Ehud explored possible methods of addressing the issue of fragmentation, drawing in part on lessons from other industries.
First among them was simply consolidation, whether natural or through mergers and acquisitions.
In the diamond industry's midstream - the diamond polishing and wholesale sector of the pipeline - Ehud believed there were too many traders and polishers between miners and retailers.
"There are very many players competing for a small pie"
Without a reduction in the number of players, competition is so high it erodes the ability to work profitably and as a result, businesses close. "A business where your revenue is declining, and your expenses are either fixed or rising, is one where profitability erodes to nearly nothing – and then beyond nothing. That is why there are so many businesses closing or going under in the midstream of the diamond pipeline. This is an unsustainable business model."
Another form of consolidation which Ehud sought to highlight was vertical integration.
"Jewelry retailers have increasingly tried to get closer to the diamond source in order to get more security on the supply of precious gems and to provide consumers with more transparency on traceability. Various routes to get up the value chain have been explored."
"Both upstream and downstream companies have recognized the benefits of working with established midstream players, including taking advantage of their manufacturing know-how… It would seem to make more sense, for instance, for a rough producer to work with midstream clients like those who integrated with jewelry retailers that can handle larger volumes, are better financed and that can get better margins as a result of being closer to its consumers."
Ehud shared various successful examples of vertical integration, from Tiffany to Chow Tai Fook and Signet Jewelers. This follows, in part, successful models in other industries, whether for example LVMH's stake in one of the world's top cashmere makers or investments by Bulgari, Cartier and other luxury watch brands in parts providers.
Ehud shared further practical advise on how to make vertical integration work, with an understanding that proper execution is key and that there is no one-size-fits-all solution.
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