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Platinum

Sep 3, 2003 4:59 PM   By Martin Rapaport
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Why should diamond dealers care about platinum? Isn’t the diamond much more important than the few grams of metal that hold it? Since when is the ring as

important as the stone?

Platinum and other metals are important as they provide the fundamental basis for transforming diamonds into jewelry. And jewelry is important because consumers don’t buy diamonds to put in their safe; they buy jewelry to put on themselves. The look, design and feel of a piece of jewelry are extremely important to the wearer and are often the final deciding factor at point of sale.

The diamond trade frequently discounts the importance of the jewelry aspect of a diamond sale because the dollar value of the diamonds usually far outweighs the value of the mounting. Diamantaires feel that diamonds are much more important than jewelry and that they need

not spend their time understanding the jewelry markets. Consumers, however, do not share this perspective. If the jewelry is not what they want, and/or the woman is not happy, the sale is not made.

The advent of the Diamond Trading Company’s (DTC) Supplier of Choice (SOC) program and increased competition for retail distribution outlets has forced the diamond industry to pay increasing attention to the jewelry sector. Many diamond manufacturers are now selling diamond jewelry instead of just diamonds. It is becoming increasingly difficult to define where the diamond trade ends and the jewelry trade begins. Many of us are being forced downstream into the jewelry business — a business that looks easy but can be surprisingly complex.

Firms that contemplate downstream jewelry sales most often focus on developing their strategic marketing capabilities. Few, if any, take into consideration the extremely complex process required to transform diamonds into saleable diamond jewelry. While mechanical manufacturing processes can be outsourced relatively easily, the core aspects of the jewelry business require extremely sophisticated resources. Understanding the merchandising requirements of retailers and how these requirements meet the needs of their customers is often beyond the scope of most diamond firms. Furthermore, understanding how fashion and style interact with materials to create saleable looks and high perceived value requires a level of expertise not readily available in the diamond industry.

Jewelry Demand

The diamond industry needs to expand beyond diamonds and take a strong position in the jewelry industry. We need to transcend the diamond product category and evolve our skills so that we are able to fully understand jewelry product categories and how they relate to specific sectors of consumer demand. We need to understand and meet jewelry demand, not just diamond demand.

The metal business is interesting because it deals with basic and relatively simple commodities that are regularly transformed into jewelry. There is much that we can learn from the metal industry. Furthermore, we should recognize that the metal industry has a much greater impact on the diamond industry than is to be expected.

Consider the development of demand for platinum jewelry over the past decade. The Platinum Guild invested millions of dollars promoting platinum jewelry. As a result, the white-on-white-jewelry look became increasingly popular. Demand for better color diamonds increased significantly as demand for lower color (K-) diamonds decreased due to the fact that their lower color was more discernable in white platinum. Clearly, jewelry fashion and design driven by the metal industry impacted demand for specific types of diamonds.

New efforts by the World Gold Council to promote yellow gold jewelry may improve demand for lower colored diamonds as these diamonds face up relatively white with a yellow gold background. As the marketing budgets of the metal mining sectors fluctuate, so too does demand for various diamond categories. At some stage, if there is a battle between the platinum and gold industry over jewelry metal market share, we might see increased advertising driving increased demand for jewelry.

Commodity Issues

It is interesting to note that metals are true commodities with regularly quoted exchange prices. Yet somehow, demand for

gold jewelry has not been decimated. Firms still manufacture gold jewelry, jewelers stock it and consumers buy it. How does the metal industry survive commoditization?

There is an important lesson for the diamond industry here, namely, “Profits come from adding value, not from reselling a commodity.” If we take a bar of gold and resell it, then the buyer will want to pay — and is entitled to pay — a price very close to the exchange commodity price. On the other hand, if we manufacture a beautiful gold necklace, the price that the consumer will pay will reflect the value added to the gold by its transformation into something much more beautiful than a bar of gold. Similarly, if one flips a certified diamond, the level of profit will be negligible compared to what happens when someone sells a beautiful ring from a reputable, well-branded store.

The metal industry teaches us, “It’s not what you have that counts. It’s what you do with it.”

Jewelry Markets

Obviously, the diamond industry should be paying careful attention to the jewelry industry so that we can identify value-added opportunities. That is what the metal industry is doing, and that is what we should be doing.

We should be interested and concerned about all developments in the jewelry industry, be it platinum, gold, titanium,

silver or stainless-steel jewelry. We should follow fashion trends and understand how they are likely to impact diamond demand.

Will fashion houses creating new jewelry lines increase demand for small, high-quality accent diamonds? Of course they will. Will increasing demand for watch brands create shortages of very small, very high quality diamonds? Of course it will. Will celebrity gifts of fancy colored diamonds increase their demand? Of course they will.

In this issue of the Rapaport Diamond Report, you will find articles about platinum jewelry. Next month, we will be providing extensive coverage of gold jewelry. We are doing this because we believe that it is increasingly important for the diamond trade to become more familiar with what is going on in the jewelry sector.

As the diamond industry evolves from a supply-driven trade to a demand-driven market, there will be significant opportunities to develop added-value downstream activities. Those who make the effort necessary to gain a better understanding of the jewelry business will be better positioned to exploit the opportunities that will become available. The future of the diamond industry lies just over the horizon — in the jewelry industry.
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Tags: Consumers, DTC, Jewelry, Manufacturing
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