Hot Diamond Topics Examined

From the problems at the Gemological Institute of America’s grading lab to the latest changes at De Beers to the upcoming Blood Diamond movie, JCK senior editor Rob Bates explained what recent events mean to retailers at a session called “Hot Topics in the Diamond Industry.”

Bates said the grading scandal at GIA was “heating up,” with federal investigators sending subpoenas to diamond companies said to be involved in the scandal. In addition, president Bill Boyajian resigned last week, after much speculation about his future.

Bates said he hoped that, if there was a full-blown investigation of the alleged bribery at the lab, it would answer a number of questions, such as which companies were involved in the scandal. Many of the names said to have been involved are big sightholders, and De Beers has said it will axe any company involved in the scandal.

The other question is how many diamonds were involved. GIA has said its internal investigation, headed by a former U.S. attorney and ending with the firing of four graders, covered 10 years and found that only a limited number of grading reports were involved. However, most in the trade think the problem was more widespread.

The other big GIA-related issue is its new cut grade, which has been on reports since January. “The cut grade has been overshadowed by the scandal but could have a bigger impact in the longer term,” Bates said.“GIA had a delicate balance with this cut grade—it wanted to leave room for taste, but also wanted a hierarchical system. And if you think about it, those are kind of opposing concepts.”

Bates also discussed De Beers’ Supplier of Choice policy, meant to increase the industry’s marketing, noting that many feel it could endanger industry middlemen.

“De Beers has told sightholders it wants them to take ‘efficient routes to market’” he said. “Most see that as leapfrogging dealers and people in the middle.”

Bates noted that many of the new sightholders were vertically integrated nontraditional diamond manufacturers, like Stuller, Tiffany (partners in a sight), and Caribbean chain Diamonds International. This reflects a change in De Beers strategy, he said: “At first De Beers wanted sightholders to become marketers. The results have been mixed from that, perhaps inevitably. So now it wants marketers to become sightholders.”

Many expect other retailers will apply for sights, such as Sterling, which has just enlisted De Beers broker I Hennig in an effort to increase its rough supply.

“That could have big implications,” Bates said. “What if Wal-Mart becomes a sightholder? De Beers is a big scary company, but Wal-Mart is bigger and scarier. It could be the tail wagging the dog.”

The other big issue the diamond trade was grappling with is the Leonardo DiCaprio movie The Blood Diamond, scheduled to open this Christmas.

Bates noted that consciousness of conflict diamonds is at an all-time high, thanks in part to the Kanye West song “Diamonds from Sierra Leone.” There is also a book out called The Heartless Stone, by the author of the book that became Hotel Rwanda.

The diamond industry is worried about the movie, which will be backed up by publicity and a multimillion dollar marketing campaign. “The last thing the industry wants is a lot of advertising that keeps repeating the words ‘blood diamond,’” he said.

The diamond industry wants the filmmakers to include a disclaimer noting that the events happened in the past, and it has hired a company to lobby the filmmakers. It’s also launching a Web site next month, diamondfacts.org. The Diamond Promotion Service and World Diamond Council are sponsoring a meeting for retailers about the movie at the Delfino Ballroom at the Venetian, from 2 to 4, on Monday.