We enter the holiday season this month and look for a satisfying end to a roller-coaster year. It’s a good time to assess conditions in the trade. I write at Labor Day, and, with things changing fast, what I say may be old news or just wrong! But I’ll give it a shot.
The diamond business will undergo another change this month, with the Diamond Trading Company announcing who will get sights next year. It’s a good bet that there will be far fewer sightholders. That raises some issues for retailers, especially as they are already contending with lower margins on larger stones.
To start, it appears that DTC wants to drive its own branding effort for the Forevermark in lieu of the broad image-building advertising campaigns that have long been its core mission. We cannot blame them, as their market share hovers around 40 percent (only half of which they fully control). Setting aside the questions that such a strategy raises, the effect will be fewer and larger sightholders that will be heavily involved in promoting and expanding the brand. And it may mean that other diamond companies, jewelry manufacturers, and nonparticipating retailers will no longer be able to ride coattails on the “beacon” campaigns—Journey, right-hand ring, three-stone jewelry, etc.—that DTC has developed. These concepts would become exclusionary, and we will probably not see Diamond Promotion Service providing the ad materials to the world.
We’ll need to see specifics, but instinct suggests that many retailers may not share the objectives of such a campaign. DTC will need to seek volume and margin, which sounds like they want the benefits of both the major chains (where volume may be available) and independents (where margins may be available). In an effort to try and get both, it may get neither. Meanwhile, it will all add some real changes to the marketing of diamonds.
DTC may recognize how difficult this path will be and may rethink or modify its strategy. Even so, a relatively small number of sightholders will need to develop sales in the face of declining numbers of retailers. That will include broader use of the Internet, acquiring or opening retail stores, developing alliances, and promoting their own brands. They will begin to look like large suppliers in other industries.
At the same time, 2007 saw Internet sales of diamonds take fuller control of diamond pricing. The recent announcement by Martin Rapaport that he is working on development of a futures market, and will run diamond auctions, would be another step in the commoditization of certified stones. (Such a market would probably be far more useful and effective in small goods, where large quantities are available, as was recently noted to me by an experienced observer.)
A very successful retailer told me how he finally decided to compete head-on with Internet retailers. A good friend of his bought a pair of large diamonds (about 4.00 cts. each) from Blue Nile rather than from him. The friend understood why the retailer’s price was higher—overhead, services, and all that—but there were too many dollars at stake. Worse yet, the appearance of being overpriced affects everything else in the store, and no retailer can afford that.
The point is that the nature of diamond sales has irreversibly changed, and the business model for retailers needs to be revised to accommodate that fact and to produce profits by turning stores into diamond destinations that will make money with a range of services and full merchandising. There is evidence that retailers have begun to adapt, and not. The accelerating decline in the number of U.S. operations tells me that many have not found the way. The growth and expansion of others tells me there will be strong survivors. The opportunities are there for those prepared to sharpen their pencils, revise their business model, and compete head-to-head.