RAPAPORT... When the members of the International Diamond Manufacturers Association (IDMA) — including the 14 presidents of the national diamond manufacturers associations — gathered in Antwerp on March 30 to evaluate what measures are needed to sustain the long-term growth of the diamond industry, the move was praised by all. And why would it be otherwise? After all, in the current, dark international business mood, the least that can be said is that any attempt to encourage growth, provided it doesn’t involve additional prohibitive costs, is more than welcome. The more often industry players meet, the better for the industry and for the trade.
It is, of course, very reassuring to be able to gather and review a set of charts that suggest there might be a serious possibility that the wholesale diamond markets are starting to show slight signs of recovery. It also is a relief and a pleasure to think that, after the massive layoffs and the temporary closing of mines, supply and demand are beginning to march in step again. Such gatherings also are helpful in rallying support for the cause of the qualified workforce of the diamond industry, in coordinating activity by the World Diamond Council (WDC) and in sharing concerns regarding reported diamond certification abuses in Zimbabwe. The next series of industry meetings — that should hopefully take place no later than September — will most likely be held in India or New York.
Some industry observers have suggested that more attention should be paid at such meetings to the overriding, urgent need for responsible credit practices throughout the diamond supply chain. “Why not?” say the people in the street. “If we can get our money earlier, we certainly wouldn’t complain!”
Bank MeetingsTightening credit practices to provide quicker payment would not just be welcomed by diamantaires; its more important impact would be a rise in diamond sales. Stephane Fischler of IDMA explained how that would happen. “Our intention is to go to the banks and find ways to encourage diamantaires to give up the nasty habit they developed over time of granting outrageously long credit facilities to retailers,” he said. “Curing them of this habit is not a matter of opinion or of judgment, but really a question of economic survival. If the current crisis has taught us a lesson, it’s most certainly that the risk is huge nowadays when you give extra-long credit terms because there’s always a possibility that your clients could go bankrupt. Who knows what tomorrow will bring? Nobody. But if your average credit line is for three months instead of 12, the risk suddenly appears far more reasonable.”
Sharing the BurdenIn fact, IDMA wants to use shorter credit terms as the main pillar of a new, real, industry-wide economic policy. Fischler continued: “If we manage to get diamond companies to reduce the credit terms to, say, three months, then we’ll be halfway along the path that will lead to each participant in the industry assuming his fair share of trade financing. The burden wouldn’t fall solely on the manufacturers anymore, which has been the case for too many long years now. If retailers are limited to three months, eventually they’ll be forced to buy and finance their purchases themselves.”
For obvious reasons, the leverage on the third party of the pipeline, the producers, isn’t sufficiently strong to force them to change. As long as the demand exceeds the supply available, they’ll be kings. On the other hand, now that demand has plunged, the producers have had to rethink their positions. Of course, it’s only a small move at the moment, but the fact that the industry is coming together to consider long-term investment in generic advertising is a token of the awareness that everybody will have to assume his fair share of the burden.
Credit Fixes for the FutureFreddy Hanard, managing director of the Antwerp World Diamond Centre (AWDC), welcomes any and all initiatives to overhaul the credit policies of the past. “Reducing credit terms is a really basic and simple measure to ensure the continuity of a company,” he said. “We can only encourage such initiatives and hope that the idea will seduce as many industry members as possible.”
“The principle is very simple,” said Fischler. “Maybe we’re not in a position to grow the luxury cake yet, but we certainly could make sure that the diamond share of the cake grows at the expense of other luxury items.” Fischler noted that other nondiamond luxury items and accessories are bought for cash by retailers. “Consider, for example, the big watch brands that retailers buy for cash. What do you think that retailer will do when a client enters his shop? Attempt to push the Rolex that he’s already paid for, assuring himself a decent profit margin, or push the diamonds that he hasn’t paid for and that he can hold for as long as one year — and then return if he hasn’t sold them? If you want retailers to push diamonds over other luxury items, you have to make them financially responsible for those diamonds. Then you reward them with well-deserved and sustainable returns. It’s as simple as that!”
Marketplace• Due to the holidays, little activity was recorded. However, in the better range of rough diamonds — SI+, VVS+ — for the better-quality stones, prices increased by an average 10 percent. The increases seem to be a consequence of the prices being so low that people all jumped back in business at the same time. In any case, should sales of polished not follow, and the liquidity fail to improve, the trend is expected to reverse in no time.
Article from the Rapaport Magazine - May 2009. To subscribe click here.