The global diamond pipeline is now worriedly contemplating the near-to-medium future in the light of the China economic slowdown and the drag-down effect it is having on a whole bunch of other economies around the world. Even the US, which has been the one steady demand generator thus far, could get sucked into the vortex given the way the world’s economies are all so closely interconnected today.
While India too has been affected, with the rupee sliding against the dollar and the whole economic outlook turning uncertain, the diamond pipeline wonders whether it can rekindle the flame that drove a strong growth in diamond consumption not so long ago. A flame that only burned relatively briefly.
Diamond jewellery is still only a small part of the massive jewellery consumption in India. One of the major reasons for this is that worldwide, its purchase is driven by among other things, aesthetics and fashion — neither of which are primary drivers for jewellery sales in India.
Because of how it has been embedded in — and indeed become part of the fabric of — Indian society, jewellery has, for thousands of years now, fulfilled the function of a storehouse of value for the whole family along with adorning its women. This is what has led to the much-written-about craze for plain gold jewellery in India. Intrinsic value is still a primary sales driver in the country.
However, the winds of change are blowing through the traditional market. Today, intrinsic value is not the only sales driver for jewellery. The Indian consumer has become very receptive to buying jewellery the way consumers do in developed markets. This is borne out by the outstanding success that came the way of the De Beers promotional campaign in India at the beginning of the present millennium.
With no diamond tradition at all in the Indian market, De Beers chose to create brands and imbued each with specific content. This had never been tried before and the exercise was watched with keen interest. A brand has its own perceived value and thus is not a good investment vehicle. Could the Indian consumer be coaxed away from the investment purchase motive?
The answer was a resounding “yes”. De Beers entered the market with its Nakshatra brand, a clever marrying together of the traditional Indian floral motif and celebrity endorsement power of Bollywood stars, all packaged in a very affordable product line that even the middle class could aspire to. It then went after the growing numbers of professional women who controlled their own finances and thus opened up a hitherto minuscule self-purchase market with the Asmi brand. It also successfully targeted the mature relationship market with its Sangini brand. All of this was tied together with De Beers’ “A Diamond Is Forever” umbrella campaign.
What was key, however, was the fact that along with the specific brand campaigns, De Beers kept up its generic promotion of diamonds as a product category of its own. Their famous “shadow” campaign, with only a couple’s shadows on screen or showing them only in silhouette, pushing the idea of diamonds promoting romance kept running and impacting the Indian consumer. Of course, the “A Diamond Is Forever” campaign, translated into a number of different Indian languages, also ran in parallel, building up the perceived value of the diamond, in a market that really didn’t have any diamond tradition before.
The Indian suddenly began to appreciate and value diamonds and spectacularly fell in love with diamond jewellery that was positioned in a space far removed from the traditional investment-driven segment.
Equally suddenly, De Beers exited the promotional space — both the specific brand campaigns as well as the generic messaging that had kept going in the background. That love affair with diamonds that had bloomed almost overnight, hit a stagnant patch. It is still stuck there, with nothing to give it traction and get it rolling again.
Today’s promotions in India, even by some of the major retailers, is all about discounts and what great deals these offer the consumer. These, while they might deliver short-term lifts in sales, are gradually eroding the perceived value of diamonds that the De Beers campaigns had built up so well. Diamond demand has been progressively sagging as a result. Diamonds need something other than a “good deal” to get consumers enthused again.
Along with the lack of promotion, which in my view is the major factor impeding the growth of diamond consumption in India, one other major issue is also playing spoilsport — a fundamental social transformation as the government pushes to get rid of the undocumented parallel economy and encourages more plastic money and fully invoiced cash transactions.
The government push isn’t to do with jewellery specifically — the parallel economy pervades almost every aspect of business life in India and by some estimates, it could be as much as double the size of the official, documented economy. It is natural, therefore, that any government interested in bringing about economic reform and stimulating growth would focus on getting rid of the huge drag created by the parallel economy.
But because the parallel economy is untaxed, it has also, unfortunately, meant that a large proportion of jewellery purchase transactions have been in the undocumented segment. Thus we now have a situation where consumers are now shying away from high-value purchases because of the government specification that tax numbers be entered into invoices over Rs.100,000. Meanwhile, diamonds aren’t in the storehouse of value space in the sense that they are not a fungible commodity the way gold is. And because the promotional campaigns have lost their way, diamonds also haven’t established a clear alternative identity for themselves. This is why, in my opinion, diamond demand is languishing in India today.
I’m very optimistic about the future of diamonds in India, however. I think sense will ultimately prevail in the diamond pipeline and everyone will come together to launch some generic promotion initiatives. The parallel economy in India, the way it is today, is definitely on the way out. Once the new, accountable economy kicks in — I think it might be a year or two before this happens — we’re going to see diamond demand really soar in India.