If you want to understand the problems of the diamond industry, look no further than the rough diamond trade in Belgium’s diamond center in Antwerp. It is a microcosm that paints a painfully accurate picture.
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Other Supply Chain Players - The Banks
Financial institutions are another key stakeholder in the diamond supply chain, which Ehud believed expected greater transparency from the diamond sector. "Bank financing is the lifeblood of the industry. Without it, there would be no money for exploration or new store openings," Ehud stated in 2015. He also stressed the need to boost confidence in the diamond industry. This lack of confidence is evident in, for example, the decline in available bank financing over the past several years.
Recycled Diamonds
Recycled diamonds are another aspect of the diamond supply, which Ehud believed could benefit from greater transparency of the true value of diamonds. Recycled diamonds refers to diamonds that had been bought by consumers previously and are now back on the market for sale. Ehud agreed that the term "recycled" does not do them justice. "When discussing recycled diamonds in the past, some people in the diamond industry have shied away from the term 'recycled' because it cheapens diamonds. They make a good point… Unlike cars or electronics, the wear and tear on diamonds is minimal and can be repaired to perfection. This is one of a number of important aspects of these diamonds and therefore the term recycled simply does not do them justice. They are in fact reclaimed. Reclaimed for their beauty, reclaimed as a gift, reclaimed because their value is not lost, but maintained."
Reacting To Lab-Grown Diamonds
Beyond diamond players, Ehud explored other supply-side topics that have sparked debates over the years where he believed that similar to demand-side issues, greater transparency is central to address them. Lab-grown diamonds provide a good example.While their emergence was accompanied by rising concerns across the industry, Ehud believed lab-grown diamonds can play a complementary role to that of natural diamonds, provided consumers gain a better understanding of the inherent value of natural diamonds.
Possible Solution for Fragmentation – Alliances
As another possible way to solve the problem of fragmentation in the diamond sector beyond consolidation, Ehud encouraged the industry to explore strategic alliances. "Looking at other industries, there appears to be various ways to address the challenges of excess fragmentation in parts of the diamond sector. One option our sector can consider, especially given the slow trend in consolidation between players, is to make more use of strategic alliances."
Possible Solution for Fragmentation – Consolidation
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.
Improve the Diamond Midstream
Delving further into the issue of fragmentation in the midstream (manufacturing) of the diamond sector covered in last week's post, Ehud said in August 2015, "The more we examine the facts, the clearer it becomes that the main problem faced by the diamond industry is that the midstream – the manufacturing sector of the diamond pipeline that mainly polishes diamonds – does not get its fair share of the pie."
Regaining consumer trust on the industry’s weakest links
In addition to improving pricing transparency, Ehud believed that the diamond industry should also tackle the other issues that have led to a decrease in trust in the sector as a whole.
Crystal Clear – From Rough to Polish
Improving the pricing transparency of polished diamonds is the first part of the two main components of the Crystal Clear philosophy. The other part, driven by the first, is the ability to then determine the prices of rough diamonds. The rationale that Ehud used here was that, ultimately, it is consumers who determine the price of a rough diamond based on how much they are willing to pay for its polished output.
Turning Crystal Clear Theory into Practice: Mercury Diamond Price List
The introduction of a transaction-based polished diamond price list is possible. The Mercury Diamond™ Price List which Ehud founded, provides wholesale polished diamond prices based on transaction prices in the wholesale market.
Crystal Clear – The 5th C
A key component of Mercury Crystal Clear™, the diamond pricing system which Ehud founded, is expanding consumer knowledge of diamond characteristics beyond the 4Cs (Carat, Color, Clarity and Cut) known to the ordinary buyer. "The importance of a transparent and easily understood pricing system for diamonds cannot be stressed enough. For many years, the general press and many consumers have been stating that the misunderstood differences in diamond prices are a turn-off."
The World Diamond Council (WDC) was formed in 2000 to represent the diamond industry in the Kimberley Process Certification Scheme (KPCS). However, over the years, the scope of the organization’s activities have expanded to serve several additional functions, mainly advocating for the industry at large.
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After polished diamond prices declined sharply in September, they took an additional step downwards, though it was not particularly significant. The Mercury Diamond Global Tracker™ (MDGT™) averaged 111.55 in October 2018, down 0.17% from September. While demand for loose diamonds remains slow, we believe traders hardened their stance on price as much as possible in anticipation of rising demand.
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Just as there is no diamond business without diamond miners or jewelry stores, there is no diamond industry without diamond manufacturers, the people who polish diamonds. Like many other business sectors, diamond manufacturers also opted to organize and form an association, in this case, the International Diamond Manufacturers Association (IDMA).
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According to a National Retail Federation (NRF) forecast, 22% of Americans intend to buy jewelry during the winter holidays. That is a nice figure, but it represents a decline from the 23% that were forecasted to buy jewelry during the winter holiday period of 2017. Not a large decline, even within the statistical error, yet worth noting.
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