Love for Resale: A Look Into the Recycled Diamond Industry

The recycled diamonds trade has become a huge, under-the-radar market. But how is it affecting the industry—and consumers who may get lowballed?

In an oft-cited, frequently recycled 1982 Atlantic article, Edward Jay Epstein spoke of his troubles trying to unload a diamond on 47th Street. “Retail jewelers,” he declared, “prefer not to buy back diamonds from customers, because the offer they would make would most likely be considered ridiculously low.”

Four decades later, he’d have far less of a problem. The gold-buying boom kept many retailers afloat during the recession. But now that the price of gold has fallen and trade-in fever has cooled, it doesn’t take much for jewelers to add “and diamonds” to those “we buy gold” signs.

The result is a massive market for secondhand diamonds that has largely operated under the radar. There are now thousands of places for consumers to trade in their old gems—including companies like Circa, White Pine, and Worthy as well as websites like eBay, Craigslist, and I Do Now I Don’t, which specializes in jewelry from relationship breakups. Analysts estimate overall sales of so-called “recycled diamonds”—within the trade and to consumers—at about $1.5 billion to $2 billion a year, out of $81 billion in diamonds sold globally at retail. And that may be lowballing it.

“This is a cottage industry that has developed into a sizable part of the diamond trade,” says Andrew Brown, president and chief financial officer of White Pine Trading LLC. “Sotheby’s and Christie’s do over a billion dollars a year.”

The Boomers’ Baubles

Consumers can now sell their old jewels at a number of companies that have sprung up to cater to the secondhand market.

How much this is affecting the wholesale market is unclear. Every time retailers (or even consumers) buy a recycled diamond, they are passing up the chance to buy a “new” one. “We know retail clients of ours who don’t even buy diamonds anymore,” says Evert Botha, whose company, Embee Diamonds, recuts trade-ins for jewelers. “They are getting a steady supply off the street.”

Veteran analyst Ben Janowski says “there is no question it’s a factor” in the market. “It’s definitely hurting wholesale sales,” he adds. “I have seen retailers with stacks of diamonds that they bought off the street. It’s a drumbeat that is just going to get louder and louder.”

Part of the reason, he says, is the aging of the baby boomers, who are just starting to unload all the treasures squirreled away in their safe deposit boxes. 

Retailers accustomed to buying gold from the public have in recent years turned their attention to diamonds.

Jewelry is increasingly coming up in estate planning, according to Jeffrey Singer, cofounder and vice president of jewelry buyer Circa. “Unless you know a child covets a piece of jewelry, it’s best to sell it,” he says. “When the time comes, you can divide cash any way you want. You can’t cut up a bracelet three ways.

“A lot of people between the ages of 40 and 60 are inheriting jewelry from their parents, and they are frustrated,” Singer continues. “They are more interested in college tuition or remodeling the kitchen.”

When looking at how the recycled diamonds boom gathered steam, most people point to the big gold rush of 2008 and 2009, which took the idea of trading in jewelry from the pawnshop to the mainstream.

“Once gold started going crazy, people started bringing in their diamonds, too,” says Susan Eisen, owner of Susan Eisen Fine Jewelry & Watches in El Paso, Texas.

For a long time, though, diamonds were considered an afterthought, says Ezi Rapaport, director of global trading for the Rapaport Group.

Circa buys diamonds and jewels over the Web and at 13 offices around the world.

“When I started going to the pawnshop shows, they all said we don’t take the diamonds out of the gold,” Rapaport says. “They didn’t get a significant price for them, and taking them out of the piece took about a week and within that week the price of gold could drop. But once the pawnshops and retailers started getting high prices, they forced refiners to add the service. Now every one of them does it.”

For Eisen, buying off the street has become a major part of her business model. “You get a better price, more variety,” Eisen says. “You don’t have to deal with invoices and accounts payable and go through 10 different steps to pay the bills. You write a check and it’s done.”

Buying recycled diamonds also “brings new people in and you can make them your customers,” she adds. Still, she cautions that retailers have to budget for the buying.

A Threat to the “Diamond Dream”?

Consumers are often disappointed by the selling price for their secondhand diamonds; many expect prices comparable to retail.

Meanwhile, De Beers has expressed concern about the problem Epstein wrote about: lowball offers. Unlike gold, there is no standardized pricing for diamonds. Prices vary, sometimes wildly. While some consumers discover to their delight that their decades-old piece has appreciated, not everyone walks away happy. Eisen has talked to customers who got nothing for their diamonds—the jeweler only gave them money for the surrounding piece’s “melt value.”

At JCK Las Vegas in 2014, De Beers CEO Philippe Mellier dubbed the trade-in experience “awful,” and worried it hurts perception of the product. De Beers senior vice president of strategic initiatives Tom Montgomery says the company found some unsettling things when it examined the trade-in market. “I did some mystery selling where I went down to 47th Street,” he says. “I had a really nice 75-pointer. A quarter of the players would not offer me anything. The average price was 15 to 20 cents of the retail dollar.”

A tennis bracelet lined with round-cut diamonds would need to be dismantled to calculate its trade-in value, say retailers.

Of course, even retailers with the best intentions generally offer less than wholesale; the diamond may not be something they can sell immediately, and if they’re going to buy wholesale, they’d rather buy from a vendor who can give them exactly what they want. Mounted trade-ins get discounted even more, because the stone can’t be probed for potential flaws. But consumers don’t always understand that; many expect prices comparable to retail, never mind wholesale.

“Consumers [who get lowballed are] not going to feel good about diamonds as a store of value,” Montgomery says. “That hurts potential demand. We all know a negative experience is worth far more than a positive experience.”

Recycling stones can make retailers uncomfortable as well. “A retailer’s job is to sell the diamond dream,” Montgomery says. “It’s an unnerving experience if the diamond comes back to them. It has cash flow implications. A retailer might not be able to manage the cost. And even if he pays cash, he may not be able to move it for a year or two.”

De Beers on the Scene

Baby boomers are starting to unload the treasures they’ve been storing for safekeeping—like this riviera necklace.

So De Beers decided there was a need for a better mousetrap—namely, the International Institute of Diamond Valuation (IIDV), a service that buys diamonds for retailers, promising to offer the “highest possible price…on the secondary, wholesale market.” The company has recruited five retailers for the pilot program; it will soon add more.

Diamond sellers are offered two options. The first involves contacting the IIDV for a quick price quote; the second involves sending the diamond to the lab’s New York City office for a thorough two- or three-day examination out of its mounting. (The quicker offer brings a lower price.)

One of the participating retailers, Manhasset, N.Y.–based London Jewelers, says about 75 percent of customers choose the multiday option. “Most legitimate sellers want to be methodical about it,” says chief operating officer Tim Claire.

Courtesy of Worthy
Trade-in diamonds are big business for Susan Eisen, owner of Susan Eisen Fine Jewelry & Watches in El Paso, Texas.

But it depends on the area, Montgomery says. One retailer in a crowded market with lots of pawnshops and tourists says most customers don’t want to wait. In addition to buying the diamond, the IIDV pays the retailer a commission based on the cost. For now, the program is only a test. Montgomery says he is just getting around to thinking about a salesperson to move the inventory. “We are focused on the consumer right now,” he says. “We buy everything, even if it’s a one-pointer in a belt buckle. Our lowest offer was $30. And I’m proud of that.”

De Beers is far from the only player eyeing this market. New York City–based Circa, backed by venture capital, buys diamonds over the Web and at 13 offices throughout the world and also provides buying services for jewelers. “Jewelry is something that a lot of people look at as the great unknown,” Singer says. “We try to make it easy and comfortable.”

White Pine Trading buys from the trade and from consumers via websites and sells at auctions, through a wholesale ­service, and on services like Polygon. It traded more than $100 million in diamonds in 2014, according to its website.

Rapaport and newcomer Hoover & Strong auction off their diamonds to the trade through twice-monthly sales; the latter lets retailers reject or accept the final bid.

There are no standards dictating the trade-in value of a diamond from Tiffany & Co.

All this activity is good, Rapaport says. “From a consumer confidence standpoint, it’s important that when it’s time to sell her diamonds or jewelry back to the store, Mrs. Schwartz gets fair market value and not pennies on the dollar.”

With all the jewelry—and aging Mrs. Schwartzes—out there, many believe the market is in its infancy. The biggest problem may be educating the public that those dust-gathering jewels can be a source of income.

In fact, given the expected shortfall of new mined diamonds in years to come, it’s possible that recycled diamonds will soon play an even greater role in the business. “If De Beers is getting into it, you know it’s a big market,” Botha says. “The biggest mine may be on the street.”

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