There are a lot of big changes happening in the diamond industry, said Richard Drucker, publisher of Gem Guide, in a presentation on “Diamond Supply, Projections, and Cut Grade Comparison.”
Among them are social changes, such as African governments demanding a bigger say in the diamond industry. Drucker noted that 25 percent of De Beers Consolidated Mines, the De Beers Group’s South African branch, has been sold to Panoholo, a black empowerment company.
He also addressed alluvial diamond diggers. “There are a million alluvial diggers that are earning about a dollar a day, in hazardous conditions,” Drucker said. He noted that Martin Rapaport’s Fair Trade Diamonds plan addresses this problem.
As for the movie Blood Diamond, Drucker said, “I thought it was a decent movie. I didn’t think it was really as bad [for the industry] as we all anticipated.” He noted that a Jewelry Consumer Opinion Council survey said that only 2 percent of moviegoers said they wouldn’t buy diamonds afterwards.
On the economic side, Drucker called debt the downfall of the jewelry industry. “We are seeing all sorts of defaults, we are seeing bankruptcies,” he said, noting that global diamond-industry debt is estimated at about $12 billion, with approximately 22 percent of the debt held in the United States.
He predicted that the ABN-AMRO merger could lead to a squeeze in credit. In fact, tighter bank credit has led to the recent bankruptcies of LID and Fabrikant. “This is unheard of in our industry,” he said. “Who would have thought that two large sightholders would be in Chapter 11?”
He noted that, in general, business is slowing, and luxury items are going to hurt. “Margins are lower, mostly because of the Internet,” he said.
Drucker said synthetic diamonds are coming to the market, and there are many debates over terminology and about whether the diamonds should be graded by labs, although, the Gemological Institute of America has already decided to grade them. He said he doesn’t think synthetics will hurt the market for natural stones. “There are two separate markets,” he said. “People either want the real or they are happy with the manmade product.”
As for a diamond cut grade, the industry is currently seeing “cut grade wars,” he said, noting that AGS, GIA, and his own lab all measure cut differently. “There is not really a single standard in all this,” he said. “How do we deal with this as an industry?
He also noted that there are a lot of different systems that measure light performance. He said these systems make a difference in pricing. AGS zeros, he said, can give you a 10 to 15 percent premium, and a GIA excellent grade can give you a zero to 10 percent premium. But the new reports have raised standards. “Cuts have continued to get better overall as reports give more information,” he said. “We are starting to see a lot more of these better cuts, and the market is getting saturated with them.”
Because of that, margins on items like Ideal cuts are shrinking. It’s also getting harder for brands to compete, because there are so many of them, and they all have similar claims, he said. “There are dozens, maybe hundreds, of diamond brands out there today,” he said. “But many of them are not successful, even if they are still in existence.”
Today, Drucker noted, only 5 percent of all jewelry is branded. He said there are many myths about branding, among them, that “branding will increase your margins.”
“Some will, some won’t,” he said. “If the brand costs more, and you sell it at the regular price, you may hurt your margin.”
In addition, he noted, consumers won’t necessarily come to you to purchase a brand. “Where are most marketing dollars spent? In the trade, to get you to come to the booth” he said. “Most jewelry branding is up to you.”
For branding success, he offered the following advice:
* Choose a brand with a unique aspect such as light performance. There are a lot of uniquely shaped diamonds but most do not sell well.
* Choose a brand that is not overpriced.
* Choose a brand for its long-term promise.
* It’s the benefits, not the brand. “To be successful at branding, you need the best story,” he said. “When you are trying to sell a diamond, the consumer wants to know: Is it pretty? Does it sparkle?”
He noted that, when consumers were asked what the most important quality in a diamond was, “price” was ranked first, followed by fire, brilliance, and sparkle. Brand name was ranked last.
He concluded that jewelers today have to be smart buyers. “Profit today is in the buy,” he said. He noted that, for retail jewelers, staying in business will require creativity and adaptability. “The most disturbing thing in our industry is an unwillingness to change,” he said.