RAPAPORT… China and India are the new America,” declared Martin Rapaport, chairman of the Rapaport Group, citing their accelerating demand for diamonds as the impetus driving higher diamond prices. Speaking at his annual conference during JCK Las Vegas, Rapaport explained that the rising price of diamonds must be examined in the context of the “fast, intense and unsettled wave of change” taking place in a world that is as “complicated as it’s going to get.”
Globalization has created new political as well as socioeconomic realities. Rapaport described a world convulsed by nonlinear change — stock market gyrations, revolutions and natural disasters — that cannot be anticipated. “To understand what is happening, you can’t look at diamonds or the economy separately but rather you must put the pieces together.”
Our traditional concept of supply and demand has been transformed, as “yesterday’s suppliers have become today’s consumers.” The scarcity of natural resources amid growing demand has led to economic warfare, where currencies have become the weapon of choice. While a strong advocate of fair and ethical markets, Rapaport pointed to the fact that successful efforts to alleviate poverty have also contributed to a demand for ever-dwindling resources.
America is no longer the dominant player in the diamond and jewelry industry. “There is big bubble trouble in the U.S.,” explained Rapaport. Analyzing key economic indicators — zero interest rates, continual printing of money and rising unemployment — he described the country as “a land of financial Prozac,” where “you need a loupe to see growth.”
Rapaport offered a snapshot of the new economic world order. “We are seeing a reallocation of global wealth,” he stated. In 2010, the gross domestic product (GDP) in the United States was $14.9 trillion — just slightly more than the combined gross national product (GNP) of China — $9.9 trillion — and India — $4 trillion. GDP growth in 2010 — 10.3 percent in China and 8.3 percent in India — dwarfed that of the U.S. at 2.9 percent and Europe at 1.8 percent.
Changing demographics are influencing demand. Pointing to the fact that 35 percent of the population in China is under age 25, and 48 percent in India, Rapaport noted, “There is a critical mass of people entering the middle class — billions of people. They’re young and they’re hungry.” Addressing an audience of mostly American jewelry store owners, manufacturers and retail buyers, he added, “And they want your cupcakes.”
The New Abnormal
“If gold is up, why not diamonds?” Rapaport asked. He emphasized that we are in a seller’s market due to strong foreign demand. The BRIC — Brazil, Russia, India and China — nations are buying the same diamonds as Americans. Rough prices are moving faster than polished. Rapaport noted that there is no point in being in denial — as some in the industry apparently are — about diamond and gold prices going up. U.S. retailers will have to sell diamonds at higher prices. “Diamond prices will not track with the U.S. economy,” Rapaport said.
Given the political and economic upheavals in the world today, “There is no normal. There is only a ridiculous new abnormal,” Rapaport stated. Still, he asserted, “There is nothing wrong with the jewelry industry per se.” Companies can succeed in this new reality — if they “surf the wave of change.”
Rapaport advised companies to “think strategically — not operationally” or miss the boat. The secret, according to him, is to “identify change,” build a model and add value to your product. But first you must determine your customer, decide what to sell and how to sell it.
Get Connected
Rapaport encouraged the audience to explore new avenues of growth. The starting point is understanding and embracing a socially connected world. “New distribution channels and new communication vehicles are creating new markets for new products. The primary characteristic of the new world order is the prioritization of social connectivity.” He emphasized the “symbiotic relationship between technology and socialization,” which is taking business in new directions. Facebook, YouTube and Google demonstrate the synergy between technology and innovation, with products that create their own demand via social networks.
As an example of the new customer, Rapaport played a YouTube video that highlighted the “MPM” — the multiplatform male between the ages of 18 and 34 who is educated, employed and spends money on technology. “That’s the future,” said Rapaport, adding, “Technology waits for no one.”
Recycling Diamonds
In a world of limited diamond resources, Rapaport exhorted the industry to “buy, buy” diamonds from people who want or need to sell their jewels. “With aging Baby Boomers, there are millions of consumers who seek to sell diamonds to pay for college or retirement.” While he agreed that jewelers should still be making money buying and selling, Rapaport emphasized that jewelers should pay fair prices for the diamonds as a matter of good and ethical business practice.
Social Responsibility
Rapaport identified social responsibility and consumerism as a megatrend and “a basic need emerging out of our consumer base.” Millions of consumers want to buy socially responsible products. “You have to be deaf, dumb and blind not to do it,” Rapaport advised, pointing out its value as a key selling point, especially in the U.S. “Unlike China and India, there is a customer base here who will pay more for it.”
“We have an unprecedented opportunity to give diamonds spiritual sparkle,” explained Rapaport. Declaring “you are responsible for what you buy,” he advocated creating new categories of ethical diamonds and developing economic incentives for good. “We are on the slippery slope of legitimization,” he said in reiterating his call for “free, fair, honest, transparent, efficient and competitive markets.”
Take Control
“Turbulence is guaranteed,” said Rapaport. “We are living in a world of exponential change that defies control. You must be true to your core values and define yourselves and your jewelry in terms of the megatrends that are creating new opportunities and new challenges. Be passionate about your product, do good about your product and you’ll do fine.” Comparing the quest for success to a game of musical chairs, he concluded, “If there is music, you must dance.”
