Find your diamond
Find your jewelry
shape
carat
color
clarity

2011 Rapaport State of the Diamond Industry: The New Normal

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Martin Rapaport's "State of the Diamond Industry" presentation at JCK Las Vegas is a much-anticipated event. His 2011 theme discussed change, the "new normal" and the "new abnormal." Here is a short review, for those interested. (The full 99-minute video can be seen here)

* * * * *

“The USA, with regard to how we fit into the global diamond industry, is fundamentally screwed.”
– Martin Rapaport

One can always count on Martin Rapaport to cut to the chase. His 2011 “State of the Diamond Industry” presentation in June was no exception. And while his personal delivery may occasionally employ the tone and cadence of someone preaching from a barroom soapbox his basic conclusions can’t be denied. In fact, Rapaport could have sprinkled slides throughout his lecture proclaiming “I told you so!” since he has forecast many aspects of today’s global macroeconomic situation since 2005.

Non-Linear Interactive Change

Rapaport reports that our world is undergoing “non-linear interactive change.” These are unexpected changes which are interactive: A affects B, B affects G, G affects Z, Z affects A, etc. A naturally-occurring example of such change would be the Tsunami in Japan in March. With regard to the diamond and jewelry industry, there are “non-linear interactive changes” in demographics, economics and globalization which are bringing about a new and unavoidable reality that we must cope-with.

Demographics

Where the USA used to dominate the diamond and jewelry industry Rapaport says it simply will not be the main player anymore. He supported this assertion with data from different world markets. The USA and Europe are mature markets; we already own diamonds. But China and India are producing 80 million new consumers every year. These new consumers can afford diamonds for the first time and they want them. When you couple this rising demand from countries with little diamond saturation with the fact that there are no new mines it means demand and prices will continue to rise. Free market forces have already driven prices up notably in the last few years and all signs point to this as a steady trend.

Many people are undergoing shock about this. They think the situation is temporary or speculative and things will go back to the way they were. Rapaport says they are in denial: “Don’t build your business on things returning to the way they were. There is new normal. There is new abnormal. It’s necessary to surf the ways of change.” He believes it will be necessary to identify and take advantage of your unique sales propositions (USPs) to add value and adapt to global demographics which are in the process of steady change.


Economics

Rapaport says we are living in a time of resource and economic warfare where currency is the primary weapon. The outlook for the dollar is down, but for diamonds it’s up - and every time the dollar goes down diamond prices go up relative to its weakening. American consumers are being forced to pay rising prices as the dollar loses value against the RMB “...and if anyone thinks the RMB is going to stay where it is that’s a mistake” he says. American jewelers are no longer competing just with the guy across the street, but also with Chinese and Indian suppliers. “The Chinese and Indian suppliers want your customers’ diamonds for their own customers, and their currency is only getting stronger.”

The economic outlook in America is not promising: “We allocate money through interest rates. We have lowered interest rates in America to a ridiculous degree. We’re financing a nation with artificially low interest rates. This makes our money worth less.” He maintains that gas prices have not gone up, it’s the dollar which has gone down and become worth less. “We’re out of gas in terms of monetary policy” he says. “We can’t raise interest rates because that creates more unemployment. We lowered interest rates to zero and expected things to grow but it’s been tiny growth. We may get into a position where 30% of Americans make all the money and we throw healthcare and welfare at the rest.”


Globalization

“Africa is the new India. India is the new America... Where is America?”

Rapaport points out that in the 1970s the USA formalized relations with China. There was a great effort to assist them economically in order to prevent a situation where the world’s most populous country would be forced to consider resorting to violence to feed its people. “We’ll buy from China so they don’t kill us.” He points out that we organized things in such a way that it generated many jobs for the Chinese and Indians. “We lowered interest rates and bought more foreign-made goods and now we are in a weird position.” Moreover, it is not just China and India that have rising economies, Rapaport says. “Brazil is also rocking...and all these guys want your diamonds.”

Rapaport predicts that the artificial US “party” with the dollar will end badly when interest rates rise and inflation occurs. He says this may be three to five years away, but strongly feels it will happen. We and other countries are currently vying for the same commodities using currency and buying-power as weapons of choice. “As long as there is music we will dance, but it’s musical chairs. Get your eyes on a chair because when the music stops there won’t be a chair for everyone.”

IMG_0753.jpg

IMG_0756.jpg

IMG_0758.jpg

IMG_0761.jpg
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Diamond Supply & Demand & Prices

With no new mines, a steady domestic bridal market and new, explosive markets in the east the demand for diamonds will continue to rise. “Currently there is some speculation occurring, especially in India,” Rapaport says, “but strong foreign demand has created a seller’s market. Prices are going to continue to rise. These rising prices will not track with the US economy, so US retailers will have to sell diamonds for more and more.” Nominal price hikes along with a weakening dollar can result in even more exaggerated increases in the US.



Rapaport also discussed impact and recovery related to the financial crisis.

Slide: The impact of the financial crisis was felt strongest around the world in 2009, when global rough distribution sagged. But it increased by 10% in 2010.



Slide: In the USA we felt the impact of the economic crisis from 2007-2009; a year in which the US Net Diamond Account dipped 45%. In 2010 it rebounded by 61% and looks to rise significantly in 2011.



Slide: In India, where there is tremendous polished export, the 2010 Net Diamond Account rose by 568%

IMG_0768.jpg

IMG_0770.jpg

IMG_0771.jpg

IMG_0774.jpg
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Slide: In HK and China the Net Diamond Account rose 2% in 2009 and 52% in 2010.



In summary, the financial crisis had a notable impact on these three markets, but in 2010 there was dramatic global increase in diamond consumption.



Slide: Rough and polished prices since 2008.



Slide: A zoomed look at the astonishing price hike in melee.

IMG_0775.jpg

IMG_0776.jpg

IMG_0779.jpg

IMG_0781.jpg
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Rapaport’s Advice to US Jewelers

Some simple advice Rapaport gave was “Sell diamonds to rich people.” While somewhat tongue-in-cheek, his message was that there are many people in America capable of luxury spending, but they are not into “conspicuous consumption” anymore. They still want diamonds but they will seek added value. It’s up to retailers to provide and promote such value-adds.

With other emerging markets and steady demand Rapaport believes that American jewelers have come into a unique position where they can think of new foreign suppliers as customers who want goods. “America is saturated with diamonds” he says. “There are more diamonds coming out of South Florida than South Africa right now. Millions of consumers want to sell their diamonds and jewelry! Jewelers should be making as much money buying as well as selling. Why should profits be limited to what comes out of the ground? If you’re not buying as much as you’re selling you’re only half a jeweler.”

Rapaport criticized the practice of memo again this year as in past-years. Cash flow is critical to growing not only your business but the business of your suppliers and their suppliers and everyone else, all the way back to the miners. Memo kills cash flow and everyone can’t stand in line waiting for the end-consumer to buy something on layaway or credit before anyone in-line can get paid. Diamonds are worth money, he says. “If you don’t have the money and are not a player we love you, but you’re not a player.” He also criticized retailers who expect to sell without extending confidence-builders such as trade-up and buyback policies to the end consumer. “You want Consumer Confidence” he asked? “Buy the stuff back if you want to give them confidence.”

Technology and Socialization

Rapaport mentioned technology and social media and the influence they are having on consumers. He played an excerpt from a Spike/Comedy-Central video illustrating the new breed of consumer; the Multi-Platform-Male (MPM) (see the video here) He asks: “In a changed world who do you want to sell? What do you want to sell? How do you want to do it? You must innovate, create, and get new. New methods of distribution and communications create new markets for new products.” Ultimately, Rapaport says, our customers are ahead of us when it comes to adapting and accepting change.

Technology and social networks were highlighted as creating new realities and markets for new products. The past, he says, is creating a model and slowly building it. But now we make it first and maybe someone will come. That’s the future, he says. “You must push. The demand-driven stuff is a bunch of hooey. You need to learn to sell the way people sell technology; they make it and then they sell it. There is a symbiotic relationship between technology and socialization. Technology is supply-driven. The product creates the demand. We’re in a new world of supply-driven markets. Don’t sniff around like a dog trying to follow somebody. Lead. Create new stuff.”

Social Responsibility

Rapaport again brought his annual appeal to support value by free, fair, honest, transparent, efficient and competitive markets, and to create diamonds with “spiritual sparkle.” He says this is becoming a more important and present component of added value, especially for those immersed in social networking and global consciousness. “We’re never going to be able to stop the evil in the world, but we can create good” he says. We can create products which are monitored and socially responsible and charge higher prices for them. “The world is changing. America is kind of screwed up but we have something they don’t. We have a customer base willing to pay more money for kosher diamonds. It’s not just the diamonds, it’s the idea behind them. Package it with some good”

Rapaport describes socially responsible consumerism as a megatrend. Consumers want to buy socially responsible products. The result is that problems become opportunities: “Virtual sparkle” he says, “is going to be as important as real sparkle.”

Summary Notes

There is a common question about the Rapaport Group and diamond prices... Is Rapaport reacting to the actual market, or is the actual market following Rapaport’s lead? It’s a chicken-egg prospect: The Rapaport Group describes their process in a way that is both logical and defensible. Nevertheless, if they did decide to “invent” pricing increases or decreases the market would no-doubt follow blindly for a time.

What’s certain is that the non-linear interactive change to which Rapaport refers has changed the industry landscape, leaving many professionals wide-eyed, and possibly in denial. It is clear that a lack of new mines paired with increasing demand from an unsaturated Asia-Pacific theater (vs the diamond-saturated west) represent powerful free market forces which have already resulted in significant price increases. When we consider that 80 million new consumers are emerging each year in the east - with population-potentials there overshadowing the US like Metropolis would overshadow Smallville - the logical conclusion is that our old rulebooks must be thrown away... “There is new normal. There is new abnormal.”

I have personally followed Mr. Rapaport’s predictions since 2005, along with those of China’s Lawrence Ma, who gave similar forecasts in 2006. I’m regularly in all corners of the USA and have worked in India, Hong Kong and China on several occasions in the last few years. In my opinion Mr. Rapaport deserves credit for his research and historically accurate predictions. Given his track record, it’s quite likely that his current forecasts will also hold true.
 

thbmok

Brilliant_Rock
Joined
Jul 30, 2010
Messages
891
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

John Pollard|1312303173|2982379 said:
Slide: A zoomed look at the astonishing price hike in melee.
:shock:

No wonder diamond settings have gone up so much in price lately. Thanks for sharing!
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

You're welcome. The steady-high of precious metals has also contributed to setting-inflation. Someone who shopped just a year ago and set aside the information might undergo serious sticker-shock, picking up the search again today.
 

maplefemme

Brilliant_Rock
Joined
May 12, 2011
Messages
874
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Thank to for sharing this, John. I am very new to the diamond world compared to most PS members, but I have worked in India in the field of community development and I have a decent understanding of their economic and social state. I find this all intriguing.
It explains a lot!
The shift that is happening is becoming more and more apparent, to be able to adapt and evolve is going to be a real challenge for many (not just the business of diamonds, but on a global economic level) whilst it's disturbing to hear, I also found it inspiring, it's a heads-up to change our way of thinking and competing in the global market.
 

CaprineSun

Brilliant_Rock
Joined
Sep 30, 2010
Messages
547
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Thanks! This answers (or rather confirms) what I was speaking of in my post in the Diamond prices thread the other day.

Very detailed insight into what is going on and what will be our foreseeable future. :(
 

CaprineSun

Brilliant_Rock
Joined
Sep 30, 2010
Messages
547
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Another question that just popped into my head:

With the price of melee shy rocketing, will it now become much more expensive to replace lost melee from the intricately micro pave'd rings we love here on PS? Will these pave rings be more cumbersome & more expensive with maintenance to replace fallen stones? Will they still be "worth it" (especially well-cut melee) for the added cost it may add to a ring over a lifetime?

I may have to re-think my choices here.
 

hoofbeats95

Brilliant_Rock
Joined
Nov 23, 2008
Messages
1,442
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

This may be a dumb question, but how long before supply dries up. It was mentioned several times in your post that there are no new mines. Demand is skyrocketing obviously. So how long till there is no supply left?
 

risingsun

Ideal_Rock
Joined
Dec 19, 2006
Messages
5,549
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Thank you, John, for posting this most interesting and informative information. I'm going to bookmark it. We have had a thread going about trade-ups and buy backs. Some jewelers demand a 2x trade up on the price of the original diamond purchase. Buy back policies vary significantly. I have been fortunate to be able to do three trade-ups and have my orginal purchase price credited in full , each time, for the new diamond. That also saves me a great deal in sales tax. I agree with the highlighted portion below:

Taken from the report: Rapaport criticized the practice of memo again this year as in past-years. Cash flow is critical to growing not only your business but the business of your suppliers and their suppliers and everyone else, all the way back to the miners. Memo kills cash flow and everyone can’t stand in line waiting for the end-consumer to buy something on layaway or credit before anyone in-line can get paid. Diamonds are worth money, he says. “If you don’t have the money and are not a player we love you, but you’re not a player.” He also criticized retailers who expect to sell without extending confidence-builders such as trade-up and buyback policies to the end consumer. “You want Consumer Confidence” he asked? “Buy the stuff back if you want to give them confidence.”
 

scepture

Rough_Rock
Joined
Sep 14, 2010
Messages
88
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Wonderful write up, John. I am curious--perhaps being too quick to conclusions--about what will happen IF the US enters into another 'recession' (or major slow down at least). Despite the large increase in demand among the foreign market, the US still provides some demand. With potentially decreasing demand (although maybe not as significant as was in 2009), do you see this having any serious effect on the price of diamonds?
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

*Twinkle*twinkle*|1312425450|2983710 said:
Thanks! This answers (or rather confirms) what I was speaking of in my post in the Diamond prices thread the other day.

Very detailed insight into what is going on and what will be our foreseeable future. :(
You're welcome. I'm glad I had time to put it together.

*Twinkle*twinkle*|1312433260|2983798 said:
With the price of melee shy rocketing, will it now become much more expensive to replace lost melee from the intricately micro pave'd rings we love here on PS? Will these pave rings be more cumbersome & more expensive with maintenance to replace fallen stones? Will they still be "worth it" (especially well-cut melee) for the added cost it may add to a ring over a lifetime?
The vast (VAST) majority of melee is produced in India. Some of the hike may be attributable to an (arguable) speculative bubble in that country. Certainly their currency, as well as others, continue to get stronger while the dollar declines. And while it's hard to know if melee pricing - which is out of scope - will hold or undergo an adjustment there's little doubt that overall prices will continue to rise.
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

hoofbeats95|1312473729|2984068 said:
This may be a dumb question, but how long before supply dries up. It was mentioned several times in your post that there are no new mines. Demand is skyrocketing obviously. So how long till there is no supply left?
Not a dumb question at all, hoofbeats.

Current mines will continue to produce but will eventually flatten and reduce in production. There are several projects in-the-works, predicted to replace some of the heavy-producers in time, so supply will continue for many years. However the rate of supply is not expected to maintain pace with the upcoming demand.

SUPPLY FORECAST

Jwaneng in Botswana (DeBeers) is the richest mine in the world and will still produce well for years to come. It will move underground soon however, and continue to produce at a reduced rate for another 10 or so years (until around 2025). The Argyle mine in Australia (Rio Tinto) is going from open-pit to underground even now, reducing future output. Ekati in Canada (BHP-Billiton) is also a strong mine but expected to remain flat in the future. Similarly, Alrosa's production in upcoming years is projected to remain flat. These and similar existing sources will all eventually decline.

There are developments of note in-progress in Canada: First are Shore Gold's kimberlite clusters at Fort a la Corne in Saskatchewan. Two of the five clusters there (Star & Orion South) have already been tested with good feasibility; in fact a high white 45.9 ct diamond was recovered during exploration. They're hoping for output similar to Ekati but will only begin earnest supply in 2015-2016. In fact it's rumored that there is a deliberate slowdown happening there in order to play for time. Why? Because the global supply shortfall is unavoidable and the later their mines come online the more valuable the diamonds coming out of them will be...

Also in Canada are Renard in Quebec (Stornoway) and Gaucho Kue up in the NW Territories (DeBeers). However these evaluation projects are so remote...anyone seen "Ice-Road Truckers?...that developing them during a flat economy was not viable and even now it will cost 40-50% more to engage them than the Saskatchewan developments. To this end you have the old Jericho mine, which used to supply Laurelton, that was shut down by the economy but is being revived now. Jericho should be producing by the end of next year.

So yes, there are replacements for today's heaviest suppliers, but as these and other new mines increase the old mines will decline, keeping supply largely flat.

Summary: Alrosa predicted that by the end of 2011 total supply will recover to 157 MM carats per year. Further growth to 166 MM carats by 2018 will be driven by development projects like those above but no new deposits are expected to be commissioned after 2015...

It takes more than a decade to develop a mining project. So even if we stumble over a massive new gem-quality diamond cluster (hopefully in my backyard) any supply prospect is far in the future.

DEMAND FORECAST

You get the upcoming demand gist above in my review. In-keeping with that, here is a graphic published by AllanHochreiter (a Johannesburg-based boutique corporate finance advisory company operating within the mining industry) as part of their presentation at last year's Botswana Resources Conference.



From the same presentation, here is AllanHochreiter's indexed supply & demand forecast from 1998 through 2020.



And their pricing forecast: Note that we're already ahead-of-schedule.

allanhochreiter01.jpg

allanhochreiter02.jpg

allanhochreiter03.jpg
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

scepture|1312490107|2984290 said:
Wonderful write up, John. I am curious--perhaps being too quick to conclusions--about what will happen IF the US enters into another 'recession' (or major slow down at least). Despite the large increase in demand among the foreign market, the US still provides some demand. With potentially decreasing demand (although maybe not as significant as was in 2009), do you see this having any serious effect on the price of diamonds?
If you look at the chart above you see that the US will continue to be a major player. But it's a numbers game.

I believe the hardest-hit in your scenario will continue to be retailers-of-quality. Client budget expectations will likely remain the same in bridal, regardless of the economy... I can't tell you how often over many years I have heard a customer come into a store where I'm doing training and expect to get a 1ct diamond of high color/clarity/quality for $5K.

The jeweler then has a choice:

1. He/she can educate and reset the client about pricing, and relay what's realistic for that budget while being absolutely honest about quality (high grading standards, high cut quality etc). This is difficult because you never want to tell someone "Hey man, F VS1 Ideal 1ct is just not possible for your budget." I applaud the sensitive jewelers with integrity who understand how to gently work with new consumers and serve them with high quality (which protects the future value of what they buy) regardless of budget.

2. He/she can or move them into something uncerted, soft-certed, etc...which makes the client think he/she got a "deal." This is a big drawback in my world when these prices go up: Softer reports become even more popular.
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

maplefemme|1312384674|2983109 said:
Thank to for sharing this, John. I am very new to the diamond world compared to most PS members, but I have worked in India in the field of community development and I have a decent understanding of their economic and social state. I find this all intriguing.
It explains a lot!
The shift that is happening is becoming more and more apparent, to be able to adapt and evolve is going to be a real challenge for many (not just the business of diamonds, but on a global economic level) whilst it's disturbing to hear, I also found it inspiring, it's a heads-up to change our way of thinking and competing in the global market.
You're welcome. And I agree completely with your last sentence.
 

Cehrabehra

Super_Ideal_Rock
Joined
Jun 29, 2006
Messages
11,071
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Read every word John... Every reply. Excellent job! Something has to give, wonder what it will be? A return to diminutive wedding sets, finally a true embrace of the k club, diamond alternatives.... It's funny, I still don't see it with mine eyes here. I absolutely believe it, but I think the goods are still being gobbled up, not distributed so much yet. Of course I live in Hicksville! I'm going to shanghai in a month or two, I'd like to do some targeted "shopping" while there, for curiosities sake. One thing I know for certain, people here believe what they're told and the soft cert can be VERY soft. This is the land of the emperors new clothes!
 

Rhino

Ideal_Rock
Trade
Joined
Mar 28, 2001
Messages
6,276
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Great stuff John. I look foward to watching the whole presentation but this nutshell version hits what I think are most important points. All I can say my friend is lets get our surfing trunks on. :sun:
 

Karl_K

Super_Ideal_Rock
Trade
Joined
Aug 4, 2008
Messages
10,622
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

I have been super busy so haven't and don't have enough to time to comment as much as I would like.

Replace China with the word Japan and it is history repeating itself.
It will be scary when it collapses just like it did last time.

The US's biggest problem is the fed giving away money at a staggering rate.
It is devaluing the dollar to a huge and fast degree.
Reading the news tells one that the euro isn't in any better shape.

What is going to happen to China when its money can no longer be artificially pegged to the dollar?
BOOM! not a pretty sight.

It is a fact you can not grow and sustain an economy on exports.
It has been a very painful lesson going back thousands of years that for some reason is being learned over and over.
China and India are eventually going to learn that the hard way... BOOM!

China has been buying up all the rare earth mineral sources it can get its hands on to lock up the market for magnets and solar panels to help put it off a while by locking up a growth market.
That reminds me for some reason of Tea.... hmmmmm

That is all I have time for at the moment.
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

risingsun|1312487903|2984251 said:
Thank you, John, for posting this most interesting and informative information. I'm going to bookmark it. We have had a thread going about trade-ups and buy backs. Some jewelers demand a 2x trade up on the price of the original diamond purchase. Buy back policies vary significantly. I have been fortunate to be able to do three trade-ups and have my orginal purchase price credited in full , each time, for the new diamond. That also saves me a great deal in sales tax. I agree with the highlighted portion below:

Taken from the report: Rapaport criticized the practice of memo again this year as in past-years. Cash flow is critical to growing not only your business but the business of your suppliers and their suppliers and everyone else, all the way back to the miners. Memo kills cash flow and everyone can’t stand in line waiting for the end-consumer to buy something on layaway or credit before anyone in-line can get paid. Diamonds are worth money, he says. “If you don’t have the money and are not a player we love you, but you’re not a player.” He also criticized retailers who expect to sell without extending confidence-builders such as trade-up and buyback policies to the end consumer. “You want Consumer Confidence” he asked? “Buy the stuff back if you want to give them confidence.”
You're welcome Risingsun.

Interestingly, the buyback issue is one Mr. Rapaport has brought up for a couple of years now, along with the criticism of memo. He sincerely feels that diamonds should be bought with cash by jewelers - and cash should be returned to consumers if they want to bring the diamond back.

Personally I agree. Unfortunately I think Mr. Rapaport is giving advice from an idealistic bubble. Why? Because some of the fundamental conclusions he arrives-at seem to be based on the presumption that diamonds within the "RapNet world" reflect mainstream reality (and they do not). It's insular advice.

It's well and good to advise jewelers to extend buyback on equitably sold fine-make, strictly-graded goods. You will find PS sellers who are doing exactly that in fact... But the real world is far more saturated with off-make, soft-certed goods than the "RapNet world." In a world dominated by EGL-ish goods it is logical that mainstream dealers will hesitate: Why would Jeweler X offer to "buyback" the soft-certed, poorly cut diamond he just sold for a 50% profit when it's uncertain that he could resell it for that amount again after buying-it-back...even with escalating diamond prices?

This is why a dealer's buyback/trade-up policies are great indicators of how confident they are in the product they are selling. The more flexible the policy, the more certain the dealer is that the future value of what you are buying will remain in good standing.
 

Cehrabehra

Super_Ideal_Rock
Joined
Jun 29, 2006
Messages
11,071
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

It seems to me that with rising diamond prices, buying back even at 100% is like a riskless investment to the jeweler. If someone buys a stone for 10k and 2 years later it's worth 14k and he only has to buy it back for 10k... that's 4k. It also makes it MUCH easier to shell out that kind of money, knowing you can get your initial investment back. But it looks like the increase in value might be more than 4k over 2 years lol

And yes, I know there are some overhead costs associated with the buyback of a stone, but I'm pretty sure this climate will provide more than enough for that.
 

troJane

Rough_Rock
Joined
Aug 6, 2011
Messages
32
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Thank you,
This is a great explanation to why my bf is noticing an almost 30% increase since first shopping (to decide his budget). He said the months of saving has brought him to the same diamond. Sad sad..

I am so glad I joined this forum today!
 

denverappraiser

Ideal_Rock
Trade
Joined
Jul 21, 2004
Messages
8,838
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Cehrabehra|1312685436|2985693 said:
It seems to me that with rising diamond prices, buying back even at 100% is like a riskless investment to the jeweler. If someone buys a stone for 10k and 2 years later it's worth 14k and he only has to buy it back for 10k... that's 4k. It also makes it MUCH easier to shell out that kind of money, knowing you can get your initial investment back. But it looks like the increase in value might be more than 4k over 2 years lol

And yes, I know there are some overhead costs associated with the buyback of a stone, but I'm pretty sure this climate will provide more than enough for that.
Sara,

The risk to jewelers from buyback programs comes from 3 main sources.

1) It is NOT a valid assumption that diamonds will increase in value faster than inflation forever. Actually this is guaranteed to be false, just like it was on houses, gold, GM stock, diamonds back in the 80's and everything else that you might spend your money on. What goes up must come down.

2) Fashion. The currently ‘hot’ stones now will NOT be the hot stones in 20 years and they never have been. I don’t know what it’ll be but it’s the way of the fashion world that these things change. Once upon a time, marquise cuts used to cost more than rounds because of consumer demand for them. They were lovely. They’re STILL lovely but they sell very slowly now. That’s no problem for a consumer who loves them and buys one and it’s actually a feature because it drives down the cost, but it’s a disaster for a jeweler who fills up his/her inventory with them unless they’re deliberately targeting a niche market. Fluorescence used to be a feature, now it’s seen as a problem. Nothing real changed but the affect it’s had on the market is significant. Laser drilling used to be a feature (because it made apparent improvements in clarity) and now it’s seen as a problem. This was just from a stroke of a pen by some bureaucrat at the FTC changing the rules on what constitutes an ‘enhancement’.

3) Cash flow. Consumers who sell things back to jewelers expect to be paid fairly promptly. If the jeweler otherwise has to spend their money on payroll, taxes, rent or wahtever, this puts them into a serious bind. Most jewelers are fairly small business and most are underfunded. Some seriously so. Managing inventory while covering expenses is a huge deal for them and they plan their inventory levels month or years in advance. This plan does not include the eventuality that Mrs. Gotrocks and a few of her friends are going to come back in and ask for refunds.

I agree with Martin that the whole buyback thing is a huge confidence builder for the dealers and it's a neglected issue in this industry. Consumers generally expect some sort of way to cash out and are surprised to hear that it's as difficult as it is. It’s not just the retailers by the way. He’s saying that the retailers should buy back goods from the consumers but the problem extends to the wholesalers who are supplying those stores, the cutting houses who are supplying them, and the mines who are supplying THEM. Somebody needs to take it into inventory and put out the money. This may or may not be the retailer but, whoever it is is going to hae the above issues and they’re going to want to make a profit on the deal in exchange for putting up with it. That's not unreasonable. You can’t undo all that value added labor that came from the mine workers, cutters, shippers, salespeople, tax collectors, labs, advertisers, appraisers, et.al. and although some of that value can carry through to the next customer, some gets lost. Who takes the hit?
 

Cehrabehra

Super_Ideal_Rock
Joined
Jun 29, 2006
Messages
11,071
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

Thank you for taking the time to write all of that out Neil, I was being a bit simplistic huh? :)
Wouldn't it be nice if...
 

John P

Ideal_Rock
Trade
Joined
May 1, 2008
Messages
3,563
Re: 2011 Rapaport State of the Diamond Industry: The New Nor

denverappraiser|1312725099|2985807 said:
I agree with Martin that the whole buyback thing is a huge confidence builder for the dealers and it's a neglected issue in this industry. Consumers generally expect some sort of way to cash out and are surprised to hear that it's as difficult as it is. It’s not just the retailers by the way. He’s saying that the retailers should buy back goods from the consumers but the problem extends to the wholesalers who are supplying those stores, the cutting houses who are supplying them, and the mines who are supplying THEM. Somebody needs to take it into inventory and put out the money. This may or may not be the retailer but, whoever it is is going to hae the above issues and they’re going to want to make a profit on the deal in exchange for putting up with it. That's not unreasonable. You can’t undo all that value added labor that came from the mine workers, cutters, shippers, salespeople, tax collectors, labs, advertisers, appraisers, et.al. and although some of that value can carry through to the next customer, some gets lost. Who takes the hit?
Coming into this business from a completely different sphere, I found the whole concept of memo pretty alien. Manufacturers buying raw material and cutting diamonds don't enjoy "memo" from the mining houses, but it's pretty much an expectation by retailers downstream. "Who takes the hit" can be manufacturers/suppliers who are paying cash for their goods...and then must memo that inventory to begin with, and may be asked to extend 30/60/90 terms upon-sale. This can cause a situation where no one up the entire line is getting paid until 90 days after John Q's check clears - or his layaway is completed. Logically this situation in mass-practice creates cash-flow delay and impedes the ability for retailers or others to produce "instant cash" for buybacks.
 
Be a part of the community It's free, join today!
    Something Blue
    Something Blue
    November’s Jewels Of The Weeks
    November’s Jewels Of The Weeks
    Upgrade to Five-Stone
    Upgrade to Five-Stone

Need Something Special?

Get a quote from multiple trusted and vetted jewelers.

Holloway Cut Advisor



Diamond Eye Candy

Click to view full-size image.
Top