WORLD: The Jewel Trade's Fading Luster

Last fall, recession-wary Americans more concerned about basics than bling began to lose interest in diamonds and other jewelry, and now the sales slump is reverberating around the world.

Retailers are taking a big hit. Tiffany said Monday that its profit dropped more than 75 percent in the fourth quarter. Lynn Jewelers, a downtown Washington presence since 1946, closed its doors last month. Christian Bernard Jewelers, a national chain with several stores in the Washington area, has shut down, as well. They are among 1,000-plus jewelers across the country to go out of business in the past year.

In India, drought-ravaged villagers who found salvation in the diamond-polishing factories of Gujarat have been let go in recent weeks, and thousands are migrating home. And Botswana, which depends on diamonds for more than 30 percent of its economy, has put all four of the mines it operates with De Beers Group on furlough.

Even the world's wealthiest are feeling the effects. In a recent television interview, Warren E. Buffett reported that his Dairy Queen holdings were fine, unlike his jewelry interests, which "just get killed."

Americans buy nearly half of the world's polished diamonds, and when they pull back, it's noticed.

The market for jewelry slowed in September, when credit markets tightened after the collapses of Lehman Brothers and American International Group. Sales showed little sign of recovery, even through the typically bustling Christmas season and Valentine's Day. And there are no signs of a resurgence anytime soon.

Ask Hala Meiser of Fairfax, who was relaxing with a friend at Tysons Galleria in McLean on Monday. Meiser, a retired teacher, said her mother gave her a sizable cash gift last month to splurge on jewelry.

"There are more significant things" to buy than jewelry, said Meiser, who used the gift for something more practical -- a new tile floor for her kitchen.

Jewelry "sales were down 10 to 20 percent last year -- I can't imagine they won't be again this year," said Dione Kenyon, president of the Jewelers Board of Trade, a credit-reporting agency for the industry. "I hear people say, 'Oh, things will [improve] and go back to the old days.' You don't go back to the old days -- there is a new order."

About 60 percent of diamonds cut and polished in the western Indian state of Gujarat are sold to the United States, and the region accounts for about 72 percent of the international processed-diamond industry.

Plants are being shuttered, and perhaps thousands of people are losing their jobs. The 50-year-old industry is in the midst of crisis after three decades of soaring business that provided work for about 1 million people, mostly poor migrants fleeing drought-ruined farms. They earned about $130 a month polishing diamonds, nearly four times what many made as farm laborers. The Indian media has recently reported a few suicides because of joblessness and debt.

"About half our business units have shut down, and many workers have either gone back to their villages or not returned from their vacation last October," said Champakbhai P. Vanani, president of the Surat Diamond Association. He said about 50 percent of the total workforce in the local diamond industry is now jobless, though officials said workers float between companies, making it difficult to give exact figures.

"Ours is a $15 billion industry," Vanani said. "But right now, only 15 percent of diamond cutting and polishing work is going on."

Government officials tried to prevent the closures. "We requested the owners to keep their businesses open for the benefit of the workers. But they don't listen. What can they do?" said Rajnikant Patel, labor secretary in the Gujarat government. "They are in a crisis; their business is down."

In Botswana, Debswana Diamond, a joint partnership between De Beers and the federal government, last month imposed a 50-day "pause" on production there, temporarily closing three mines until mid-April. A fourth mine will remain shuttered indefinitely. The company produces 22 percent of the world's diamonds.

The slowdown comes a year after De Beers invested $83 million in a cutting and polishing facility, an effort aimed at putting more people to work.

"Clearly, reduced production means reduced [number of] diamonds going into those factories that were newly established," said De Beers spokesman David Prager in a phone interview from London. He added that the company believes that demand for diamonds will resume, eventually outpacing supply.

Prager said a joint venture between De Beers and Namibia is planning a similar furlough on operations there. Like their counterparts in Botswana, the workers in Namibia will be paid during the pause, he said.

Still, Botswana's new president, Ian Khama, said in recent media reports that the nation faces a deficit and will have to dip into its reserves and borrow to make up for lost revenue from the diamond mines.

When workers lose their jobs in India's polishing plants or are furloughed from Botswana's diamond mines, the consequences ripple outward.

The cobblers, restaurants and others supporting them suffer, said Russell Shor, senior analyst for the Gemological Institute of America. Closing the mines "has a devastating effect on surrounding businesses."

Last year, 1,137 jewelry businesses closed in the United States, while bankruptcy filings rose 18.5 percent, according to the Jewelers Board of Trade. Nearly a third of the closures occurred toward the end of the year, after a disappointing holiday season. December jewelry sales for non-anchor tenants in U.S. shopping malls were $718 million, down 20 percent from the previous December, according to the International Council of Shopping Centers. Earlier this month, Tiffany announced that it was closing its 16-store Iridesse pearl chain.

"In order to keep a business thriving, you need people to spend money," said Mitchell Engle, who managed Lynn Jewelers and worked with his brother and mother. Engle said he plans to establish a new operation specializing in customized jewelry and online sales because the traditional jewelry-store model -- with high rent and hundreds of slow-selling expensive products on display -- doesn't work in a contracting economy. "It's harder to get loans to maintain the level of inventory we'd like to get."

The wedding market has been a bright spot for many jewelers. Officials at Mervis Diamond Importers, which operates four stores in the Washington area, said sales of engagement and wedding rings are strong.

Until business picks up, many retailers are trying to make do by tapping into growth from another recession-related phenomenon: Customers, taking advantage of rising gold prices, are selling their used jewelry.

Justin Carmody, co-owner of Diamond Exchange USA in Rockville, said just-because purchases of bracelets and necklaces have nearly dried up. People are buying smaller, less extravagant engagement rings. But the store's used-gold buying is up fourfold.

"We've pursued that out of a need," he said.

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