The End Game

In choosing Gareth Penny as JCK‘s Person of the Year, the magazine’s editors created quite a stir among some members of the diamond trade. How could JCK honor someone who, as the architect of the Supplier of Choice program, had wrought such havoc on the industry? I received several phone calls and more than a little good-natured ribbing about his selection.

The Person of the Year initially was to be someone who had a significant, positive impact on the industry. This year, however, a repositioning was in order. It’s clear that the DTC sent a powerful message to the diamond trade and the jewelry industry with Supplier of Choice. Consequently, JCK editors believed the more appropriate criterion should be “the individual who impacted the industry the most.”

The real issue is the DTC’s message to the trade. Relationships are out. Buying an entire range of goods is in. Advertising and sales promotion are nice, but direct relationships with retailers are better. De Beers branding is in. Thinning the ranks of diamond sellers in the distribution channel is in.

What’s really behind this, in my view, is control. Shorten the distance between mine and consumer, and control is gained. The fewer the sellers, the more important the supplier. The end game may be pricing control. It must be frustrating for those in London to look at the U.S. market and see price increases evaporate into quality movements to the next lower grade. The magic of the $199, $299, and $399 price points must rile the market planners. Imagine the reaction to the De Beers brand name going retail and having a jeweler invite the new venture to choose a location in the same block. What cheek!

In Jurassic Park, Jeff Goldblum plays a mathematician who espouses Chaos Theory, which holds that man can’t control much. Once started along the path of regenerating dinosaurs, things happened that couldn’t be foreseen.

The jewelry world is like Jurassic Park. Many believe that it operates in an antiquated fashion. Imagine another retail sector where independent stores still account for 50% of business. Giants today dominate most retail businesses. Wal-Mart dominates the general merchandise discount category. Home Depot almost single-handedly finished off the local hardware store. The jewelry business is resistant to the “big” trend. It’s populated by entrepreneurs who make a living on thin margins and being fast on their feet. Order and control are nice, but reality is something different. How do you control someone from getting on a plane, going to Tel Aviv, Antwerp, or New York, buying parcels of diamonds, then returning and traveling around the country to sell what he’s purchased? This happens in diamonds. It happens in gold jewelry. It is part of what makes this business so dynamic. It’s called competition.

In largely unbranded business, price is a big factor. Where expertise is needed to purchase goods, a buyer’s knowledge is a big advantage. Perhaps the ability to control prices at the wholesale level isn’t enough. Perhaps what is really behind the branding initiative is more influence of pricing at retail.