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Martin Rapaport addressed some of the most pressing industry issues during a series of panel discussions at the JCK show.

By Avi Krawitz
RAPAPORT...

With the growing trend toward ethical consumerism and the ethical challenges that it poses for the diamond industry, one message recurred throughout the daylong Rapaport event at the JCK Las Vegas show on June 3: Know your source. How can jewelers ensure that the diamonds they are selling are free from human rights violations, or whether they have been correctly disclosed as untreated stones, or that they have been accurately graded by the laboratories?


Farai Maguwu and Martin Rapaport
“You’re responsible for what you buy and sell — that’s the bottom line. Not the labs. You have to investigate your sources,” said Martin Rapaport, chairman of the Rapaport Group, in his keynote “State of the Diamond Industry” address at the annual Rapaport Breakfast that kicked off the day’s activities. The agenda also included a Rapaport Fair Trade Jewelry Conference and a Rapaport Certification Conference. “There’s so much shenanigans going on that you can no longer assume that your diamonds are okay. You have a responsibility as a reputable jeweler, or diamond buyer, to check that the goods are okay,” he said. Not only does this verification represent an ethical obligation on the part of the jeweler or diamantaire, but it adds value to the product, Rapaport noted. 

To meet this need for verification, Rapaport launched its ethical pledge at the conference, urging members of the diamond and jewelry trade to insist on written assurances in their purchases (see www.ethicalpledge.com). The pledge states that sellers have investigated their sources and that the products offered are free of human rights violations, significant environmental damage, illegal activities or sanctions by U.S. or European Union (E.U.) governments.

THE ZIMBABWE CASE

Ethical sourcing currently excludes diamonds from Zimbabwe’s Marange fields, where the mines are partly owned by Zimbabwean government agencies. In his endorsement of the Rapaport pledge, human rights activist Farai Maguwu, of the Center for Research & Development in Zimbabwe, described ongoing problems associated with the diamonds from Zimbabwe’s Marange fields, even though the accounts of human rights violations there have declined. Maguwu reported concerns that funds from the mining operations are being channeled to Zimbabwe President Robert Mugabe and his military personnel, and may be used to fund Mugabe’s future presidential campaign. While no date has been set for elections, Mugabe is hoping to take Zimbabweans to the polls in the coming year.

Rapaport Group honored Maguwu with an award at the conference, recognizing his work in advocating human rights in Zimbabwe.

ETHICAL DEMAND

In a panel discussion at the day’s Rapaport Fair Trade Jewelry Conference, Maguwu cautioned that thousands of carats of Marange diamonds are filtering into the market, not only in the Far East and India, where they are legal, but also in the U.S. and Europe, where it remains illegal to trade in these goods. “Our hope to account for all diamonds being mined in Zimbabwe cannot be done without the support of jewelers,” Maguwu said. “Jewelers need to do their due diligence and ask where their diamonds come from.”

Rapaport stressed the need to create demand for ethical products so that competition for ethically sourced diamonds will bring added value and drive prices for those products.

Another member of the panel, Alan Martin, research director at Partnership Africa Canada (PAC), questioned whether companies should be motivated by their commercial interests in this effort or by their desire to do the right thing. Rapaport argued that while advocacy will help sensitize consumers to buying or not buying a certain product, companies ultimately have a responsibility to their shareholders to make a profit. “By all means, do the advocacy work but we also need to get the economical alignment going,” Rapaport said. “We can’t stop the bad diamonds from coming out, but we can create a market for good products that is well defined, and for products that sell at a premium price. Markets cannot be free unless they are fair and they can only be fair if you exclude evil people.”

Charles Stanley, president of De Beers Forevermark brand in the U.S., agreed, and noted that Forevermark is aware of the opportunity presented by the trend toward ethical consumerism. “Ethical promises will hold much more value when they are driven by fundamental commercial needs, and we are doing that at Forevermark,” Stanley said. “We’re sure that it is something that will become increasingly more important in the sale of the product.”

CERTIFYING CONFIDENCE

Responding to the rising consumer awareness regarding diamond purchases, the Rapaport Certification Conference that followed the fair trade discussion addressed the state of diamond grading and the impact that laboratory reports are having on consumer confidence.

“The ultimate role of the grading certificate is to authenticate the diamond and facilitate consumer and trade confidence,” said Saville Stern, chief operating officer (COO) of RapNet, who moderated the panel discussion. Panelists included Michael Cortez, founder of California-based World Gemological Services; John Nichols of Huntington Jewelers, Las Vegas and Maarten de Witte, executive director USA of Canada’s Embee Diamonds.

Stern outlined some of the main concerns and challenges facing the industry when it comes to certification:

  • How do you address the fluctuation in valuation when different diamonds of similar quality are graded by different laboratories?

  • What role do certificates play in the retail business?

  • How do you use certificates to sell?

  • How has the internet influenced the way you sell? Are retailers selling a lower-quality certified diamond in their stores for a similar price to what consumers pay online for a better-quality certified stone?

  • Can you trust the grade of the laboratory?

Much of the discussion in the certification conference centered on the need to standardize grading practices to reassure consumers of their purchases. Confidence is also being affected by a rising number of cases involving fraudulent certificates.

In addition to an outright forged certificate, Stern explained that fraudsters are abusing the trust placed in certificates by taking diamonds of lesser quality and recutting them to match an existing certificate and then selling the diamonds with the cert that was intended for another stone. Other cases of fraud involve treated diamonds or synthetic stones being submitted as natural diamonds without the correct disclosure. “We’ve come across diamonds that have been triple treated to hide the previous treatments before they go to the lab,” Stern said. “So the lab is always playing catch-up because the treaters are using the lab to perpetuate their illegal dealings.”

Rapaport stressed that diamond dealers cannot deflect the responsibility for such fraud to the labs, again urging sellers to take responsibility for the stones they sell.

MEGA FORCES

Rapaport described ethical business practices as one of a number of “mega forces” impacting the diamond industry today. Others include globalization and the tremendous demographic changes that new Chinese and Indian consumers are bringing to the market.

“These places are growing by sheer demographics and they’re going to have a greater impact on the world than you can imagine,” Rapaport said. “It means your competition is no longer across the street; it’s in China and India. The real story of globalization has shifted from the supply side of the equation to the demand side.”

Given India’s dominant position in the diamond market, Rapaport cautioned that government policy there may impact the global trade, particularly as the rupee has depreciated and the country faces diminished local demand. He explained that while excess credit available to Indian diamond dealers influenced prices to rise and led to a boom in the industry in the first half of 2011, the situation has since reversed itself because liquidity has tightened. The current liquidity crisis has dampened India’s ability to push prices up and may force the sale of excess inventory, he said.

TRANSCENDING PRICE

External factors — such as “wacky” government policy and macroeconomic trends — are having an increasing influence on both the supply and demand sides of the industry and these are issues that businesses need to be aware of, according to Rapaport. He predicted that with currencies remaining volatile, a rising number of consumers will view diamonds as a store of value, raising the investment demand for diamonds. He outlined the need to capitalize on this investor interest with a more organized market that would boost investment demand and further legitimize the product.

Part of that organization would include promoting generic diamonds again and marketing the idea behind the product, rather than continuing to be stuck on price movements. “We are blessed because the product transcends the price problem,” Rapaport said. “With diamonds, it’s all about the symbolic trip and you can’t say that about other commodities.”

ADDING VALUE

Ultimately, Rapaport noted that a company’s brand presents it with an opportunity to add value and drive prices. Given the many challenges in the market, Rapaport stressed that businesses need to hone in on a unique selling proposition that will help add value to their products to ensure their success.

Identifying megatrends — such as the growing recycling opportunity in the market, the increased buying capacity among women, the potential presented by the large Hispanic community and the continued wave of social responsibility — presents added-value opportunities for U.S. jewelers.

“The real story is about adding value. Your price should reflect the added value of your brand and not short-term price movements,” he said. “The world is becoming much more competitive and you have to ask, ‘Who needs you? What do you do that really matters?’ That’s the key to your success.”

Article from the Rapaport Magazine - July 2012. To subscribe click here.

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