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Laboratories Need to Focus on the Jewelry Retail Market

Q&A with Mark Gershburg, the Founder and CEO of Gemological Science Institute

Jan 30, 2015 8:05 AM   By Avi Krawitz
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RAPAPORT... Gemological Science International (GSI) is an independent commercial gemological laboratory. Founded in 2005, GSI is one of the youngest labs in the industry but has expanded rapidly to gain a global presence, opening offices in Surat and Gaborone toward the end of 2014. Rapaport News spoke with Mark Gershburg about the company’s strategy and view of the competitive grading market:

Rapaport News: What is your background and that of GSI?

MG: I came to the United States in 1978. I used to be a civil engineer but New York was in very bad shape in the 1970s and construction was completely dead. I was looking for a job, and as a temporary solution I found the diamond industry on 47th Street. I thought I would be there for a few months but I never left.

I worked for another lab for more than 20 years and in 2005 I started GSI together with Debbie Azar. We’re celebrating our 10th anniversary in February.

GSI is a New York-based lab. We opened an office in India around 2008 and then in Israel and two years ago we opened in Belgium. In India, we currently have three offices – in Mumbai, Thrissur, Kerala, and we opened in Surat in December.

We have a strong focus on India because of its dominance in manufacturing and because the domestic consumer market there has tremendous potential.

Rapaport News: What is the mandate and structure of GSI?

MG: For many years, I had the impression that the labs were somehow disconnected from reality. Back in 2005, I felt that the labs didn't see what was happening outside the industry. They weren't trying to use available technology and they didn’t address issues important to the industry. That was the motivation for us to establish the lab.

GSI is solely owned by Debbie and myself. There are no partners and there are no franchises. We are probably the only lab besides the Gemological Institute of America (GIA) that has offices worldwide under the same management and same ownership.

Rapaport News: What were those issues that weren't being addressed by the labs, and how did GSI address them?

MG: Most of the labs at that time saw their main customer as diamond manufacturers or wholesalers. We have a different point of view. I believe that our main customer is the jewelry retailer and consumer, who have different needs even though they’re part of the same industry.

From my perspective, the retailer is more important than the manufacturer and wholesaler. Everyone else is kind of behind the scenes, but the retailers are the ones who represent our industry to the consumer, so it's important to understand their needs, and how they present the industry.

Therefore, we decided that we're going to try to work with the retailers. That said, we've worked with manufacturers and wholesalers too, but our main customer has always been the retailer, and, by extension, the consumer.

Rapaport News: What added value does GSI bring to the market?

MG: We embrace technology which enables us to deliver our grading reports much faster than many other labs without compromising integrity. It is very important for retailers to have their products in their stores and not at the lab or at a manufacturer or in any other place. Every day that they don't have the product in their store, they are losing money.

We understood this very well and do everything possible to reduce our delivery times. In 99 percent of cases, we’re able to deliver the goods within five business days, regardless of the time of the year or the quantity.

The second thing we’re focused on is our customer service. We’ve spent a lot of time and effort to fine-tune our customer service. We try to address every possible issue that customers have and deal with it as fast as possible.

The third thing we’ve looked at is the cost of grading to the private retailer as we’ve tried to democratize diamond grading. We’ve created a pricing structure that offers grading of lower-cost products. In this way we are able to ensure that consumers pay for what they're buying, even when they buy inexpensive items.

We try to customize to every possible need of the retailer. This democratization applies to how we present our reports, what kind of reports are in demand and what kind of services retailers would like to have.

Rapaport News: What influenced your decision to recently open in Surat and Gaborone and what is driving your expansion strategy?

MG: Our goal of serving our customers is driving our expansion. We go where our customers need us to be.

It's important to recognize that our expansion is not only geographical, but also into other business areas. For example, we are now launching an education and research department because we believe that this will help answer the problem of lab-grown diamonds, treatments and other similar issues. We embrace every possible technological advance that we can use within our industry. We try to create situations through which we can serve our customers, not only in different locations, but in different ways.

Rapaport News: What has driven the recent boom in demand for grading reports?

MG: I think there are a few factors in play. Firstly, consumers and traders have become much more intelligent and sophisticated. They want to know what they're buying and what they're paying for. They’re asking much more in-depth questions about their diamond purchase.

Another important factor has been the creation of a global marketplace that allows for the movement of goods from one country to another. Often the only way that both sides can communicate is through the grading reports. It helps them understand what they're buying and what they're paying for. If someone in India supplies diamonds to someone in the U.S., they can communicate by phone or via the Internet without ever seeing each other. But they need to have something in their hands that confirms what they're buying.

Another very important influence to the growth of grading reports has been the preparation of treatments and lab-grown diamonds.

Rapaport News: That growth has also influenced competition between the labs. Is the market not saturated with too many labs?

MG: I don't believe there is saturation, but there is competition, which presents an opportunity for improvement. It doesn't let you relax or take things for granted. That fits GSI's personality because our team likes to compete. At the end of the day, competition is good for consumers because it forces everybody to do something different.

Rapaport News: That competition has also created an environment of different grading standards which can confuse consumers. How do you explain the differences of grading standards between the labs?

MG: The differences in grading have resulted from a variety of reasons ranging from companies’ ownership structures to human factors, to lack of cooperation between the labs. In order for us to create a common grading system we need cooperation, but there is none among the labs. The lack of cooperation is the main source of discrepancies in grading. If the labs could work together and create some common guidelines, it would be very helpful.

Rapaport News: How does GSI address this issue?

MG: Firstly, all our graders come to us with a background of working in a lab. We do not hire people without previous experience. So they already come with a deep knowledge of grading, and we train them in-house.

We also have our quality assurance teams that constantly travel from one branch to another to ensure that we have the same grading standards at each branch. I personally believe that, in general, the U.S.-based labs have much higher standards and more consistent grading than labs in other countries. Therefore, we constantly compare our grading to other major labs in the U.S., in order for us to understand if we are on the same page or not. We don't use other labs as a guideline, but we look at how they grade and compare our grading accordingly.

Rapaport News: What is the biggest challenge facing the labs and the diamond market today?

MG: I believe that lab-grown diamonds and treatments will become an even larger problem over the next few years as production of these diamonds grows. Today, lab-grown diamonds are really a very small percentage compared to natural diamonds, but I think the lab-grown diamond industry is catching up.

We expected this a long time ago. A few years after we established GSI, we put in place a number of procedures to screen every stone that comes to our facility, regardless of allocation. Like everybody else, we face issues with the smaller goods and we're trying to do everything possible to screen these goods too.

Rapaport News: How do you assess the state of the general diamond market in 2015?

MG: I think that the first half of 2015 will be very difficult. There’s a discrepancy between prices on the manufacturing side and prices at retail. It’s affecting the manufacturing sector most now but it's going to affect the retail level too. The retail sector cannot absorb the prices in the manufacturing sector. This creates tremendous tension that somehow has to be resolved. I don't know what's going to happen in the second half of 2015, but the first half I see as problematic.

Rapaport News: What advice would you give to someone starting out in the industry?

MG: You have to bring new ideas to the market. Our industry has made tremendous advances in the past few years, but it's still not up to date and there is plenty of room for improvement. There is immense competition from other products and I don't believe that we are addressing this issue of consumer demand properly.

There is an opportunity for someone to come in with fresh ideas, rather than something that has been recycled again and again.

Rapaport News: How do you envision GSI evolving in the next five to 10 years?

MG: We are only 10 years old whereas the next youngest major lab is almost 40 years old. So the next 10 years will be a long and interesting road for us. We’ve created momentum and my guess is that we’re the second largest lab in the U.S. today. Worldwide, I believe we would be somewhere around number three or four.

We try to see what’s happening outside the industry and bring these ideas to the industry. We're looking at how products or events and new discoveries can be implemented within our industry. I believe that's why we are successful. We are prepared to do things differently. 
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Tags: Avi Krawitz, diamonds, GSI, jewellery, Jewelry, Rapaport
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