For the last few years, banks have been running away from the diamond and jewelry industry. But now, a trio of trade veterans has come up with a plan to bring liquidity back to the business.
Excelsior Capital Ventures (ECV)—managed and owned by Gitanjali USA nonexecutive chairman Nehal Modi, former Samuels Jewelers chairman David Barr, and Aston Luxury Group president Jon Mitchell—will conduct asset-based lending for the industry, but with a twist: It will take custody of every asset it loans against and have a marketing arm that can sell those assets.
A company presentation says banks frown on financing tied to jewelry inventory for several reasons: The product is small and portable, so it can—and sometimes does—disappear, the inventory is tough to value, and banks don’t know how to dispose of it in the case of a default.
The new venture hopes to circumvent the above with a three-pronged approach. First, it will store all collateral on its premises. “It’s the ultimate securitization,” says Modi, who founded the company and serves as CEO. The product can also be at selected retailers or labs. “We have no problem if the piece is on consignment at Kay,” he says.
Second, an established appraisal company will value the goods. Third, ECV will have a marketing division—so it won’t just hold the items, it may also sell them.
The marketing component is perhaps the plan’s most ambitious aspect: It will include an e-commerce site and wholesale division with 25 marketing associates and 50–60 sales reps. All this infrastructure means companies in need of money won’t have to dump their goods, argues Mitchell, the company’s chief operating officer.
“Instead of having to look for a buyer who pays cash, we can market the goods for them in the regular course of business,” he says.
The result will be “a more orderly sale that yields a higher price,” says Barr, the venture’s chairman.
In addition, since any borrower can use the marketing arm, diamantaires may eventually decide to outsource their sales and marketing to ECV, Mitchell says.
“Our industry is starved for profitability,” he adds. “We will have an à la carte menu that the borrower can choose from to market their product. That can complement or replace the borrowers’ own marketing and sales departments, at a far reduced overhead.”
Modi believes having a marketing solution sets the company apart from other lenders and thinks it will work particularly well for diamond manufacturers.
“The life cycle between a manufacturer buying rough for cash and then receiving funds from clients can be nine to 12 months,” he notes. “That is a very long cycle in a nonliquid market, and manufacturers sometimes make rash decisions because of those liquidity needs. We feel we can provide them with liquidity and make their model more profitable through our marketing solution, which means they can focus on manufacturing and sourcing.”
The marketing solution won’t be free, of course. A small commission (1–5 percent) will be tacked on to every sale. But the company doesn’t consider its sales arm a profit center, more a value-added service, Modi explains. The real money will come from the loans, which will carry a 9– 12 percent annual interest rate.
The collateral must be precious metals and diamonds, no gemstones or base metals. Lending kicks off in December. Given the trade’s current state and banks’ continued skittishness, the company’s architects feel they’re launching at the right time.
“Many wholesalers with liquidity needs may not have anything wrong with them,” says Barr. “But the market isn’t fulfilling their needs right now.”