Chinese preference for luxe travel poses hurdle for diamond rebound, says De Beers

De Beers Chief Executive Officer Bruce Cleaver in a file photo taken on Sept 14, 2016.

HONG KONG (BLOOMBERG) - China's newfound penchant for luxury travel poses the latest threat to a turnaround for the US$80 billion (S$108 billion) diamond industry.

Chinese deluxe spending on travel is the "fastest-growing competitor" standing in the way of diamond sales in the world's biggest consumer market, said De Beers Chief Executive Officer Bruce Cleaver.

To win those travel dollars, he said De Beers could even see itself tying up with the luxury travel market somehow.

"Luxury travel is certainly a competitor to diamonds," Mr Cleaver said in an interview in Hong Kong on Thursday (Sept 14). "If there's a way to link luxury travel to an African destination where the diamond came from, we'd certainly look into that too."

The world's biggest diamond producer is seeking to kickstart an industry that has seen prices for polished diamonds slump for the past six years. Its major Asian markets including China and India reported flat or declining sales in 2016.

The company is also facing hurdles as a younger generation of Chinese shoppers increasingly spend more on high-end electronics, travel and fine dining than on baubles.

Worldwide demand in 2016 was essentially flat, as a 4.4 per cent gain in the United States offset sluggishness in Asia, according to a De Beers industry report published on Thursday.

Sales in China and India showed improvements in the first half of 2017, with single-digit growth from a year earlier, said Mr Cleaver. The industry expects gains for those countries in the next five years as the global economic outlook improves, though Japan would not grow as fast as its Asian peers due to its ageing population, he said.

De Beers is seeking to influence buying trends by spending US$140 million this year to advertise diamonds, the most since 2008. It is focusing on women in its main markets - particularly those between the ages of 18 and 33 - who De Beers says are buying diamonds for themselves as their earning power increases.

Winning over those shoppers would not be easy, especially in China, where diamond sales declined 4.8 per cent last year in dollar terms.

Competition from travel is a big challenge. China is the world's largest source of outbound travellers, according to the World Tourism Organisation. More than 135 million Chinese travelled in 2016, and their spending rose 12 percent to US$261 billion.

Even at home, rich shoppers who want to make a fashion statement are frequently opting for items such as Louis Vuitton bags and Gucci loafers. De Beers also is competing against companies including Chow Tai Fook Jewellery Group that are offering fashion jewellery at lower prices to lure Chinese shoppers.

"We are still pretty positive," said Mr Cleaver. "It's a question of adapting your brands to the future, which I think we have all the tools to do."

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