Millennials and Gen-Z consumers, who are increasingly becoming a significant force in the Chinese market, are opting for experiences like luxury travel rather than traditional luxury items like handbags, sports cars, and jewels. And that’s taking a toll on the $80-billion diamond industry. According to Bruce Cleaver, the CEO of De Beers SA, in a recent interview, Chinese luxury travel is the “fastest-growing competitor” to diamonds.
In 2016, the number of Chinese outbound travelers had risen 6 percent to 135 million, and their spending has increased by 12 percent (or $11 billion) to $261 billion, according to statistics from the World Tourism Organization.
“Luxury travel is certainly a competitor to diamonds,” said Cleaver in an interview with Bloomberg in Hong Kong. As the world’s largest producer and distributor of diamonds, De Beers has experienced unimpressive sales during the past two quarters, an industry report recently published by De Beers showed. In a market where global prices for polished diamonds have been plummeting for the past six years, De Beers’ sales in Asia, particularly India and China, have seen positive growth, though only in the single digits, for the first half of 2017.
China, in particular, is going to be the next biggest growth hub for the global diamond jewelry sector. Over the past decade, the demand from Chinese consumers has increased 12 percent to reach $9.7 billion in 2016 from $3.1 billion in 2006, the same report noted.
Gift-giving and bridal use are two major reasons why Chinese customers purchase the diamond. De Beers reported over two-thirds of Chinese women still designate diamond as top gift options among all kinds of luxury items, and nearly half of Chinese brides in Tier 1 to 3 cities require diamond to get married. In addition, consumers in Tier 3 cities represent a huge untapped market for De Beers.
The challenge for the diamond industry is figuring out how to use the travel boom in China to its advantage. “Jewelers can tap into the rise in Chinese tourism, both domestically and overseas, by selling more through travel retail channels such as tax-free as well as duty-paid points-of-sale,” Intelligence retail analyst Catherine Lim told Bloomberg.
In addition to travel-related retail channels, however, Cleaver has raised another point about integrating diamonds and travel into one luxury experience.
“If there’s a way to link luxury travel to an African destination where the diamond came from,” said Cleaver, “we’d certainly look into that too.”