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Rudolf and conventional wisdom

By Richard Platt.

As gloom spreads across the wholesale diamond markets, some of the more pessimistic forecasts predict US diamond jewellery sales growth for the fourth quarter to be as little as 3% - 4%.

The three months before year-end remain the most important period for the diamond trade, still accounting for 40% of annual sales.

In recent years, the DTC have thrown an increasing percentage of their dwindling proportion of global advertising spend at the fourth quarter in the United States in what they refer to as Operation Rudolf under the Supplier of Choice (SoC) policy.

However, it would be red faces rather than red noses, if DTC only manage to achieve the levels of growth of 4%.

As advertising resources get concentrated in the fourth quarter we are becoming increasingly reliant upon this time of year.

Nominal GDP is likely to be in excess of 7% higher in the fourth quarter of 2005 than it was in the corresponding period of 2004, so should diamond jewellery sales lose more than 3% against GDP this would be a much worse performance compared to the late nineties which led to the strategic review by Bain Consultants and ultimately the SoC strategy.

WWW International Diamond Consultants forecasts that sales growth this holiday season is likely to be in excess of  7%.

It will be interesting to see the DTC marketing department’s reaction to the figures when they become known in March.

Previous years have seen various executives claiming great things for SoC whatever the figure, even if unsatisfactory compared to GDP growth.

However, now that De Beers’ managing director Gary Ralfe has publicly come round to acknowledge in front of Anglo American analysts that demand in the past few years has been disappointing, we can perhaps hope for a more measured analysis when the announcement comes.

Despite nervous sentiment in the wholesale markets, raw data shows prices have firmed over the past few weeks.

The overall PolishedPrices index, the only price information service that reports actual transactions from multiple sources, has risen for the fourth consecutive week, be it in very volatile trading.

Interestingly, the figures show that the common assertion that “the season is getting later”, is misleading. In fact, it is coming earlier.


The above graph shows the overall PolishedPrices index plotted annually to identify seasonal trends.

The declines in prices that occur just before the end of the year has been occurring earlier each successive year.

It is likely that prices will come down from their current levels before the end of the year, but we expect them to remain above their 2004 levels and to show an increase during 2005.


 

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