic climate and greater competition, especially from diamond internet vendors. The rise in wholesale costs of diamonds and the prices for diamond rough (14 percent higher in the first half of 2004 than in the previous-year period) have also contributed to this climate.

Many independents are also hurting from the fact that their diamond suppliers and diamond wholesalers are offering their listings to diamond e-tailers who have a clear edge since they can afford to sell their virtual inventory of diamonds for a few percentage points above cost – unthinkable for a brick-and-mortar operation.

So what are the jewelry stores doing to combat its margin problems?

Some diamond companies are going back to the basics and preaching old-fashioned customer service, and the benefits of owning diamond inventory rather than having it on memo.

Zales Diamond Corp. launched a purchasing initiative last year, buying loose diamonds and mountings separately and assembling solitaire rings, diamond rings, and diamond pendants in house. This tactic should help them reduce their up-front costs.

The shrinking margins have also given new life to the debate over diamond branding, like recognized brands such as Hearts on Fire Diamonds, Tiffany Diamonds, Lazare Kaplan Diamonds, et. al.

Retailers are acknowledging that the only way to compete in todays diamond market is to offer a private label, higher quality diamond. Consumers are becoming more educated about the 5 C’s to pay top dollar in a local jewelry store for a poor quality diamond.