There is no question that rough prices are rising, and U.S. wholesalers say it’s due to a shortage of supplies. “Production is less than normal and all commodity prices are going up,” said Raphael Maidi, president of Maidi Corporation, located in New York City, which specializes in fancy color diamonds. “I do hope they start mining more so it doesn’t get out of hand.”
According to Gregory Telonis, vice president of Mr. Baguette Ltd. in New York City, De Beers raised rough prices three times in 2010, for an overall 10 percent price increase. “De Beers is wise — they not only take prices higher, but they create shortages in certain areas,” he said. “It’s hard to find a nice medium-grade stone between 1 and 2 carats that’s not overpriced. Everything in the SI range is extremely expensive — there are shortages in those areas and also in rounds.”
Sam Nazarian, owner of A&M Diamond and Jewelry in Los Angeles, said that wholesalers simply cannot compete with manufacturers’ prices, especially overseas prices. “Each company in India has people sitting on the phone, calling jewelers in the U.S. and competing with each other. Their prices are so low, there is no room for the diamond dealer to survive.” Nazarian explained that prices are also too close. “On RapNet, I see prices of $4,025, $4,050, $4,057 and $4,059 for the same stones,” he said, noting that there is not enough difference in price for him to build in a profit. “I have to compete with manufacturers — I don’t have a choice,” he said.
Consumers Get Choosy
With the consumer getting more educated, it has become harder to move lower-quality stones. “People today have become scientists,” Nazarian said. “With the internet, they check everything and know exactly what they want to buy. But if you have a nice diamond, the activity is there.”
Morris Szklarski, president of Kelsol Diamond Company in New York City, stated his customers only want quality goods. “Make is extremely important,” he said, adding that he does see price resistance, but considers it a positive sign. “If you offer $1 for 75 cents, they say it’s too expensive. But when they say it’s too expensive, that means they are interested.”
“There are lots of heavily made goods out there,” said Telonis, referring to large stones that are not well cut. “If a big marquise or pear shape doesn’t shine well, it doesn’t look as good.” He observed that engaged couples are building their own rings instead of looking for something that is readily available. “Consumers are very discerning. If you don’t have a nicely made stone, you are going to sit with it for a long time,” he said.
Credit Remains An Issue
Credit is a major concern for wholesalers. “You still have to deal with walking through a minefield,” said Szklarski. “Retailers have a sense of entitlement. There is a lack of responsibility on their part to give the goods back in a timely manner — they will not spend the extra $2 to send goods back through Priority Mail. There is a lack of respect for goods and other people’s money.”
Nazarian believes that the relationship between retailer and wholesaler has changed. “Now, the retailer goes to the cheapest wholesaler,” he said, adding that he has revamped his credit policy. “Retailers can keep memo for only one week. After that, we need our money or the stone back.”
Telonis said that he is remaining cautious. “If someone is not well capitalized in this downturn, they will go under very quickly and take everyone with them.” But Maidi had a more positive view. “Credit is much better than it was six months ago. It’s not back to normal, but it’s better.”
Rough Road Ahead
Wholesalers are prepared for a quiet start to 2011. “I hate to be the bearer of bad news, but I don’t think the numbers are good overall from Christmas and unemployment numbers are still high,” Telonis said. “I believe our industry is in for a rough ride — lots of people going out of business. But it’s a natural thing.”
Nazarian agreed. “The next couple of months will be the same as today, unless something happens suddenly,” he said. “When people have plenty of money, they can buy whatever they want. Today, people can’t pay for their mortgage and necessities, how will they be able to buy jewelry? We have to wait for a better time when the economy changes.”
Szklarski had a slightly more positive approach. “Things seem to be better; it could not be worse than it was in 2008 and in the beginning of 2009. I have confidence in diamonds — the goods are desirable and consumers are not afraid to own them.” Maidi agreed, noting that “The consumer has more confidence, people are feeling better about jobs and the economy. Business is not booming, but it’s improving gradually — I see the light at the end of the tunnel.”
The Marketplace
• Rounds are most popular, followed by ovals, pear shapes and radiants.
• Heart shapes are making a comeback, but demand for marquise is weak.
• Demand is strong for D-F colors in VS, VVS and SI1.
• Anything just under 1-carat and above 7 carats is moving well.
• Demand is strong for pink diamonds due to the publicity surrounding the pink diamonds that sold for record prices at the auctions this past fall.
Article from the Rapaport Magazine - February 2011. To subscribe click here.