Rolling With the Changes

RAPAPORT... As February sales in much of the country continued the downward trend seen over the Christmas holidays, most wholesalers are expecting a tough year ahead. Business owners around the country who spoke to RDR are taking stock and gearing up with a range of strategies to pull them through the coming year. There are bright spots, too, as those selling large stones to high-end clients haven’t seen a slowdown, and some specialized businesses remain strong.


Challenging Market Conditions

“There seem to be two categories of shoppers now: people who have a lot of money and are not affected by the economy, and then there are the regular people who are having a rough time. I have a feeling this will go on for a while,” predicted Ami Koret, vice president of Davidoff Diamond Corp in Houston, Texas. The result is strong sales for stones as small as 0.5 pointers and for larger stones of 3 carats plus, with little or no middle ground. As Derek Parsons, president of Fort Lauderdale, Florida-based British Diamond Import Company and former president of Diamond Bourse Southeast, explained, “Anybody that’s doing well is specializing in hard-to-find goods. Anyone who wants to be a classic distributor is going to be in trouble.”

A number of wholesalers feel that the recently shortened list of De Beers sightholders is also having an effect. “Sightholders who got cut from the De Beers list still had to fill their orders, so they bought rough locally. Shortages in the market are raising prices a bit,” said Mike Rabbanian, president of International Diamond Club, Inc., Los Angeles, California.

December’s sudden price increases had consequences, as well. Marvin Finker, president of Trillion in New York City, cited price surges as his biggest problem, because costs sometimes jumped in the middle of a deal. “When you are talking about a $90,000 or $100,000 stone, a 5 percent increase is no small amount. I can’t really control that or lower the price much at that point. So it affected some client relationships. We are still feeling the results of that now.”


An Industry in Flux

Most would agree that, at least for the short term, the industry is being hit hardest by a sluggish economy. But some are focused on the fact that the industry itself is transforming and they are anticipating what the altered landscape will mean for small companies. “My concern is that the business model we’ve enjoyed for the past 30 to 40 years is no longer working. The role of the wholesaler is changing,” Parsons remarked. “Even if mom-and-pop stores can buy the better stones on the internet, they are at such an extremely high price that it’s hard to get them.” Parsons is of the opinion that if the number of independent wholesalers declines, the independent jewelers who rely so strongly on them will be hurt as well. “Who will replace these wholesalers? I suspect India,” he stated.


Survival Tactics

Perhaps the most straightforward approach to weathering a downturn is to simply reduce expenses. Moises Mareyna Rosenberg, president of M&M Diamonds, in Houston, Texas, commented, “I am not buying and replenishing like I used to. I’m saving up cash and if something is worthwhile, I will buy it, but I am not buying on credit anymore because it’s not worthwhile.” He’s also advertising less, because, he said, “There’s nothing new to bring around, and my customers know what I have.”

But companies that are cutting back acknowledge that marketing has its place. “The better stores right now are all about branding,” declared Rosenberg. Koret confided that big-name marketing can be effective. “Some customers will pay more for the De Beers name,” he admitted. In the end, there may be no guarantees when an industry is changing so fundamentally. “There is no clear business plan for success right now,” warned Parsons.

Joseph Evich, vice president of GN Diamond in Philadelphia, Pennsylvania, has a formula he believes keeps him competitive. “We consider ourselves the retailers’ advocate. We reach out to them with marketing ideas and try to help them propel their business.” By supporting his clients, Evich believes he will protect his own bottom line while building strong relationships. “We are staying the course and hitting the same business model in the coming year,” he said.


The Marketplace

• Large stones — 3 carats+ — in fancy colors and in matching pairs are very popular.
• Fancy shapes, such as trapezoids and half-moons, are also moving.
• Stones smaller than 1- pointers are selling well.
• Demand for 2-carat stones is quiet at the moment.

Article from the Rapaport Magazine - March 2008. To subscribe click here.