Beyond the issue of restoring demand for diamonds, Ehud also discussed in depth supply-side challenges he thought the industry should seek to overcome.  

Ehud was particularly concerned by the deep fragmentation in the diamond sector, which prevents players across the diamond pipeline from operating profitably and, therefore, sustainably.

"The excess fragmentation we are facing in parts of the diamond sector must be addressed to allow the diamond industry as a whole to operate more effectively and to provide the new generations of professionals with more sustainable opportunities to flourish in our sector."

In relation to the midstream (manufacturing) part of the sector, Ehud said, "A fragmented midstream market is also less and less compatible with rising inventory costs, high financing costs and banks' increasing scrutiny and request for players to professionalize."

This concern was also raised by banks operating in the sector, for example ABN AMRO's statement that banks are more critical with financing decisions and are looking for a greater level of security against their loans, driven in part by the quality of financials reported across the midstream.

"Specialty jewelry retailers are highly fragmented around the world, and the industry has a significant number of small independent stores, often family-owned and operated," Ehud stated.

"These smaller stores typically cannot invest in large quantities of slow-moving inventory and have only a minimal advertising and marketing budget reserved for local distribution. They must buy their raw materials from wholesalers and lack the leverage to negotiate the best possible prices. The diamond wholesale sector is not always a level playing field, and the supply and demand characteristics in a certain location may put some independents at a disadvantage over others."

"We discussed how in a fragmented market, diamond retailers are less incentivized to make significant investments to sustain consumer demand when revenues are spread over so many players."

"Having fewer and stronger downstream players would allow each to share a larger part of the profits and would thereby incentive them to make more substantial investments in marketing towards diamond consumers," Ehud noted. "Investment in branding is particularly important considering the increased consumer preference towards branded jewelry." 

Without such efforts, "Failure by retailers to stimulate consumer demand puts further pressure on the already squeezed mid-stream market, which are in turn turning to the rough producers," Ehud warned. That is to be avoided.


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