RAPAPORT... America is no longer calling the shots in the diamond business, and that fact is influencing every aspect of the industry.
Addressing an audience of several hundred retailers and manufacturers during the JCK Las Vegas show, Martin Rapaport, chief executive officer (CEO) of the Rapaport Group and publisher of the Rapaport Diamond Report, urged everyone connected with the diamond industry to become aware of the international developments that are taking place and to be ready to make some critical changes in the way they do business. He predicted that 2008 will see major changes in the diamond industry, resulting from many influences that have been developing over the years. “Be prepared to embrace change and do it quickly,” he said.
Among the most important influences on the world of diamonds are the growing consumer segments in China and India, where populations are growing by 0.8 percent and 1.5 percent, respectively. Currently, these two countries have 2.4 billion people, a rapidly expanding consumer class and rising currency. Gross domestic product (GDP) in the two countries has been exploding in the past few years, growing by approximately 10 percent annually in China and 8.5 percent annually in India. Their global sales growth in jewelry was 12 percent in 2006, compared to a 3 percent uptick from the U.S. “Dishwashers to diamonds” is the pattern of growth, said Rapaport, as consumer spending in these countries heats up. In the near future, rather than a conventional war, the U.S. will be engaging in economic warfare with these nations.
Right now, there is a stable rough supply, but as demand increases, prices will rise. For example, in 2005, prices of half-carat goods were flat and 1-carat stones rose only marginally. Bringing the highest prices have been diamonds of 3 carats and above, which have soared from approximately 11 percent to 28 percent, due to demand.
“BIG DADDY IS NO MORE”The diamond trade no longer controls the market, Rapaport stated, as De Beers is losing both its market share and influence. Since 2004, the De Beers diamond stockpile has fallen to under $1 billion in value, compared to a high of just under $5 billion in 1997. Rather than viewing this as a negative, however, Rapaport says the diamond markets are now more open and that’s good.
In terms of sales volume of diamonds and diamond jewelry, the U.S. remains the world leader, tallying up $34.7 billion in sales. The nearest competitor is Japan, at a distant $9.3 billion, followed by Europe at $7.8 billion and the Gulf States, at $4.9 billion. However, figures show that the U.S. has peaked in exports and imports of diamonds and that the fastest growth is coming from China, India and the Gulf.
For retailers, bolstering consumer confidence and offering added value are the keys to future success, Rapaport said. Hot-button issues like synthetics and treatments have to be detected and disclosed in order to maintain consumer trust. As high-turn/low-margin operators such as Blue Nile continue to build their share of market, it’s critical for retailers to establish added value and achieve quicker turn to their stocks.
While stopping short of urging retailers to stress the investment value of diamonds, Rapaport did urge them to understand that women appreciate money and value as much as sentiment. Selling a diamond on its rarity, scarcity and romance is important, but the fact that a diamond is worth money is also a strong sales factor.
The ethically correct way to add value and to help the diamond business at the same time is to promote the sale of fair trade diamonds. The artisanal sector in Africa includes an estimated 1.2 million diggers for diamonds, supporting 6 million people. In Sierra Leone and South Africa, there are programs at work that return money to the families of diggers.
IZHAKOFF CITED FOR CONTRIBUTIONSOne of the leaders in the effort to eradicate conflict diamonds and protect the integrity of the diamond industry is Eli Izhakoff, chairman of the World Diamond Council (WDC). Rapaport took a moment to present the first “Rapaport Award” to Izhakoff for his long-time commitment to ensuring industry social and corporate responsibility. The Rapaport Award recognizes outstanding individuals and organizations for exemplary service to the diamond industry. Before assuming his position with the WDC in 200l, Izhakoff served three consecutive terms as president of the World Federation of Diamond Bourses (WFDB).
A later seminar outlined the ongoing effort to establish and promote the sale of fair trade diamonds and gemstones and featured several speakers who are working to make this come about. The purpose of fair trade is to benefit both producers and workers, the panelists said. Fair trade must maintain integrity and create consumer trust; supporters cannot allow the term to be misused.
Eric Braunwart, president of Columbia Gem House, said concern and interest in the fair trade subject have mushroomed over the past five years. “This concern is more embraced by consumers than by the jewelry trade,” he said. Braunwart produced a video about a gemstone sales event in which the significance of fair trade principles in the purchase and sale of gemstones was explained to consumers. “Most consumers say they are willing to pay more for fair trade goods,” he concluded.
Caren Holzman, TransFair USA, agreed that “Consumers’ recognition of fair trade has increased exponentially over the past three years.” Holzman represents an organization that certifies fair trade practices for agricultural products such as coffee, cocoa, sugar, rice, tea, fruit and vanilla. To qualify for the company’s fair trade logo to be placed on their products, suppliers must demonstrate fair and ethical work standards for workers as well as environmental concerns. TransFair is now conducting a study on the feasibility of adding jewelry to its fair trade product categories.
Veronika Kohler, a representative of the World Bank, outlined the purpose of the Communities and Small-scale Mining (CASM) initiative currently helping to improve the living and working conditions of thousands of artisanal miners in Africa, South America and Asia. The goal is to expand this program to include larger numbers of workers and to become a positive contributor to sustained economic growth.
ECONOMIC SUCCESS STORYTom Cushman reported on his successful effort to create economic growth. Cushman established a gemology and gem-cutting school in Madagascar that has resulted in the growth of private enterprise in that country. Supported by the World Bank, Cushman opened the Institute of Gemology of Madagascar (IGM) in 2003, and to date has produced 350 graduates, as well as a growing teaching staff that has been instrumental in opening other schools in the region.
According to Cushman, the school is unique in the world and highly effective for its audience. Gemology courses deal with the basics of rough — rather than polished — gems, stressing identification of local gemstones, background theory, use of instruments and emphasis on practical, hands-on work. Most classes are offered in French, a few in English, but because about half the population of Madagascar cannot read or write, some are taught using the local language.
Cushman hires and trains teachers, assures them of good working conditions and performs administrative functions for the school. Graduates use their knowledge to become gemcutters, dealers and teachers. Some sell their goods at the weekly gemstone market, run in partnership between the school and USAID. Cushman says the project is going better than he could have hoped, since there was no model for this type of venture anywhere else in the world. Rapaport said he supports these grassroots efforts.
“Governments are not going to establish a system of fairness; people have to do it,” said Rapaport. On the viability of fair trade jewelry, he urged, “Give your consumer something your competitor can’t give them. Jewelry is about making people feel good and nothing makes them feel better than knowing they have made the world a better place.”
Article from the Rapaport Magazine - July 2007. To subscribe click here.