RAPAPORT…There is no crisis, but rather a new, unstable reality of constant change,” stated Martin Rapaport during his annual breakfast seminar during the recent JCK Las Vegas show. This year’s presentation, entitled “The Diamond Decade: New Opportunities,” challenged the audience with ideas and suggestions about how to take advantage of the great changes taking place in the world in general and the diamond business in particular.
Overall, stocks, real estate, oil and retail sales have rebounded somewhat but are still 20 percent below January 2008, Rapaport reported. “We’re riding a roller coaster and everyone’s feeling it,” he said. These changes have caused a new reality for the consumer, in which lower spending power and higher unemployment may become the norm. For the jeweler, there are other concerns: As interest rates rise, there will be no more memo goods and cash will be needed to buy diamonds.
In terms of diamonds, major suppliers are holding back rough and there is a scarcity of large stones. As a result, prices of smaller stones have dropped and prices of 3-carat-and-above diamonds have soared. “There is no question that people want diamonds,” Rapaport told the audience. “It’s your job to find riches in the niches.
“Strategic positioning is more important than knowledge, stock and sales,” Rapaport said, urging retailers to buy diamonds back from their customers and resell them. “Move them around and make more money” was his advice. As an example, he referred to his company’s recent online auctions, where diamonds from the U.S. were resold to the growing Chinese and Indian markets. “Wealth has moved overseas,” Rapaport said. “There are 20 million to 30 million new consumers per year in India who will drive the global economy.” Not only are middle classes in India and China growing, but Africa is also moving forward. “Africa is the new India,” he said.
America’s ongoing generational shift is good for the diamond industry, Rapaport noted. Baby Boomers are aging and many are hurting economically, but the younger generation remains optimistic. Marriage rates continue to rise, and it’s this younger group that will be buying diamonds now and in the future. There is another significant difference in the new generation: They are also concerned with values such as social responsibility, making the issue of conflict-free diamonds critical.
Of the industry’s ongoing concern with internet diamond suppliers such as Blue Nile, Rapaport posed the question: “Did Blue Nile force Tiffany out of business? People want different experiences.” His advice to retailers: “Increase the value of your added value and charge a fair price for it. Have confidence and tell the truth about your profits and costs.”
“Change is opportunity,” Rapaport said. “It’s the essence of where you’re going to make your money. Resolve your identity crisis and create your own brand. A brand is a promise. Branding forces you to have an identity. Forget diamonds; sell your customers desire and brand your added value.”
Rapaport urged retailers to consider their customers’ basic needs. To most individuals today, the ultimate luxury is security, both financial and emotional. The future of the diamond industry is also emotional and financial, so sell value and security in one package, he advised. Retailers must marry these ideas. “Don’t sell a product; sell an emotion.”
Challenges in Diamond Certification
Addressing the many challenges in the area of diamond grading and certification, Rapaport posed pertinent questions for both retailers and suppliers. Among them: How does a buyer know if a certificate is legitimate? Are there different standards for diamond grading among the various accredited laboratories? If so, is the consumer aware of this fact?
In all of these cases, it’s the retailer’s job to inform the buyer of these facts.
“Consumers must be told there are grading differences between labs — you owe them the truth,” said Rapaport. “It’s also the retailer’s responsibility to state the quality of diamonds with or without a certificate and to describe it accurately,”
The Gemological Institute of America (GIA) diamond standards, on which most grading is based, were established for the trade and not for the consumer. While many other labs use this grading system, there can be differences in opinion that result in different ratings of the diamonds. Rapaport suggested that if a lab is not using GIA standards, that information should be disclosed to the consumer.
An audience member commented that some issues, such as clarity, are so complex that there are differences in opinion. “The industry needs to advance technology in order to standardize grades,” he suggested. “There is much better technology available today that will enhance the consistency of standards,” said another attendee. “However, there is still a subjective element that results in diverse grading.”
Other points raised and debated included: Should the government become involved with the issue of diamond grading or set the basic requirements for the certification of labs? Should the industry be frozen to GIA standards? Does the industry actually need to reassure customers with certificates?
All these and many more concerns were discussed during the roundtable, with perhaps the only agreed-upon conclusions being:
• There needs to be a standardization for the grading of diamonds, regardless of where they are graded.
• There must be transparency to the consumer in terms of a diamond’s quality.
• The buyer should be made aware that there are differing standards for grading.
Putting the Fairness in Fair Trade
The question is simple: What do we do about the conflict diamonds in the market right now and how do we prevent more from entering the pipeline? The answers, as addressed by an international panel of experts, are complex.
Members of the panel, moderated by Rapaport, were Cecilia Gardner, Jewelers Vigilance Committee (JVC); Noora Jamsheer, the UN Group of Experts on Cote d’Ivoire; Michael Rae, chief executive officer (CEO) of the Responsible Jewellery Council (RJC); John Hall, general manager of corporate relations, Rio Tinto; Assheton Carter, senior vice president of Global Engagement for Pact; Toby Pomeroy, jewelry designer and board member of Alliance for Responsible Mining (ARM) and Maya Spaull, senior manager of new category development, TransFair USA.
Jamsheer stated that at present, there is no way to stop the flow of conflict diamonds, for two reasons: It’s hard to determine the origin of diamonds and many African governments lack the political will, tools and funding to stop the smuggling. “We need a marriage between the government and the industry to enforce change,” she said.
Rio Tinto’s Hall agreed that “total success” in stopping conflict diamonds from entering the pipe is “impossible to achieve.” Concluded JVC’s Gardner, “There is no one person, organization or platform that can keep bad diamonds from being traded.”
Panel members proposed establishing a chain of custody for the diamonds from the mine to the hands of the consumer. However, they noted that this is made difficult by the fact that alluvial diamonds from artisanal diggers cannot be traced to mines. Can a chain of custody be maintained with cutters, dealers and other suppliers down the line? yes, they said, within reason, and over time.
Individual successes in the area of fair trade, however, were reported by both
ARM and TransFair.
Over the years, TransFair USA has been successful in instituting fair trade regulations on coffee and bananas from South America, affording the workers at the lowest end of the business fair pay, as well as added benefits such as housing, education and insurance. To achieve fair trade certification, there must be an audit of everything in the supply chain; the subsequent labeling of the product assures consumers it is a fair trade item.
The newest project for ARM and TransFair involves gold mining. In a pilot program, nine mines in South America are now in the process of being certified for fair trade. The miners are paid for their gold based on 95 percent of that day’s bullion fix, plus a 10 percent bonus. There is an additional 15 percent fee for ecological gold, in which no harmful carcinogens are used in the gold mining process.
Pomeroy said he uses fair trade gold in his designs and passes on the additional costs to retailers, who, he says, have embraced the concept despite the added cost. Spaull said her association’s goal is to extend this program into mines in Asia and Africa. As evidence of the program’s progress, there will be fair trade gold product available on the market within one year.
Carter’s Pact also has achieved success in improving mining conditions in developing countries. The group has worked with such diverse retailers as Sam’s Club, Walmart and Cartier. The former two have partnered with large mines and Cartier, with an artisanal supplier of gold.
The advantages of being supportive and involved with fair trade issues, Pomeroy summed up, “elevate the stature of the store or manufacturer who takes a stand for fair and ethical sourcing of materials.”
