The Hallmark of Quality

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Regal Imports News for SEPTEMBER 2019

There have been 5 changes to the Rapaport price list in the past 8 months. The major changes have been price decreases on diamonds of D-F colour and Flawless to VVS clarities. One dealer wrote to me and pointed out these Rapaport's price decreases lowered the value of some better-quality diamonds by 20%. Making matters worse, discounts offered by dealers selling these diamonds on the Rapaport list have moved from minus 35% in December 2018 to minus 43-45 today. The dealer ended his note to me by exclaiming, "Is there so much margin in the industry that we can digest a 30-35% loss in eight months. At this rate 50% of the industry won't exist or won't have (the) interest to continue anymore."

The Chairman of Hari Krishna Exports attributes the weakness in the diamond market to an "unabated rise in the price of rough diamonds." Rough diamond prices have continued to rise while overall polished diamond prices have fallen 20% in the last 10 years.

Miners have, obviously, pushed too much diamond rough into the market. Their aggressive selling has caused the third crisis in the diamond industry in the past eleven years. Diamond miner's analytics must be greatly flawed to have allowed this many crises to occur in such a short period of time. De Beers and Alrosa have been forced, once again, to drastically cut back supply in order to maintain current rough price levels. India's diamond cutters are currently sitting on roughly ten billion dollars' worth of rough diamond stock. The 10 billion-dollar stock pile is the highest level of rough inventory since the economic crisis of 2008.

Rob Bates observes that the first diamond crisis occurred in 2008, a second in 2015 and the third is happening right now! Bates points out that the two most recent crises have occurred in the last five years which is simply "not healthy."

Some point to miners as the cause of the reoccurring diamond problems. Diamond miners have continued to make healthy profits while the rest of the industry wrestles with crisis after crisis. Some blame Rapnet for creating a trading platform that promotes price wars. Some blame GIA for allowing their grading standards to slip. Some blame economic and political uncertainties and some blame the younger generation for their distinctly different attitude towards luxury. The fact is that American Jewellery retailers are coming off of their worst first half since 2009.

The obvious solution to this problem is to increase consumer demand. Miners have neglected generic advertising for, at least, the past 15 years. Their experts must have been aware of the negative aspects of long-term neglect. It is clear to anyone with a logical mind that demand for diamonds begins with the consumer. The consumer feeds the retailer, the retailer feeds the wholesaler, the wholesaler replenishes stock from the manufacturer, and finally manufacturers purchase rough diamonds from miners. The diamond pipeline has survived since the turn of this century in the exact opposite priority sequence. The emphasis has been on mining profits at the expense of the health of manufacturers, dealers and retailers which, as we all know, gives rise to the emergence of an apathetic consumer.

Since we are playing the blame game, I would like to point out that De Beers ventures into the retail arena have been nothing but folly. These ventures have greatly contributed to fracturing consumer demand for diamonds. From 'Supplier of Choice' where De Beers forced diamond cutters into jewellery manufacturing; a field in which they had no experience, through their many retail ventures including "Forevermark' and 'Lightbox'. De Beers has disrupted an orderly supply chain and fragmented and confused the end user. It could be said that De Beers has been cannibalizing... itself!

Of all the mistakes that De Beers has made in downstream marketing, I believe that the introduction of 'Forevermark' was the stupidest. In this instance, De Beers decided to market their own brand in opposition to all the rest of their diamonds. They planted a seed in the consumers mind that some diamonds are better than others and dismissed their long-held theory that every diamond has an equally strong value proposition. They destroyed 100 years of their own advertising and consumer awareness campaigns with this one single initiative!

The 'Forevermark' branding experiment is, of course, supported by superficial criteria. The only real difference between a 'Forevermark' diamond and another diamond is the brand name. There is currently no factual evidence to distinguish a 'Forevermark' diamond as a superior diamond. Current cutting and tracking standards have advanced greatly in the last few years and most generic diamonds meet or exceed 'Forevermark' standards. Brand or no brand, most generic diamonds are cut, tracked and guaranteed using equally up to date and efficient auditing technology as used by 'Forevermark'.

Personally, I believe that the diamond industry, including miners, are finally realizing that there is a need for a drastic change of priorities. Many industry analysts have stressed the importance of keeping all levels of the supply chain healthy. They understand the necessity of prioritizing consumer interest in diamonds above all other concerns. This change of attitude is very encouraging and underpins my current optimism. My optimism does not come from an analytical or statistical study but from a gut feeling stemming from an understanding of the unshakable resolve of those involved in the diamond industry to ensure that diamonds maintain their traditional role as the physical manifestation of the love of one person for another.

Mel Moss