De Beers Sightholders Struggling

[HDer]

Apparently it's even worse for Alrosa:

https://www.bloomberg.com/news/arti...-rules-the-diamond-world-is-starting-to-crack

 

[Karl_K]

They have had historically had a pretty good deal they took the site boxes, split them up and sold them at a profit while doing very little work.
Now that they have to actually do something with the rough they are complaining.

 

[OoohShiny]

Interesting article, thank you for posting!

That helps explain the other recent stories about finance being declined to companies unless they can prove they are buying profitable stones.


It seems crazy, though - De Beers decides who comes through the door of their club, they dictate the prices, and (from what that article says) they enforce a minimum purchase quota in a given year.

Meanwhile (again, going from the graphic in that article) they are making 22-24% margin on rough from the mines??, cutters are making only 1-3% (which I presume is why we see so many cookie-cutter MRBs rather than development of interesting new cuts) and retail margin is 9-11% (which I think is probably generous, going from comments on here).

If De Beers won't take the pain of the current market downturn and instead are putting it entirely on the shoulders of 'the little people' further down (I'm not sure lowering minimum buying quotas and deferring mandatory purchases is really taking that much pain...), how long do they think they are going to be able to maintain that position? Are they trying to decimate the market and leave only a few large buyers? How will that help, given a few large buyers will surely have more leverage over De Beers than having a wide portfolio of buyers, both large and small?

I know De Beers has historically been 'the bad guy', but if the article and the above is entirely true, I'm not surprised that is the case... lol

 

[Karl_K]

Meanwhile (again, going from the graphic in that article) they are making 22-24% margin on rough from the mines??, cutters are making only 1-3% (which I presume is why we see so many cookie-cutter MRBs rather than development of interesting new cuts) and retail margin is 9-11% (which I think is probably generous, going from comments on here).

Don't believe everything you read.
Those numbers are way off.
Even the online vendors who haven't dot bombed or are going to dot bomb are not selling at those margins with the exception of some very large stones.

 

[HDer]

I'm not sure where they are getting the 9-11% number for retailers.

Maybe it's EBITDA/Sales? Signet's numbers were 6% this last year, and 12% the year before.

But the margin number consumers most care about in general is Gross Margin (what's the markup from what the retailer paid) and Signet's numbers there are around 35%. Or in other words for a dollar's worth of diamonds/gold/etc + their rent and a few other expenses. they are charging around 1.54.

In my experience online retailers often have a markup around half of that, in the 1.20-1.30 range.

More info if you want to dig into the weeds: https://s2.q4cdn.com/912924347/files/doc_financials/2019/SIG_2019_AR_10K.pdf

 

[Karl_K]

My opinion,
Even a drop shipper can not survive on 9-11% gross margins unless they are heavily burning through what I call idiot money(investors who buy into the hype).
They end up going bankrupt when they cant get more money to burn and consumers end up holding the bag with money paid and no diamonds delivered.

 

[HDer]

Martin Sheffield is the only one I know of whose gross margins are so low on a regular basis.

At some point though, I predict that the cutters are going to move more aggressively into the retail business. When their margins become pratically nonexistent, even a 10 or 15 percent margin starts looking pretty good.

 

[Johnbt]

"More info if you want to dig into the weeds:"

Thank you for the link to the 153-page pdf. I got as far as page 7 and had to stop. The graphic at the top of the page was too much. Are the rest of their numbers this accurate?

"Directors At-A-Glance, NUMBER OF INDEPENDENT DIRECTORS 11, 50% WOMEN & 50% MEN"

Must be that New Math stuff they used to teach.

Or they've adopted the oddball numerical rounding practices of GIA.

 

[AV_]

In the article (will certainly avoid anything 150p thick) I am reading a story about margins not holding - not demand, nor prices (nts. re prices I'd want to see categories - after all, there is serious variation despite the fact that the goods here are not getting cheap); what remains is the middle & there are stories about margins of the middle ground around here.

This is a good casebook.

thinking out loud

 

[Karl_K]

This is a long story and a very complex one that goes far beyond what the story says.
What happened is DeBeers tried to raise prices like it has done in the past when they had 95% of the market and at 40-45% of the market it did not work.
Who here remembers the feb DeBeers price increases that at times were up to 12%-15% a times?
If Christmas sales were good there was guaranteed to be a first quarter price increase and sometimes a big one from DeBeers.
Debeers lost control of the market for several reasons.
The rise of Canadian diamond mines owned by others and not under their control.
Countries rightfully demanding a cut from the sale of their diamonds.
Legal issues particularly the EU they just ignored US anti-trust law for decades, when the EU started enforcing similar rules they were toast if the did not change.
Easy credit in India and lesser extent China.
The China market for diamonds has not grown like was expected it is mostly a pipe dream for now.
Competition from electronics. Apple and Samsung have become the jewelry industries biggest competition.
The rise of the industry out of the stone age, DeBeers has been kicking and dragging into being a modern company and the site holders are also.

 

[OoohShiny]

I think this is likely based on the same Press Release as the story in the OP, but in case it's not....:

https://www.diamonds.net/News/NewsI...e+Beers+Sales+Sink+to+Lowest+Level+Since+2015

 

[Johnbt]

"The rise of the industry out of the stone age, DeBeers has been kicking and dragging into being a modern company and the site holders are also."

And the storefront retailers could use some help too getting out from behind their glass cases and meeting the customers halfway. They are the ones who have to move the product to the final customer and I think they could use some help improving their sales techniques. I wonder, does DeBeers hold classes for retailers to help them keep the product moving?

I had two local experiences early last year and my wife had one...

The first was a chain jeweler telling me that I didn't need anything better than an I or J after I asked to see round diamonds over a carat or two in E, F or G. After I repeated my request he argued with me. This store was at one time Richmond's premier jeweler, but had sold out to megacorp years ago. They didn't have anything in stock. He was so flustered he didn't even offer to show me anything in the Hearts on Fire case.

The second was at the largest regional mall at a regional jewelry store across from a branch of the store mentioned above. We looked at 1 and 2 carat rounds and when I asked about seeing the specs on the certificates I was told... They don't have them. Their gemologist grades the stones and if the color is in the bottom third of the range it's graded and priced as the next lower color. I think I was speechless for the first time in three or four years. I just blinked repeatedly and shook my head. Finally I said, "Oh" and noticed the store manager standing there observing. His name tag said Store Manager. I gracefully asked if they had a Marco Bicego necklace to match my fiancee's earrings and moved right along and out the door when they didn't have anything.

Lastly, my fiancee went to Diamonds Direct on her lunch hour. I'm retired and was an hour away. She was 63 at the time. She was asking about 1 and 2 carat rounds and the salesman wouldn't talk about specs or show her anything. Seriously, he wouldn't take anything out of the case. About the third thing he said was, "Where's your fiancé?"

Uh-oh.

Let's see, she has a couple of degrees, a professional license, and handles a large budget at work and he doesn't want to deal with her.

And that's how I convinced her to pick a stone and a setting on the WF site. They were better looking anyway. We ended up in the middle. She picked a 1.5+ carat F VVS2