JCK Show: Embrace change, Schnitzer says

The diamond industry is going through a period of tremendous change, Israeli Diamond Exchange president Schmuel Schnitzer told a capacity crowd in a speech Thursday on “Challenges Facing the Diamond Market Today.”

Quoting the bestseller, Who Moved My Cheese, Schnitzer said that the industry’s “cheese” is moving with lightning speed.

Many of the changes, he said, have come from De Beers, which in 1998 realized it was not meeting expectations in terms of its share price. The company decided on a new strategy called “Supplier of Choice.”

“The aim of the program is to create the most effective distribution of rough to manufacturers with maximum profits at all levels, from mining to retail,” Schnitzer explained. “The idea was to work in closer cooperation with [De Beers’] clients who could serve as effective marketing channels for De Beers and help increase demand downstream.”

He said De Beers’ experience offers many lessons for jewelers. By not being afraid to innovate and by embracing long-term strategic thinking, its leaders turned around a 114-year-old company long thought of as a slow-moving “large boat.” As a result, De Beers went private and entered the retail market in a joint venture with LVMH.

Schnitzer said this kind of merger between opposite sides of the pipeline is common in many industries. He noted that the new company is taking steps to make sure it doesn’t have an “unfair advantage” on the market. “The De Beers-LVMH joint venture will purchase diamonds just as you, the jewelers, buy them, on the free market at market prices,” he said. “Efforts have been made to ensure fair play. It won’t be long before we can say whether those efforts have been successful.”

De Beers’ joint venture with LVMH is part of its effort to bring more brands to the industry. Schnitzer urged jewelers to “brand” themselves and “add value” to the stones they sell. “Even more than the brand itself, consumers purchase a world of ideas the product presents and represents for them,” he said. “Branding is not restricted to the big guys. Anyone can develop a name to identify his or her product. It requires an investment of thought and resources for your brand to successfully penetrate consumer consciousness.”

He noted that the World Federation of Diamond Bourses, of which he is vice president, has been concerned about the impact of “Supplier of Choice” on small and medium-sized businesses. “Our industries are a pyramid that stands on a broad base of diamantaires and jewelers,” he said.

“De Beers [has said it] will support any business that proves its contribution to added value in world diamond sales.”

One unexpected challenge the industry has had to deal with is the controversy over “conflict diamonds.” Schnitzer noted that the World Diamond Council is fashioning a system where there will be “transparency” about a diamond’s origins from mine to retail counter. “The diamond world came together to deal with this issue, not in response to the public pressure of the NGOs [nongovernmental organizations], but out of recognition that we could not resign ourselves to the terrible ongoing bloodshed in Africa,” he said. “Diamonds symbolize love and glamour and should not be associated with conflict.”

Another challenge the industry faces is ensuring the natural quality of a diamond. Schnitzer noted that industry associations are likely to call for greater transparency in diamond treatments, especially in the wake of hard-to-detect treatments like high-pressure/high temperature (HPHT). “Total transparency and declarations are imperative at every level of the chain, from manufacturer to retailers. This is essential to maintaining the industry’s credibility,” he said.

Schnitzer concluded on an optimistic note, saying the growth of U.S. consumer demand will likely spark 10% growth in Israel’s polished diamond exports this year. He hailed the U.S. market as the most important one in the world, consuming 70% of Israel’s exports.

But he also urged retailers here to own more goods directly instead of relying on memo. “There is nothing like direct ownership of goods to stimulate sales efforts,” he said. “In today’s market, the difference between a diamond you own and one held on consignment is significant.”

He added that people in Israel were looking to China as an emerging market, and he hoped the Japanese and European markets would come back to life.

On matters closer to home, Schnitzer noted that while the security situation in Israel is sensitive right now, there are still reasons for American buyers to come to Israel. “Buyers in Israel have access to a far wider variety of diamonds than what is available to the salespeople traveling around the world,” he said. “Nevertheless, in the spirit of the times, which call for a flexible response to all change, we are sending more sales personnel than in the past to all marketing destinations. We hope the security problems will be resolved soon, and we will all be able to return to our regular work routine.”

He finished by urging the industry to embrace change. “Our method of work must be dynamic,” he said. “We must reexamine it daily, even hourly, and constantly respond to the new challenges posed by the rapid developments, because if you don’t do it, someone else will.”