BH Report: Diamond Engagement Rings 2014/11/24

Context

When I made up my mind to propose to my wife, I didn't even think for a moment what I needed to get

her. It was going to be a diamond ring, ideally a 3-stone type with a platinum band... and this was

exactly what I ended up getting.

I think back to the experience, and two thoughts come to my mind:

• It is incredible that it is such a "common-sense" thing to get a diamond jewelry for a proposal...

somebody, at some point must have put in effort to make this a "trend"

• I was somewhat equipped with 'what to get' by my wife (girlfriend at the time)... I wonder whether

this was a typical thing, or if she was unusually prepared

In this report, I tried to explore the following:

• How common is it to give a diamond ring for a wedding? how has this changed over time?

• What are the different variations of rings bought? (carat size, price, metal used, etc.)

• How are purchasing decisions made? How much input does a bride provide?

• Where are rings bought ? (is Tiffany the dominant retailer?)

% share of diamond engagement ring has dramatically increased in the last 70 years

1. 2000's data based on the extrapolation between 90's and 2010's data 2. Quite an interesting case study for a successful marketing scheme, but will not go much deeper in this report as it is not "main point" of the analysis Source: Bain report "The Global Diamond Industry"; The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"; the knot "Bridal Jewelry: More Customers, More Sales"

0

20

40

60

80

100

% brides receiving diamond engagement rings in the US

30%

40’s 50’s

67%

90’s 60’s 70’s 80’s

80%

10%

88%1

2000’s 2010’s

50%

96%

60%

"A Diamond is Forever" slogan invented in 1947

The growth owes largely to continued investment in

marketing by key industry players2 (e.g., De Beers)

Eternity ring design introduced in ~60's

Market size of ~$6-7B

Wide range of prices on the engagement rings (which is expected... given that people with all range of HHIs need to buy)

$ spent on engagement ring

8%

20%

21%

23%

16%

13%

$10K+

$5 – 10K

$2.5 – 5K

$1 – 2.5K

$0.5 – 1K

<$0.5K

Corresponding Household Income range1

For the age range of 25-34

$140K+

$80 – 140K

$55 – 80K

$30 – 55K

$20 – 30K

<$20K

1. Identified the range of household income for the corresponding percentage breakdown on the left Source: The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"; US Census "2012 Current Population Survey"

Avg = ~$3.5K

Size of the stone (carat) also vary significantly – with peaks around certain "typical sizes" (e.g., 0.5, 1, 2...)

g Source: The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"

11

5

11

22

13

17

8

0

5

10

15

20

25

0.75 0.5 <0.25 Carat

13

>2 1.75 1.5 1.25 1

% of diamond engagement ring in the US

Avg = 1.18

Price of diamond increases exponentially with its size (because of the rarity)

0

100,000

200,000

300,000

400,000

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

$ Price1 (assuming Shape=Round, Cut=Ideal, Clarity=D/Colorless, Clarity=Flawless)

Carat 1. Retail value based on Blue Nile 2. Based on production value Source: Blue Nile; Bain report "The Global Diamond Industry"

2+ carat represents ~5% of volume and ~50% of value overall2

Carat = 1 Price = ~$22K

Carat = 1.5 Price = ~$40K

Carat = 2.0 Price = ~$95K

Round and Princess cut dominate the "shape" (~90%)

1. Total does not add up to 100% because bride/groom can choose more than one shape in a ring Source: The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"

23455

31

55

0

20

40

60

Round

% of diamond ring in the US1

Oval Emerald Radiant Marquise Cushion Princess Shape of the cut

White gold is still the most dominant metal for the band

1. Total does not add up to 100% because some rings use multiple metals Source: The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"

46

16

71

0

20

40

60

80

<1

Tungsten Cobalt

<1

Titanium

% of engagement ring in the US1

<1

Metal used Silver White gold Yellow gold Platinum

Back-up: Clarity seems to be less important of a factor

Clarity

40

14

20

14

10

80

60

0

100

40

20

VVS1-VVS2 (Very Very Slightly included)

SI1-SI2 (Slightly included)

Don’t know

F-IF (Flowless/Internally Flawless)

3

VS1-VS2 (Very Slightly included)

I1-I2-I3 (Included)

%

Note: US data Source: The Wedding Report, Inc. "Engagement & Wedding Ring Report 2011"; Customer interview

Doesn't seem to be as important

of a criterion as size, etc.

• Fairly even distribution across the

grades, with VS1-VS2 (middling

grades) being the most popular

• Nearly half of the brides/grooms

(~40%) don't even know the

clarity of the diamonds

“It doesn't really matter half the time – you need to be very closely looking at the stone to see the specs” - Customer

"You can see the coal for SI2, but SI1 and above – you can't even tell even if you know it's there" – Customer

(Absence or inclusion of blemishes)

Unusual for the bride to be present at the time of ring purchase (~10%)...

10

2131

34

1883

18100

0

20

40

60

80

100

Bride and Groom shopped together

%

Total Bride was not present at the ring purchase

Ring was a complete surprise

Discussed what the bride wanted

Bride was present at the ring purchase

Bride dropped hints or gave

some guidance to the groom

Ring was a surprise

... however, 4 out of 5 brides provided some kind of hints/

guidance on what she wanted

Source: the knot "Bridal Jewelry: More Customers, More Sales"

Brides/grooms agnostic to the retailer - the market is highly fragmented and local jewelers take up half the share

"Where to buy" is NOT an

important attribute... ... and grooms shop around...

... as a result, the market is

highly fragmented

Rank in Order of Importance

Grooms

1 Stone Quality

2 Style/Setting

3 Stone Cut/Shape

4 Price/Value

5 Stone Size1

6 Metal

7 Retailer

8 Designer

Brides

1 Style/Setting

2 Stone Cut/Shape

3 Stone Quality

4 Metal

5 Price/Value

6 Stone Size1

7 Retailer

8 Designer

1. By the way, I don't really trust this survey result that both grooms and brides don't think that the stone size is important – I'm guessing that each person has a "threshold" size that he/she thinks is appropriate, and is not particular about the size so long as the ring is in that range Source: the knot "Bridal Jewelry: More Customers, More Sales"

On average, a typical groom • Searches about 3 months

• Visits about 4 retailers

• Looks at about 27 rings

4

7

8

14

49

40

20

0

100

80

60

%share

Other/local (independent) jeweler

#6 Tiffany

#1 Kay Jewelers

#5 Helzberg

#2 Jared

#3 Zales

#4 ShaneCo

#7 Blue Nile 3

3 3

#8-18 Wal-mart, Tacori, Fred Meyer, Rogers & Holland, JC Penny, Robbins Brothers, Gordon's, Littman's, Kesslers, Overstock.com, Amazon.com

Disclaimer

This document is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. Although the statements of fact in this report are obtained from sources that I consider reliable, I do not guarantee their accuracy and any such information may be incomplete or condensed. Views are subject to change on the basis of additional or new research, new facts or developments.