The show must go on: News and Views from the Canadian trade shows

by Sarah Manning | September 27, 2016 3:15 pm

By Jacquie De Almeida

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Coming face to face with a five-foot tall painting of an oval-cut yellow diamond isn’t an everyday occurrence, but neither is the extraordinary detail and nuances in colour exuding depth and life in its facets.

If not for its size, you’d swear you were looking at the real thing under magnification, which is exactly what the artist had in mind.

“I hope when people look at my paintings, they see a diamond’s mystic, beauty, and rarity,” said Reena Ahluwalia from her booth at CJExpos‒Toronto. “If you look at a natural diamond, its beauty is the Earth produced it over billions of years. We have the capacity to tell stories about diamonds to make them more romantic. If you’re celebrating something with a diamond, you see yourself in it. It is your achievement.”

The Canadian jewellery designer hasn’t traded in tweezers for a paintbrush. Instead, she’s taken her lifelong passion for painting and melded it with her love of diamonds, using colour and shadow to emphasize their beauty and the sentiments they evoke.

“Our problem as an industry is we are trying to commoditize diamonds,” she said. “But look at them—they are eternally beautiful, poetic, magical, and majestic. We have to talk about those qualities and that’s what I’m trying to do—I’m trying to tell a story. You have to convey what you feel about a diamond through stories, which are timeless just like they are.”

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The mood at CJExpos‒Toronto, the second in the lineup of Canada’s jewellery trade shows, appeared positive on opening day. From the look of things, traffic in the aisles indicated a strong showing, although official numbers were not available at press time. Retailers also made the rounds for last-minute purchases at the Canadian Jewellery Group (CJG) show, CJExpos‒Edmonton, and Expo Prestige held later in August.

 

The Canadian show season kicked off just as Bloomberg Nanos Canadian Confidence Index reported slightly more positive results at 57.5 for the week ending July 22. The survey indicated Canadians were more optimistic about personal finances, although job security fell to 63.8, the lowest it’s been since January 2014. The figures were somewhat more positive compared to early July, when the United Kingdom voted to leave the European Union. The voting result sent gold on an upward trend to a two-year high. By late August, gold hovered around $1338 U.S. per ounce, a significant difference from January, when it reached a high of $1116.

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Meanwhile, the diamond sector is feeling its own pressures. Rough diamond margins are still tight, while demand for polished remains weak. Hopes are high for initiatives like Diamond Producers Association’s (DPA’s) generic ad campaign—‘Real is Rare. Real is a Diamond’—to kick start consumer demand, particularly 
among millennials.

 

Isaac Mimar, CEO of MDL Diamond Merchants in Toronto, said the market is oversaturated with polished diamonds.

“Everybody is holding too much stock,” Mimar explained from his booth at the CJG show. “The recent consensus is 20 to 25 per cent excess polish has been in the market for the past year or so. Generic campaigns have been lacking for the last decade and I believe that has had a big effect. People have become complacent and are forgetting the intrinsic value of a diamond. It’s a good initiative and it should have some positive effects, but there are other issues at play in the diamond trade.”

For one, the housing market is taking a bigger chunk of people’s disposable income, he said. “If house prices move faster than wages, more and more people’s disposable income will not go toward jewellery. We’re seeing that first hand—average sales prices are going down.”

The other issue is what Mimar describes as hyper-transparency in the diamond industry, fuelled by online diamond retailers.

“Prices should not be this transparent,” he said. “We don’t know what a foot of lumber costs Home Depot to buy. But everybody knows how much a diamond costs and knows it quite easily, thanks to the Internet. Hyper-transparency is destroying the market’s profitability. And without profitability, you don’t have investment. This hyper-transparency is an overload of information.”

Jewellers are struggling to maintain margins at the retail level, said Alex Barcados, president of C.D. Barcados.

“The industry is shrinking,” he said. “There is a steady decline in independent retailers. ‘Business as usual’ is a struggle, although there are some jewellers who are excelling, whether it’s because of the product they sell or because they offer custom work. But sometimes it’s just based on the individuals operating the business. They have that community strength that plays well for an independent jeweller.”

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Although retailers may be struggling in terms of moving diamond jewellery, gemstone pieces are one category that may offer jewellers better margins.

“There is no question colour is a harder sell because diamonds and bridal are the bulk of the industry,” he explained. “But for jewellers that recognize the margins in gemstone jewellery, colour is very appealing. There are not many places to get margin; you can get it in some brands, but that has inherent risks—the brand can open their own store or sell direct online.”

Todd Wasylyshyn, account manager in Western Canada for Customgold, said oil prices and the economy are top of mind among his clients. The $10,000-plus price point in the bridal category has “evaporated,” as he puts it.

“Men are buying the best engagement ring they can afford at the moment because they are unsure about job security,” he said. “It’s been a tight spring in the West for a lot of retailers—they resisted buying earlier in the year. As soon as a jeweller gets down to all the leftovers, they have to buy something because it’s not like they’re doing no business. Those who have been actively promoting, renovating their store, or getting into social media are actually doing just fine. The sky has not fallen in Alberta. It’s definitely taken a hit, but those retailers who are proactive are holding their own instead of disappearing off the map.”

Custom-designed jewellery is one category that appears to be doing well, Wasylyshyn said, particularly among millennials who are looking for products beyond what they can find in the showcase. The trick is to ensure the process runs smoothly from start to finish.

“It depends on the jeweller and their expertise,” Wasylyshyn said. “If a junior sales associate tries to sell a custom piece and creates the wrong expectations for the customer and the job is a disaster, it hurts the business. [Success with custom design] depends on the key people being able to speak that language.”

Gemstone-setting instructor Gerry Lewy, owner of Gemz Consulting Services, said he’s seen an increase in established jewellers looking to bring this specialty in-house, 
allowing them to have better oversight on that part of the custom-design process.

“Retailers don’t want to ship a piece all over the country or take it next door,” he said. “They also want to be able to do their own repairs.”

And while custom work may be helping to make up for the shortfall at the retail level, offering store employees incentives to highlight one line over another can go a long way to having a good year. Abraham Konialian, CEO of Cadoryn, grew up watching his parents run their jewellery stores. He said he understands the importance of getting staff fired up about a line. That’s why he developed a sales incentive for store employees that may help direct consumers to his line over a competitor’s. When a staff member sells five pieces from Konialian’s line, he or she receives a free ring.

“When they sell something, they log into our system and indicate what they sold,” said Konialian, whose company is also exhibiting at Expo Prestige. “A store’s success all comes down to their staff because owners aren’t always on the floor. When it comes to the staff, they need to be rewarded.”

While the jewellery category in general is struggling, the watch industry appears to be doing no better. According to the Federation of the Swiss Watch Industry (FH), exports in June fell faster than at any other time in the first half of the year and recorded a difference of 16.1 per cent from June 2015. Precious metal watches were the worst performers, plummeting 31.4 per cent due to a particularly weak Hong Kong market.

Gino DeVuono, VP of Specialty Watch Resource, said the numbers are worrisome, although he says brands that serve a niche market are performing better than others.

“The big companies who have had pretty good years [up until now] are experiencing a bit of catch up,” explained DeVuono, whose company is also exhibiting at CJExpos‒Edmonton. “They were in a sense of a false economy in terms of what was happening in the United States and China. That really affected their business. But there’s always a marketplace for a business that serves niche clientele. Am I panicking at this point 
in time? No.”

No doubt, some jewellers are selling high-end watches and jewellery, and depending on whether they meet certain thresholds, are required to report those transactions to Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the country’s financial intelligence unit.

Amber Scott, founder of Outlier Solutions, an anti-money laundering consulting firm, said four jewellers have now been charged for failing to have a compliance regime, two of which are publicly named on FINTRAC’s website. The unit is also now starting to ask jewellers to verify they have conducted an internal two-year audit to ensure all the elements of a compliance program are in place.

“If you haven’t done one, get it done,” Scott said. “At this point, there’s no excuse not to do the two-year audit and it’s something jewellers should be aware FINTRAC is asking for.”

Overall, the Canadian jewellery industry appears to be doing better in establishing a compliance regime, she added.

“People who get in touch with me want to be compliant. I see far fewer people who are calling me to say they have nothing in place. Instead, I get a lot more calls asking that what they have in place is enough or to verify whether anything has changed. I think compliance is definitely improving as an industry, but on occasion, I still see people who do not have a compliance regime and that’s a dangerous place to be. FINTRAC isn’t charging people for not reporting a large cash transaction or a suspicious transaction. It’s charging for not having a compliance program in place. Not having your documentation ready to present in and of itself can result in a penalty. Even if you’ve never had a large cash transaction, you still need a compliance regime.”

The holiday shopping season can be a make-it-or-break-it time of the year for most jewellers. For ideas on what consumers might be hoping to find in their stockings, check out our annual holiday gift guide[5].

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