If the the 39-carat diamond auctioned by Christie’s recently, which went for $5.4 million, is any indication, then the luxury jewelry industry may be bouncing back quicker than other industries.

However the New York Times is suggesting something greater: that the entire luxury jewelry industry may, in fact, be recession–proof. Mark Dunhill, chief executive officer of Fabergé, is quoted:

“During times of economic uncertainly real luxury comes back,” Mr. Dunhill said. At the same time, however, “there is a tendency to approach special purchases in a more discerning and discreet manner.”

Jean-Christophe Bédos, Boucheron’s chief executive calls the new approach ‘Beyond Luxury’: “[A] unique expression of excellence in design and craftsmanship.”

What Mr. Dunhill calls “real luxury” are the kinds of things that Lambda personalities prefer — the truly exclusive products and experiences that bestow status.

This is consistent with what some in the luxe industry are calling a return to the roots of luxe. I wrote previously that it’s possible the only way back for the luxe industry is to go exclusive. Not all agree, however it will become a strategy for some brands going forward.

Last week Christie’s Auction House put up for auction a 39-carat diamond. It was part of  the “Magnificent Jewels from a Distinguished Private Collector” auction.

Later this week Sotheby’s will auction a 29-carat flawless diamond. I wrote previously how that could set the tone for how the diamond industry picks itself up and carries on, post-recession. However it seems Christie’s has already solved that.

Rahul Kadakia, head of jewelry at Christie’s New York is quoted in National Jeweler saying that the Christie’s sale is indicative of an industry recovering quickly.

“The diamond market continues to show remarkable strength despite the volatility of the financial world … Just two weeks after a very strong sale of jewels at Christie’s Hong Kong–where a 5-carat pink diamond went for $10.8 million–the exceptional Evening Star Golconda diamond of 39 carats sold at Christie’s New York for $5.4 million. It was a fitting grand finale to a year that saw over $100 million in jewels change hands under our gavels in the U.S.”

We could be seeing a strong resurgence in the diamond industry, most notably at auction houses. If a 39-carat stone nets $5.4M, then one could hazard to guess that Sotheby’s 29-carat stone will net around $3.5. However reports currently have it pegged at going for $1.8 million to $2.2 million.

Regardless, it appears the Lambda personalities are out in force in the diamond market, ready to pay top prices for the most exclusive diamonds available to be bought.

Every week it seems a different luxe brand is making a push into China. This week it’s diamond retailer Tiffany & Co, with a new digital through-the-line campaign for its Tiffany Keys collection.

Media by Brand Republic has more:

This week, Tiffany unveiled its ’Journey behind the door’ online campaign, developed by Proximity Live and BBDO, in conjunction with a photography exhibition featuring mainland celebrities. The digital site, at TiffanyKeysPhotos.com, features a sample of the photographers’ works and includes community features, encouraging audiences to share their interpretations of the theme ‘Journey behind the door’ via BBS posts and photographs.

The new digital campaign is a different approach for luxe, which has previously avoided digital because of a perceived loss of exclusivity. But now that those same Lambda personalities who avoided the web are now practically digital natives. As a result, the luxe brands have less motivation to avoid it, too.

At its New York headquarters on October 19, Sotheby’s will take the diamond industry’s temperature when it auctions a 29 carat flawless diamond ring. The price it fetches will be telling of the state of the industry and the prices buyers have a stomach for.

Luxist is reporting that the price is estimated at $1.8 million to $2.2 million or $61,000 per carat. A flawless diamond of this size would be eye-catching to any Theta personality, both because of its rarity and overall perfection.

And while this is a truly remarkable diamond, it’s worth noting that this is yet another example of what I wrote previously about the industry forgetting the consumer. Other items included in the auction are considerably less expensive, with the next highest item expected to go for between $250,000 and $300,000.

It’s an industry test to see what kind of diamonds will sell in this climate and which will not. If the only diamond left standing is the 29 carat one, we’ll know the industry will and will not tolerate.

Chaim Even-Zohar’s latest memo reveals the diamond industry in despair. At the moment Diamonds are not being sold to the market of consumer and what we see is inter-trading only. Banks do not see new money coming in, and while they hail the fact that debt went down by 20%, how much was due to real sales and how much was due to squeezing the empty pockets of the industry? The cancer has reached the producers, who act irresponsibly and pour billions of dollars into the market with the only short-term goal of survival. Alrosa lost half a billion dollars this year and De Beers struggles to finance its debt. All in all, somewhere along the line the industry forgot the consumer.

We all know the truth about diamonds for investment (short answer: they’re not), but the new trend that big players want to establish just shows their level of despair, trying to play on the world’s ignorance. This is not the first time that the trade, championed by De Beers, has done so. The world has believed that “all diamonds come from De Beers” and if you do not have a De Beers diamond, something is wrong with your diamond. I do not blame De Beers for not correcting this perception, but they were happy with this ignorance. What we see now, this attempt to attract investors, is something really dangerous. This raises some painful memories. During the heydays of the diamond boom before 1980, a Belgian worker decided to buy some diamonds for investment. When he came to us some ten years later with his parcel, we looked at it and literally had tears in our eyes. Here was a hard worker with a permanent layer of dirt under his nails and who had bought diamonds with full faith that his purchase was a good value that would appreciate. In actuality if he got 5% of his investment, he would have been lucky.

This was not an isolated case–I have a personal example: When my uncle left our company in 1975, he took, as part his compensation, a few parcels of polished goods that were estimated well below market price. When he tried to sell these goods twenty years later, he hardly recovered his investment even after repolishing and regrading many of the goods.

We also can’t forget the $1 trillion of goods at market price that are in the hands of consumers — these goods will be worth much less when consumers try to dispose of them. Jewellers pay about a third less on average for the same goods when going to their suppliers. When they buy from the consumer market, they pay a lot less for several reasons: they have to pay cash, the goods won’t always sell easily, and sourcing from the consumer market is not always steady.

On top of this, the jewellers’ market is very narrow and quite often they will try to move it up the supply chain to their supplier or supplier’s supplier, reducing the value they can offer even further. If the market tries to market diamonds for investment, they are literally cheating the market. Most of the goods that will be sold will fetch only a fraction of the investment when they are resold, even without any more mining. And even extraordinary large and special diamonds, which might have been a good investment in the past, won’t be a good investment if many of them are sold later on at lost or close to par.

This one isn’t for the squeamish — the Netherlands Institute for Innovative Occular Surgery is offering a procedure sure to please the most discriminating Lambda: a jewelry implant for one’s eye. It’s certainly unique. Is it safe? I’m not sure — have a look at the video (warning, it’s a bit graphic):

The diamond industry may be beginning to recover, according to De Beers executives who spoke at the Diamond Town Hall Meeting at the Antwerp World Diamond Centre earlier this month.

Gareth Penny, De Beers managing director, said “diamond inventories have fallen to levels which have justified increasing the mining production of the De Beers mines after it had been reduced by some 90 percent in the first quarter of the year.” He also said “The demand for De Beers rough diamonds is picking up,” and that “De Beers production is increasing to keep pace with demand. Retail sales have also shown an improvement.”

He noted that in the period from 1970 to 2009 there were four major recessions in the US, and in the five year period following each, rough prices rose sharply. Penny expects the same to happen this time. I do hope he’s right, and that demand truly is rising. It would be all too easy for him to just tell the crowd at the town hall (including sightholders) things they want to hear.

Photo by Hamza Hydri

When something is scare and unique enough, people will pay a premium for it, whether there’s a recession on or not. This was eminently clear with the recent sale of the ‘Star of Josephine’, the 7.03 carat flawless blue diamond that sold at auction for £6.2 million earlier this month. It was the highest ever price paid per carat for a diamond at auction according to Sotheby’s. The buyer, Hong Kong property developer Joseph Lau Luen-Hung, named the diamond after purchasing it.

Here’s an interesting article on the state of the diamond market in Russia–they’re stockpiling diamonds while they wait for demand to return to protect the market in the long run. They’re also beginning to take charge in advertising diamonds generically the way De Beers used to. At the end of the article, the author sums up the major problem in the diamond industry, but also points to the solution:

“We have to tell people that diamonds are valuable,” [Aleksandr A. Malinin, an adviser to the president of Alrosa] said. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none.

At the Alrosa unit that receives diamonds, called the United Selling Organization, where about 90 percent of the output of the Siberian mines arrives for processing, Elena V. Kapustkina pours about 45,000 carats of diamonds though a stainless steel sieve every day to sort them by size.

“It’s just a job,” she said.

When asked whether diamonds had lost their romance for her, Ms. Kapustkina paused, looked down at the pile of gems on her table and blushed.

In fact, she said, her husband, a truck driver, gave her a half-carat ring 22 years ago. “Of course I love it,” she said. “It’s from my husband.”

I hope Malinin’s cynical comments won’t undermine the industry. The industry should really be focusing on people like Elena Kapustkina, who feel an emotional connection to their diamond. Understanding how people interpret luxury and how luxury can give people positive reinforcement will give marketers a distinct advantage–it’s the direction in which luxury marketing is going.

Photo by mafic

Another doom and gloom story about the diamond industry, this time from Reuters. Its highlights (or more accurately lowlights):

• (Anecdotally) trade in Antwerp’s diamond district is down to a tenth of usual levels
• Several Israeli diamond houses have failed
• In India, the center of manufacturing, about 500,000 (out of around 800,000) workers have been laid off
• Top-end demand from the rich and super-rich, such as Russian oligarchs or Arab sheikhs, has dried up completely and only smaller gems for engagement rings are keeping the market alive

These are not encouraging observations. The article also touches on the amount of debt in the industry–it peaked in mid-2008 at $14-15 billion. The article implies that the industry has always relied on debt. This is incorrect–the diamond trade used to always be on cash or on short terms (up to 30 days). People started to use the banks heavily since the collapse in 1980–and now we can see what this reliance on debt has brought to the industry.