As indicated by typical sales data, the demand for gold related products seems to be bouncing back but for diamond and moissanite jewels continuingly declining in the past several years. The direct driver may be the recent bouncing back of gold price. The performance of diamond and stone jewels may present the same determining factors as in other retail sectors.  

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. The demand for diamond and moissanite jewelry products in US market seems to have been weak and presented downturn trend in the past three years as indicated by the continuingly declining same store sales of those typical retailers in this sector.

2. It seems that demand for gold jewelry and gold related products may have been re-bounding back since 2017as indicated by slowing down decrease or even an increase in gold related jewelry during the same period.

3. International market of diamond jewelry seems to be presenting the same trend, as we are seeing in US market, probably as a result of receiving impacts from similar factors, which seem different as they are in other US retail sectors.

4. We have seen significant increase in demand for gold product and in gold price in China market since 2016.

5. As a response to the soft same store sales/traffic, we have seen increasing promotion activities from some of retailers while others, especially those retailers who can control production costs, managed to lower production costs to deal with shrinking profitability due to declining sales.

Causes behind the trend

1. The products in this sector should have been fundamentally divided by demand for consumption and demand for investment.

2. Therefore the demand for jewelry should have been influenced not only by consumer related factors such as population growth and household income but also by prediction of price of products.

3. The decline in sale of diamond jewelry store may also partially be caused by slowing down mall traffic while, more likely, it implies a general decline in purchasing power of consumers due to a slower growth than expected in salaries of employees or a feeling of shrinking wealth for wealthy people as a result of cease of quantitative easing policy.

4. Increasing demand for gold related products may have been supported by the recent increase in gold price.

Industry Future

1. We will probably see continuingly weak in sales of diamond products of companies in this industry. However, demand for gold products may grow as gold price bounced back.

General Financial Performance of Companies In the Sector

It seems that, based on the typical company data, the demand for gold jewelry products in China has re-bounced back in the past two years as indicated by the large increase in sales volume (average 35% annual growth in 2016 and 2017).  It seems that the strong demand for gold products has been the driver behind the increase in sales since the increase in sales volume has been accompanied by the increased selling price (average 10% annual growth in 2016 and 2017).

It seems that, due to significantly increased demand, the increase in materials costs (gold price) has been not only able to be smoothly transferred to the selling price of jewelry but also at a slower pace in growth than selling price. And this has helped companies in this sector to improve their margins.

The typical companies’ gross margin went up to 10% from 7%. Companies’ cash flow thus significantly increased in 2016 but decreased in 2017 due to increased debt and interest payment.

The typical average stock price/cash flow ratio is about 4.

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