One industry you may not have thought would take a hit from the U.S.-China trade war: diamonds.
But Paul Zimnisky, an independent diamond industry analyst, says the effect of the trade war on general consumer sentiment could ding diamond sales.
“It’s a consumer-driven industry, so consumer sentiment is very important,” Zimnisky says. The direct issue isn’t the tariffs on Chinese imports, since the U.S. imports only 1% of its diamonds from China, but the macro impact of the trade war on American consumer confidence and how that might effect diamond purchasing.
For diamond retailers, the larger concern is generational: young American shoppers do not appear to love diamonds as much as past generations.
De Beers Group has seen its rough diamond sales decline sharply, and just this week De Beers CEO Bruce Cleaver pinned the trend on “a backdrop of macroeconomic uncertainty.” In the past 12 months, shares of Signet Jewelers (SIG) are down 50%, and shares of Tiffanys (TIF) are down 27%.
In the past 15 years, De Beers lost its monopoly on the industry, which also brought the end of the ubiquity of its “A Diamond is Forever” ad campaign.
“So we’ve had a 10-year period where there hasn’t been this generic marketing campaign, and it was such a powerful campaign, the momentum of that campaign kind of carried the industry through,” Zimnisky explains. “We are finally getting to a point where newer consumers are not familiar with that campaign, and maybe they have more of a negative association with diamonds.”
No one is calling the death of the diamond industry — it remains an $80 billion business, and 50% of the end-consumer demand comes from the U.S. But millennials are increasingly likely, when shopping for engagement rings, to consider a different stone, or no stone at all.
The popularity of lab-grown diamonds also creates a new challenge for some diamond giants. Lab-created diamonds still represent only 5% of the entire supply, “but it’s new and it’s exciting,” Zimnisky says, “and this industry has been craving newness.” Millennials are especially lured to lab-grown diamonds for the sustainable and ethical appeal.
But Zimnisky predicts the price of lab-created diamonds will drop soon, which may make the category less of a direct competitor to high-end mined diamonds, since shoppers would not treat it as an alternative.
“We’re in this weird-transition point where these lab-created diamonds are still selling for thousands of dollars, but I think in three to five years’ time, almost all of them will be selling for under $1,000,” Zimnisky says. “And it’s kind of funny, that really does impact the way the consumer perceives the product—if they see it being a competing product with natural diamonds or if it’s a fashion jewelry or a different product category altogether.”
Daniel Roberts is a senior writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.