Martin Rapaport: One man’s destruction of our industry

Why is the diamond industry beset by uncertainty and decay? One very important reason is the commoditization of diamonds. The beauty and romance once inherent in a diamond and in the diamond-buying experience have been replaced by the certification process and price lists. Another factor is the retailer’s willingness to sacrifice profit to make a sale. The retail price of a diamond has fallen to a level once considered wholesale, and in some cases even lower. It seems that in an effort to survive, the traditional levels of distribution – from De Beers down to the consumer – have collapsed.

For the past several years, many in our industry have placed blame on Martin Rapaport for this sorry state of things. His publication of the Rapaport Diamond Report, perhaps initiated as an attempt to accurately report and reflect the trading prices within the diamond market, has become the underlying basis of the market rather than a market monitor.

Does the Rapaport Diamond Report move with the market, or does the market move in response to it? I think the latter. No longer is the diamond market controlled by the forces of supply and demand, or by the guiding hand of De Beers’ Central Selling Organisation. It is instead within the control of a self-appointed czar.

Even more disturbing is the fact that consumers across the country, and perhaps around the world, are now armed with the Rapaport Diamond Report when they go out shopping for a diamond. No one wants to pay the list price. Just ask the local car dealer or appliance dealer. But at least they’re dealing with “retail” price lists or suggested list prices; in our industry, the wholesale price list has become the retail price list.

Whatever happened to keystone? The traditional retailer who once used a keystone or triple keystone markup has been forced to accept the difference between his “discount” and the Rapaport price as his profit. This, in many cases, represents a diminution of profit of 66.6% to the traditional keystone markup, and of 83.3% to the traditional triple keystone markup.

If you have any doubts about this equation, consider a hypothetical one-carat diamond that “lists” for $4,000 and is purchased by the retail jeweler for $3,000, or 25% off. By selling this diamond at the “list,” the jeweler is accepting a profit of $1,000, vs. $3,000 at keystone and $6,000 at triple keystone.

But more disturbing than the publication of his price list is Rapaport’s willingness to sell direct to the public at near-wholesale prices. I contacted the Rapaport Diamond Corporation as a consumer wanting to buy a diamond. (The phone number and e-mail address are listed in the Report.) The text of my April 24 e-mail correspondence was as follows:

“I would like to know what you have available in a 2.50 carat round diamond. I’m looking for “H” color – “VS2” clarity, preferably with a GIA certificate. I’ve gone shopping locally at the nearby malls and have been unable to find just what I’m looking for. I have been told they don’t have the size and quality that I want. Please let me know if you can help me, as I would like to make a purchase before May 15.

Thanking you in advance for your help,

Steven Markman [alias]

In sending this e-mail to the “Diamond Trading Desk” at diamonds.com, also known as the Internet Diamond Exchange, I had hoped my reference to the “nearby malls” would have alerted the folks at Rapaport to the likelihood that the e-mail had come from a consumer. I had hoped they would reply that they weren’t able to sell me a diamond and would instead refer me to a subscribing member of the Rapaport service.

But the reply, the next business day, was as follows:

“I have for you a round stone weighing 2.45 H VS2. The price is $7440-per carat. The stone is certified by the GIA with a very good make. Please let me know if you are interested in this diamond. Please supply me with your phone number, so that I can contact you on phone, or call me at 212-354-8575.”

Upon receiving my reply, I wanted to think that my diamond was not being sold by Rapaport Diamond Corporation but by someone whom they had referred my request to. I dialed the number, which was in fact Rapaport Diamond Corporation. They faxed me a copy of the GIA certificate along with a cover letter from Rapaport Diamond Corporation.

Later, I again reiterated that I was a retail consumer with questions about credit cards, guarantees, refunds, and so forth. It didn’t matter. But, on the other hand, the price quoted was about 10% higher than similar diamonds posted in the “Rapnet Diamonds for Sale” listing, so I assumed they welcomed my request as an opportunity to make more money on the diamond, although their offer was significantly below what the retail jeweler would consider retail. In fact, the offering price was 10% below the “new” retail, if we are to consider the published wholesale price list the new retail price.

I found the experience disturbing. It seemed like the final chapter in the demise of an industry.

A retail jeweler whose business failed once warned me that the death of our industry will come as a result of wholesalers selling directly to consumers. His point is valid for two reasons. One is that retail jewelers need retail consumers to survive. The other is that diamond cutters, dealers, and wholesalers, like me, need retail jewelers to survive.

Too much power in one man’s hands. There is no doubt that many people within our industry, including me, have in some way contributed to our current woes. But if our industry is to survive, we must restrain Martin Rapaport.

Many wholesalers and dealers are guilty of selling diamonds directly to consumers, and the Internet has changed and will continue to profoundly change the way diamonds are bought and sold. It is also true that competition is the essence of business and capitalism. But Martin Rapaport has been empowered by our colleagues with the recognition, power, and financial resources to destroy our industry, and he seems intent on doing so.

Rapaport has spoken of a future in which diamonds are traded like stocks on the NASDAQ. This is his ambition. Within this scenario, diamonds will pass through his brokerage operation from the manufacturing cutter to the retail consumer at what we now consider the wholesale price. This is in fact what I’ve documented here.

There can be only two beneficiaries of this kind of diamond exchange: the consumer and Rapaport. The ultimate consequence will be the loss of the industry as we know it today, for within this scenario there is no need and no place, and certainly no potential profit, for the retail jeweler.

For many years, our industry has supported and validated Rapaport by subscribing to his services, by respecting his price list, and by buying from and selling to his brokerage operations. He has been a spokesman, a leader, and a pioneer within our industry. But I ask: Is Rapaport leading us down the road we want to go, or is he leading us to our own destruction?

Neil D. Reiff is president of N.D. Reiff Company, Ltd., importers and manufacturers of diamond jewelry in Philadelphia.