Diamond industry loses some glitter as times change Recession hurts sales, imports

November 15, 1992|By Ian Johnson | Ian Johnson,New York Bureau

New York -- On bustling West 47th Street, the soul of the U.S diamond industry, display cases of glittering jewels still attract thousands of gawkers each day. But a look beyond the glitter reveals an industry undergoing a painful transformation triggered recession and changing consumer tastes.

Although the industry is supported by millions of buyers throughout the nation, one block of this crowded midtown street is home to more than half of the U.S. diamond-cutting. Other parts of New York account for virtually all of the remaining cutting, which makes this city the eye of the needle for $526 million in annual diamond imports.

The industry is surprisingly resilient for a trade that deals in a luxury good. But diamond-makers share some ills with other U.S. industries, such as autos -- competition from inexpensive foreign producers and lagging consumer demand.

One segment of the diamond industry -- the cutters who refine rough diamonds and re-export them -- is doing well. But wholesalers are hurting because consumers are spending much less for diamonds.

"Our industry is really based on the amount of discretionary income available. Consumers have the want, if they only have the wallet," said Lloyd Jaffe, chairman of the American Diamond Industry Association Inc.

One measure of the problem is that last year, $10.8 billion in diamonds was sold in stores nationwide, $600 million less than in 1990. That has led to financial troubles for many big jewelers, such as Zale Corp., a chain that is in a bankruptcy reorganization.

It is difficult to get a complete picture of the industry's financial health. Virtually all diamond businesses are privately held, so they release no revenue figures, and talk about profits is off-limits.

The industry is secretive in others ways as well. With fortunes tied up in easily stolen stones, few on West 47th Street will admit openly that they trade in diamonds. Safety and discretion come first on a street where people still walk to and from appointments with dozens of diamonds in their pockets.

While customers nip in and out of the stores, the traders, many of them Hasidic Jews in traditional black suits and hats, head upstairs to other traders' offices. There, beyond the massive steel doors and camera-monitored hallways, they trade billions of dollars worth of diamonds -- much of it on a handshake.

Trading also is done in the Diamond Dealers Club, which admits only dealers and their guests from around the world. There, taking advantage of the large magnifying glasses and bright lamps -- and an excellent kosher restaurant -- they search for diamonds that clients might want.

These days, the quality of those diamonds has slipped as economy-minded consumers turn toward less expensive stones.

The 1.7 million carats imported last year set a record, the industry association reports. But the value of those diamonds slipped to $296 per carat from $467 in 1990. For the first six months of this year, wholesale diamonds brought $306 per carat.

Phil Hahn, co-chairman of M. Fabrikant & Sons Inc., the country's biggest and oldest diamond wholesaler, says that though diamonds still seal weddings and mark special occasions, people are making do with smaller stones. So jewelry stores are buying smaller stones.

"Retailers are selling diamonds cheaply. They go for big promotions of cheap diamonds, which means less spent per carat than before," Mr. Hahn said as he sat in a 26th-floor office adorned with awards for importing record amounts of Indian diamonds in the mid-1980s. He foresees few records this year.

The move to smaller, less expensive diamonds threatens the U.S. industry, which features highly skilled cutters.

Many of the diamonds imported to the United States end up in the hands of the 300 cutters who work above West 47th Street. Over the past 20 years, their number has been cut in half because smaller stones can be cut more cheaply in lower-wage countries such as Israel and India.

The recent recession has not hurt the cutters because the domestic trend toward smaller stones has been offset by exports to Japan, South Korea and Taiwan. "It's easier to unload a big diamond in Taiwan than on Fifth Avenue nowadays," says Martin Rapaport, publisher of the Rapaport Diamond Report.

The drastic slowdown in the Japanese economy, however, threatens to upset this fragile balance. When the Nikkei stock market index dropped below 15,000 points earlier this year, for example, the De Beers Central Selling Organization cut rough purchases from miners by 25 percent. The cut was an effort to stabilize prices, which had dipped because of the worldwide economic slowdown.

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