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Revaluing Inventory as Polished Prices Decline
Q&A with Alex Bassalian, owner of Bass Premier
May 1, 2015 2:13 AM
By Avi Krawitz
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RAPAPORT... Bass Premier is a third-generation wholesale diamond business based in Hatton Garden, London. The company has evolved to become a leading supplier of polished diamonds to the U.K. and European markets. Rapaport News recently spoke with Alex Bassalian, owner of Bass Premier, about the state of the market and some of his concerns moving forward:
Rapaport News: What is your background and that of Bass Premier?
AB: My grandfather started out trading in diamonds, precious stones and pearls and my father followed that and in a way I did too.
However, it was different in my father and grandfather’s days. They would buy a bag of rubies, sapphires, diamonds and pearls mixed together, and sell it to somebody they knew. Over the years the business changed. Today, every diamond has to have a grading report, from the smallest diamonds of 25-pointers the qualities are so important. A bag of mixed diamonds and gem stones would never sell.
People are also more knowledgeable about what they’re buying and generally I think business is more difficult – it’s harder to make a profit.
Our current company was started about 29 years ago by my late brother and my father and I joined shortly after.
Rapaport News: What is the added value that Bass Premier brings to the market?
AB: We’re a typical diamond dealer. We buy in big quantities for short terms or cash, and then we sell in small quantities on credit and with service. We have the manpower and the expertise to satisfy our client’s requests and in that way we add value. Maybe we buy a big business from someone in India, Belgium or Israel, we then bring it here and sort it into different categories and parcels, and then our sales people go out and sell it to businesses in the U.K.
So we add value through our distribution by buying in large quantities and selling in small quantities with good service.
Up to about three years ago, about 95 percent of our business was in the U.K., but now it’s 80 percent to 85 percent and the rest is exported mainly to European countries.
Rapaport News: How is the diamond and jewelry market currently?
AB: The U.K. is a relatively small market compared to the U.S. Even compared to Italy, it was always a small market. Because of its size, we never had a huge crash like that which occurred in the U.S. in 2008.
The business never went up like crazy as it did in China, and it never had a huge crash such as in 2008 in the U.S. I’d say we had a quieter period maybe in 2012-13, when we felt there was a bit of a slowdown in the U.K. market but it’s been steady over the years, neither booming nor very quiet.
I think that the serious U.K. jewelry retailers are quite happy this year. Business is not easy and profit margins are tight and everyone finds it hard, but the feeling is that both brick-and-mortar and online retailers are doing business one way or another. You just have to be prepared for a lower margin sale and set yourself up for a competitive market. If you do that you can still do business. And if you turn out a good volume, by the end of the year you would have made a profit. The retailers who have adapted themselves to new market conditions are doing pretty well.
But business is not like before. Diamonds used to give a good profit margin and now it’s not there anymore. It’s like that all over the world and the U.K. is the same.
Rapaport News: Are those lower profit margins evident in the retail and wholesale sectors?
AB: Yes, I think it’s reflected at every level. Everyone is complaining about profit margins, from the supplier in India to our customers, and we are as well.
But there are retailers that are still doing business in the U.K. At every level the market has adjusted to a new level of profit and we’re still doing business.
Rapaport News: There seems to be a realignment going on in the trade toward lower inventory levels. Are you seeing that in the wholesale market?
AB: We’ve always believed in holding large inventory. From my father’s days we always believed that stock is king so we’ve always stocked very heavily. You’re right and the retailers have definitely decided to hold less stock for some reason over the past two years or so.
So yes, I agree with you and this is also the case at a wholesale level. Because we hold a large inventory, we also sell to other wholesale businesses in the U.K., and we see that everyone is holding less stock.
Maybe the reason is that the big diamond dealers change their prices so often that people have lost the confidence to hold bigger amounts of stock. There’s a price volatility or inconsistency among dealers on price.
Rapaport News: Has it become more difficult to maintain such a large inventory and source goods in such an environment?
AB: I don’t think it’s more difficult. I think that diamond prices are quite soft at the moment. So if you have money and you have capital you can go out and buy diamonds at a good price. I don’t know what’s going to happen. Certain items are holding their price and some have dropped in value. So I don’t think it’s difficult to hold stock. We’re buying heavily and we are selling. But we are replacing dollar for dollar and we’re not making a slice of money and putting it away.
Rapaport News: It becomes more difficult to manage a large inventory when prices are on a downtrend as they have been. How do you operate in such an environment?
AB: At the end of last year, we saw that our stock was not competitive enough so we reduced the cost of our inventory. Something that we bought for $1,000, we saw could now be bought for $900. So we said that now we see our cost as $900. We treat it in a very fluid manner.
For us it’s like gold. Gold goes up and down and the gold wholesalers sell it at different prices every day. We see diamonds in the same way. Prices fluctuate and we have to stay with the market. One day that stock we bought for $1,000 may be worth $900, and in six months the market may have changed and the price in the wholesale market might be $1,100.
I think the last six to nine months have been difficult and prices have dropped. If you can buy and sell quickly then its good, but I don’t think that many people can do that. We try to address the value of our stock.
Rapaport News: You also have a small jewelry manufacturing company. What motivated you to go into jewelry manufacturing?
AB: We started our jewelry manufacturing unit about five years ago. We could see that margins were becoming lower and lower so we saw that there’s an opportunity to create added value to what we’re doing. You buy a diamond and make a nice piece of jewelry out of it, and you can make a little bit of profit. So that was the trigger. The margins seven years ago were already getting smaller, so that’s how the idea started. We do all of our manufacturing in the U.K.
Rapaport News: What are your biggest concerns for the industry?
AB: I’m most worried about profitability, as I think everyone is, including diamond manufacturers and jewelry wholesalers and retailers. We are running a business. We’re buying and selling, but it’s very difficult to make a profit. That’s my biggest concern for the next few years.
Rapaport News: What has to happen to improve profitability? Is the problem a result of the mining sector charging too much for its rough?
AB: I don’t know because the diamond cutters say they pay too much for the rough and they can’t make a profit, and we buy the polished and resell it but can’t make a profit, so I don't know what should be done and on which level.
The miners can make a decision how much to sell rough for and if it's not viable they could probably close the mines for a while or reduce their supply. The problem probably is that rough prices are too high, and the market conditions do not justify it. I also think there is overproduction. The very top diamond manufacturers are producing too many diamonds and then they can't sell them so they reduce the prices.
Rapaport News: It seems that the manufacturers reduced their polished production this year because of their overproduction in 2013.
AB: Yes, this is why when new goods are coming into the market, I don't see price reductions in every category of the diamonds that we buy. Certain categories are quite stable.
Rapaport News: What are your expectations for the rest of this year?
AB: I'm very optimistic. I think that the U.K. market is good and that certain active parts of Europe are steady. I’m hoping that we’re going to have a good year.
Rapaport News: What advice would you give to someone starting out in the industry?
AB: My advice is that you have to look after your suppliers in the same way that you look after your customers. Build up relationships with people that you trust.
Whatever you buy and sell, there’s always someone who can buy or sell it cheaper, but if you have some kind of relationship then people will want to work with you again based on your previous experiences. That means something. This business is not about getting an extra percent here or there, it’s about relationships and ensuring continuity.
Rapaport News: How do you envision your business, and the industry, evolving and developing in the next decade?
AB: It’s a difficult question because the industry is changing day by day. So you have to be flexible because things change that are out of your control. You have to be flexible, and you have to be financially strong enough to adapt to market conditions. I don't know which way the market is going to go, but I think people will become more knowledgeable about what they buy. It’s a difficult market but we have to be ready for that and adapt to the changing conditions. We still believe in the diamond business.
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Avi Krawitz
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