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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Diamond trade loses luster

Downturn in U.S. sales creating havoc in global market

Ye Hee Koh checks inventory at Heritage Jewelers in Wheaton, Md. The jewelry industry has taken a big hit in the recession as thrift-conscious consumers cut back on spending. Washington Post (Washington Post / The Spokesman-Review)
Dion Haynes And Rama Lakshmi Washington Post

WASHINGTON – Last fall, recession-wary Americans more concerned about basics than bling began to lose interest in diamonds and other jewelry, and now the sales slump is reverberating around the world.

Retailers are taking a big hit. Tiffany said last week that its profit dropped more than 75 percent in the fourth quarter. Lynn Jewelers, a downtown Washington presence since 1946, closed its doors last month. Christian Bernard Jewelers, a national chain, has shut down as well. They are among 1,000-plus jewelers across the country to go out of business in the past year.

In India, drought-ravaged villagers who found salvation in the diamond-polishing factories of Gujarat have been let go in recent weeks, and thousands are migrating home. And Botswana, which depends on diamonds for more than 30 percent of its economy, has put all four of the mines it operates with De Beers Group on furlough.

Even the world’s wealthiest are feeling the effects. In a recent television interview, Warren Buffett reported that his Dairy Queen holdings were fine, unlike his jewelry interests, which “just get killed.”

Americans buy nearly half of the world’s polished diamonds, and when they pull back, it’s noticed.

The market for jewelry slowed in September, when credit markets tightened after the collapses of Lehman Brothers and American International Group. Sales showed little sign of recovery, even through the typically bustling Christmas season and Valentine’s Day – and there are no signs of resurgence anytime soon.

Ask Hala Meiser, of Fairfax, Va., who was relaxing with a friend at Tysons Galleria in McLean on Monday. Meiser, a retired teacher, said her mother gave her a sizable cash gift last month to splurge on jewelry.

“There are more significant things” to buy than jewelry, said Meiser, who used the gift for something more practical: a new tile floor for her kitchen.

Jewelry “sales were down 10 to 20 percent last year – I can’t imagine they won’t be again this year,” said Dione Kenyon, president of the Jewelers Board of Trade, a credit-reporting agency for the industry. “I hear people say, ‘Oh, things will (improve) and go back to the old days.’ You don’t go back to the old days – there is a new order.”

About 60 percent of diamonds cut and polished in the western Indian state of Gujarat are sold to the United States, and the region accounts for about 72 percent of the international processed-diamond industry.

Plants are being shuttered, and perhaps thousands of people are losing their jobs. The 50-year-old industry is in the midst of crisis after three decades of soaring business that provided work for about 1 million people, mostly poor migrants fleeing drought-ruined farms. They earned about $130 a month polishing diamonds, nearly four times what many made as farm laborers. The Indian media has recently reported a few suicides because of joblessness and debt.

In Botswana, Debswana Diamond, a joint partnership between De Beers and the federal government, last month imposed a 50-day “pause” on production there, temporarily closing three mines until mid-April. A fourth mine will remain shuttered indefinitely. The company produces 22 percent of the world’s diamonds.

When workers lose their jobs in India’s polishing plants or are furloughed from Botswana’s diamond mines, the consequences ripple outward.

The cobblers, restaurants and others supporting them suffer, said Russell Shor, senior analyst for the Gemological Institute of America. Closing the mines “has a devastating effect on surrounding businesses.”

The wedding market has been a bright spot for many jewelers. Officials at Mervis Diamond Importers, which operates four stores in the Washington area, said sales of engagement and wedding rings are strong.

Until business picks up, many retailers are trying to make do by tapping into growth from another recession-related phenomenon: Customers, taking advantage of rising gold prices, are selling their used jewelry.

Justin Carmody, co-owner of Diamond Exchange USA in Rockville, said just-because purchases of bracelets and necklaces have nearly dried up. People are buying smaller, less extravagant engagement rings. But the store’s used-gold buying is up fourfold.

“We’ve pursued that out of a need,” he said.