March 2021
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Brilliant under pressure: Global diamond market shows resilience in an unprecedented year

Brilliant under pressure: Global diamond market shows resilience

The diamond industry suffered during the Covid-19 crisis but fared better than the personal luxury market overall; sector is poised to return to growth in 2021

By Cyrille Fabre, Partner at Bain & Company Middle East, & Olya Linde, Partner at Bain & Company Moscow.

While the diamond industry suffered during the Covid-19 crisis, it still managed to keep its sparkle. Lockdowns, travel restrictions and economic uncertainty pushed diamond jewelry sales down by 15 percent in 2020 with most of the decline happening in the first and second quarters. But faced with store closures, diamond retail sales pivoted online, and benefited from consumers who could not spend on travel or experiences choosing diamond jewelry instead.  Demand returned during the fourth quarter, culminating in a strong holiday season across the globe.

Bain & Company and the Antwerp World Diamond Centre’s (AWDC) tenth annual Global Diamond Report 2020-2021 findings have shown the industry proved its resilience in the face of an economic downturn as consumers continue to see its value. Diamond jewelry is expected to perform better than the global personal luxury market in 2020, with only a 15 percent drop compared to a 22 percent decline in luxury.

Rough diamond production continued its downward trend, falling to 111 million carats. After peaking at 152 million carats in 2017, rough diamond production has declined by about 5 percent per year. In 2020, production decreased by 20 percent compared to 2019 levels. Notwithstanding changes, the mix of diamonds remained largely constant, with medium and large diamonds accounting for 25 percent of production volume in carats but around 70 to 80 percent in value in US dollars.

“In 2020 the diamond industry as a whole unexpectedly benefited as consumers, unable to spend on experiences or travel, used those funds for items such as diamonds, which are considered a tangible physical investment,” said Olya Linde, a partner in Bain & Company’s Energy and Natural Resources practice. “Our research found that more than 75 percent of consumers intend to spend the same amount or more on diamond jewellery than before the crisis, indicating a strong, ongoing emotional connection with the diamond story.”

“As we’ve seen over the past year, many industries have been impacted by the ongoing pandemic, and the diamond trade is no different,” added Cyrille Faber, partner at Bain & Company Middle East. “Tourism equates for a large majority of luxury spend in the region with 15% of global travellers coming to Dubai with the sole intent to shop, prior to the pandemic. This shift evidently caused a decline of sales through the year, however, the second half of 2020 saw a rebound of jewelry purchases, driven by local GCC customers especially in KSA due to weddings, investment behaviour and the launch of new collections. When looking at the industry from a global perspective, compounded by the industry having long standing roots in a traditional bricks and mortar shopping experience and the overall decline of luxury purchases since 2020, although slow, global recovery is expected between 2022-24.

Online sales jumped but bricks-and-mortar remains important

Covid-19 accelerated the convergence of online and offline channels, forcing retailers to retool operations and reorient the customer engagement experience.

In 2020, up to ~20 percent of diamond retail sales occurred online (up from ~13 percent in 2019). Most consumers (70 percent) use digital tools to research and choose jewelry before they make in-store purchases. Since this trend is unlikely to fully reverse after the pandemic, retailers must invest in digital capabilities, delightful online shopping experiences and seamless omnichannel or phygital interactions.

Despite the increase in online sales and a strong preference for online research before making purchases, nearly all consumers (90 −95 percent) still prefer to buy diamonds in brick-and-mortar stores and these continue to remain critical to retailers’ omnichannel strategies. Consumers value the opportunity to see and touch jewelry, and they benefit from in-person advice and other personal services. The online share of diamond jewelry sales is still low compared to other luxury and consumer products.

Flexibility helped the industry players weather the storm

Covid-19 prompted structural changes in the diamond industry that will help it recover from the recession. Because of the crisis, midstream inventories are at healthy levels and better aligned with consumer demand. There are more partnerships between upstream and midstream players in regard to technology, go-to-market strategies and marketing. A more transparent and digitally enabled supply chain was created in the rough and polished diamond segments, and we see innovative new approaches to customer engagement.

Diamond industry poised for rebound in 2021

The new year started on a strong trajectory and growing market confidence. Most miners reported ~5–8 percent improvement in rough diamond prices and sales in January, while additionally, major miners maintained a flexible sales policy which contributed to a strong start to 2021.

There is still a lot of economic uncertainty ahead. The current crisis could be more severe than 2009, and a double-dip recession is possible. Full recovery and a return to historic growth trajectory isn’t expected until 2022–24. Three factors will impact the pace and shape of the recovery: epidemiology, government policy response and consumer response.

Encouraged by the year-end performance, the long-term outlook for the diamond market remains positive. In volume terms, rough diamond supply growth is projected to be −2 percent or 2 percent annually. Following an accelerated short-term recovery growth, demand for rough diamonds is expected to fall back into its historic trajectory, growing at 1 percent to 3 percent annually.

About Bain & Company

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