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The Case for Transaction Prices

The Case for Transaction Prices

Today, transparency is the name of the game. The diamond industry is no different, and has the characteristics of many other industries such as know-how, manufacturing, trade, specialization areas. So why are trading prices not transparent?

For years, the diamond industry sold a dream, a dream of beauty and everlasting love. This dream is a great marketing tool, and did the diamond industry wonders for many decades. It was designed in a post-war world where people wanted hope and life. Nobody thought that this marketing idea would last for so many decades. The idea served us well, but the world has changed, and although the premise of selling diamonds as a symbol of love continues to be ubiquitous, many consumers are starting to question it.

To sell a dream, the diamond industry sold an allure, an aspiration and a mystique. So much so that even disclosing information within the diamond industry was met with resistance at times. As part of this mystique, we became used to being quiet about prices. When the first benchmark price list was introduced to the market, it was very strongly opposed by many, because it broke a tradition of secrecy. But insisting on maintaining this practice in a changing market means that you are losing out. Instead of doing business the same old way, we should change in order to gain a new edge. One such change should be a greater reliance on higher-quality information. That is why the industry should not be afraid of transaction price lists.

Transaction price lists have many advantages, first and foremost being disclosure. We have nothing to be afraid of in giving our clients transaction prices, because anyone who adds value over the average transaction price can and should ask for the appropriate price. Having knowledge of the transaction prices will eliminate any feeling among our clients, the retailers, that we are preventing them from knowing something of importance, that we are hiding something. Disclosing transaction prices will also allow retailers to talk with confidence about the value proposition of diamonds, without worries that they are being cheated in any way, a sentiment that is growing in the consumer market, mostly in the US and in Europe. Having this information available to the general public won’t hurt the diamond industry any more than publishing wholesale prices of cotton has hurt the sales of the textile industry. Publicly-available transaction prices won’t hurt the allure of diamonds; all they will do is give consumers an extra layer of confidence in the product we are selling. Retailers will always need to offer design, history, brand and a story to the jewelry they are selling. They are doing just that with gold jewelry sales, and gold is one of the most popularly traded commodities – both for jewelry and for investment. No one has ever walked into Macy’s and asked to weigh a diamond bracelet, and then refused to buy it because the price was above the publicly-traded price of gold. So why do we assume that consumers would start doing this with diamond jewelry?

I want to raise a few points for thought regarding transaction prices. As the world we operate in evolves, we need to think how we move forward strategically. We all know that diamond sales have not grown in the past few years. They are either stagnant or declining, and prices have been declining steadily in the past five and a half years. Because of this, we need to rethink our offering, which is why I have suggested adding a new venue for selling diamonds, one that would offer the diamond as a possible asset for wealth preservation purposes. Such a market will need full transparency, including price transparency. You can read an extensive description of this idea, and what we need to do to make it happen, here.

Another point to keep in mind, a more immediate one, is our relationship with the banks that are financing the diamond pipeline. The banks want to be far more informed about actual prices. Providing prices will serve a twofold purpose. One is the contribution to the ability to introduce diamonds as an asset for wealth preservation purposes, as outlined here. Another is making stock valuations more accurate and clear, setting the way for an easier assessment of collateral for bank credit purposes, which in turn will improve the confidence of banks in our business. Limited transparency contributed to the decision of several banks to end their involvement in the sector. Surely, without the backing of the banks, it will be near impossible to have a meaningful midstream, a sector that is heavily leveraged. We deeply depend on the banking system, and therefore need to nourish our relationship with them.

Other benefits for using a transaction-based price list by a diamond firm may assist in reporting requirements especially under the new Israeli taxation scheme for the diamond trade. Another benefit relates to the cost of rough diamonds. Reverse engineering consumer prices for polished diamonds, which is the basis of polished diamond prices, reveals the cost manufacturers would consider paying for rough diamonds, independent of diamond valuators estimates, which are possibly subjective.

On the practical side, introducing a transaction based price list is possible. The Mercury Diamond™ Price List provides wholesale polished diamond prices based on transaction prices in the wholesale market, and is aimed at serving the wholesale market first and foremost.

·         We developed a system that collects transaction prices from a wide range of manufacturers, traders and retailers, all of which reflect wholesale polished diamond prices as they are bought and sold around the world.

·         These many monthly transactions are augmented by constant research in the market that backs, double checks, verifies and completes the transaction data.

·         The system covers more than 18,000 polished diamond categories across the 4Cs, covering polished diamonds weighing up to 30 carats with clarities ranging from Flawless to I3 in colors from D to P and in the various shapes.

·         The price list provides a price for a top stone without any irregularities. There is a separate table of irregularities that provides the needed discount or premium to find the exact current price of any particular diamond.

·         The polished diamond pricing system was reviewed and validated by one of Big 4 accounting firms, and that firm continues to audit the price list monthly.

·         The pricing system is in the process of obtaining a patent in the United States.

·         Traders will not only find the current transaction price of each diamond, but by applying their manufacturing costs, they can also “reverse engineer” to calculate the cost of rough diamonds.

Currently, we publish the price list monthly, on the tenth of every month. It is also available in the form of a ticker. You may consider this important alternative, which has the potential to contribute to an important change in the market. Please download the list and test it. We provide it to you with the hope that you will consider using it regularly. 

      The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser. 

 

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