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
“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.
|Farai Maguwu and Martin Rapaport
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.)
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.
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
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.”
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
- 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.
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.
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.”
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
Article from the Rapaport Magazine - July 2012. To subscribe click here.