RAPAPORT... Many sellers of loose diamonds in the United States complained about the summer slump, and they are also displeased that the winter holiday buying season keeps moving later every year. By contrast, some U.S.-based importers of diamond jewelry from India refer to a strong and growing market for their goods. Pendants, rings and bracelets glittering with white or brown diamonds are enjoying impressive sales. Yet the market is also increasingly thorny and challenging. Some importers criticize policies of India’s government that do little to foster diamond imports to America, while noting the growing Chinese competition with India.
STRONG MARKET
On the whole, it appears to be a healthy environment for the U.S.-based importers. Raj Gupta, chief executive officer (CEO) of Totaram Papalal & Sons Jewelers in North Brunswick, New Jersey, says that the market for diamond jewelry from India is expanding steadily. He attributes this phenomenon partly to a huge and growing Indian population, including, he says, hundreds of thousands of people who moved to the U.S. precisely because their income in India did not allow for a standard of living that would include discretionary purchases of diamond rings, necklaces and bracelets. Working hard to attain success in this country, the Indians are eager to get their hands on the goods that middle-class status makes available — one reason Totaram’s diamond pendants and rings in the $600 to $1,000 range are selling briskly, Gupta says. Gupta’s company takes money on the spot, not offering customers any credit or payment plans, and does brisk business riding the crest of the immigrants’ success.
The goods marketed by businessmen like Gupta are especially in demand during events such as Diwali, a popular Hindu festival honoring newness and prosperity that holds an exalted place in India’s culture. In fact, importers like Surat Diamond Jewelry, which has offices in Potomac, Maryland, and in Mumbai, explicitly market their goods as ideal gifts for Diwali and other beloved festivals. The diamond jewelry market for Indians abroad is so strong that the Mumbai-based internet vendor TajOnline.com assigns those customers to a distinct category. Founded in 1997, the vendor bills itself on its website as “the most popular ecommerce portal catering to non-resident Indians (NRIs) across the world.” Business is booming.
CHALLENGES TO MANUFACTURERSAs production in India rises to meet the growing demand, the expenses involved also soar. Labor costs for India’s diamond jewelry manufacturers are rising sharply, according to Joseph Weinreich, president of Diamond Direct, a New York-based importer, and Baiju Bhansali, CEO of the company. The steadily growing Indian workforce of more educated and technically savvy, skilled middle-class workers demand higher wages every year.
But the biggest challenge that India’s manufacturers face is intimately tied with the workings of the diamond jewelry market here in the United States. It is more and more difficult to meet the stringent quality-control demands of U.S.-based clients such as Wal-Mart, Sterling and Zale’s, which regularly send their personnel to the factories in India to do spot checks and, often, reject merchandise before it ever leaves Indian soil. “It’s definitely a moving target,” says Bhansali of Wal-Mart’s quality standard. “They’ll keep moving the bar until everybody screams that they went too far.”
According to Weinreich and Bhansali, such policies have made huge differences in the consistency and quality of goods imported from India. For example, at one point, Weinreich recalls, a manufacturer who had to fill an order for ten rings, each containing a 10-point diamond, cobbled together ten rings, each with an average size diamond of approximately 10 points. The reality, however, was that one diamond was an 8-pointer, one a 12-pointer, and so on. Today, Weinreich says, that wouldn’t happen, nor would the imposition of barely legible hallmark or trademark stamps on products. “If you can’t read the stamp easily, they’re going to flunk you,” he says.
In Weinreich’s view, the driving force at work in the U.S. market for India’s goods is the “retention” rate demanded by Wal-Mart and the other retailers. For the purposes of financial planning, and smooth day-to-day operations, they want sales to be final. “When they sell a piece of diamond jewelry, they don’t want it coming back in a week. Better quality control means a higher retention rate,” Weinreich notes. In principle, he agrees with the tough quality-control policies, but severe problems arise for Diamond Direct and other importers when the chain stores decide to do a midseason quality check. More often than not, this results in bulk shipments being intercepted en route, or opened up at stores before the merchandise makes it to the shelves, and a costly and time-consuming recall has to take place, tearing a gaping hole in the bottom line for Diamond Direct and any other importer suffering the same misfortune.
RIVAL MANUFACTURERS
Even without the duty-related problems of importing diamond jewelry from India, some importers in the U.S. and elsewhere might be tempted to take advantage of the highly competitive production capacities available in China. A complex rivalry exists between China and India, shaped by cultural, geographical and political forces, one that could someday eliminate India’s preeminence in the realm of diamond jewelry imports.
While Diamond Direct has factories in both India and China, Weinreich affirms that India has the edge in mass production. By his estimate, the Indian factories can fulfill orders at a rate 30 percent faster than their Chinese rivals. The Indian factories also enjoy readier access to the rough used to manufacture browns and baguettes. But, Weinreich points out, the Chinese factories have a different work philosophy that can help them escape some of the quality control–related hassles described above. While the Indian manufacturers might be tempted to say, “It’s good enough,” the Chinese workers will fix a flaw in design before production commences, avoiding greater and costlier hassles further down the road.
MASS PRODUCTION, TOUGH DUTIESRegardless of quality issues, Jit Jariwala, account executive at Jewel Goldi Inc., the New York–based jewelry division of Shree Ramkrishna Export in Mumbai, acknowledges that India is the mass producer of choice “for Sterling, Wal-Mart, everybody. Electronics, jewelry, every field is booming.”
Yet the government in New Delhi does not seem determined to allow India’s industries to play to their strengths, or to allow the U.S. market to take full advantage of the opportunities India affords. While Jariwala notes that some of India’s manufacturers are unhappy with late payments from U.S. clients — a problem that can make it harder for the manufacturers to meet rising rough prices and cover other costs of their own — he sympathizes with all of the importers who have felt the pinch of a 5.8 percent duty on diamond jewelry imports from India.
“The custom duty on gold and diamond jewelry from India is a major hindrance,” agrees Totaram Papalal & Sons’ Gupta. In a market where importers are working with gross margins of 12 percent to 15 percent, he says, that duty often makes a critical difference in the bottom line. It is especially hurtful because so many importers placed bulk orders before the imposition of this duty. They will get their diamond jewelry on time – and be in a good position for the critical holiday season – but they will have to pay the duty in full or work out some kind of compromise with the manufacturer.
“The duty is only for diamond jewelry from India, so people who import from other countries can sell at a cheaper price,” Gupta notes. “In this market, you have to be competitive to survive.”
Article from the Rapaport Magazine - October 2007. To subscribe click here.