Rapaport Magazine

Antwerp

By Marc Goldstein
Congress Defines Industry Challenges

The 36th World Diamond Congress, held in Antwerp June 15 to 18, was definitely a success. However, it wasn’t necessarily successful in the usual sense of implementing concrete, practical initiatives. It was more a success in the sense that for the first time, there appears to be an expressed will for all the players to act together to face the very clear challenges confronting the industry.
   With that in mind, the formation of The Presidents Forum sent a clear message to the whole industry. The forum is being organized as an informal committee of the presidents of four prominent industry organizations, including Gaetano Cavalieri of the World Jewellery Confederation (CIBJO), Ernie Blom of the World Federation of Diamond Bourses (WFDB), Maxim Shkadov of the International Diamond Manufacturers Association (IDMA) and Edward Asscher of the World Diamond Council (WDC). Blom described the forum’s mission as “to help the major industry organizations more closely communicate with one another. This will help us to deal more aggressively and efficiently with the issues that must be addressed by us all.”

Facing the Risks
   Stephane Fischler, president of the Antwerp World Diamond Centre (AWDC), said, “Globally speaking, people are very satisfied by the way the congress was organized. The core of the discussions involved the risks and opportunities that the manufacturers are confronted with. One of the major objectives behind this forum is to be able to initiate and continue engaging, constructive discussions with both producers and banks.
   “Banks must be comfortable with the idea of financing our trade,” Fischler continued. “People will have to understand that the imperatives imposed by the banks and the mining companies are necessary for them to comply with the regulations dictated by a fast-evolving environment.” He confirmed that the industry has awakened to the necessity of engaging the banks on issues that will guarantee long-term financing.
   Blom summarized the main issues that will have to be addressed in the very near future as: business profitability, the sustainability of profitability, relationships with bankers, sustainability of rough supply, policies on knowing your customers and clients, transparency, how to deal with synthetic diamonds and generic marketing.

Betting on Banks
   “Banks must support not only the speculative market, but the whole chain of production,” said Shkadov, who also discussed gross profit margins. “The gross margin of the manufacturing sector for wholesale should be around 15 percent to 20 percent in order to pay all expenses and make a living. But, in 2013, for example, the gross margin was somewhere between zero and 3 percent to 4 percent. This has led and is leading lots of factories in various diamond centers to close.” When asked who should pay for this larger profit margin, Shkadov said there was no escaping the fact that part should come from the producers and part from the retail end… and maybe part from the customers.
   Discussion at the congress also suggested that one of the keys to the future of the diamond industry may be using generic marketing to increase the overall size of the industry. Alex Popov, chairman of the World Diamond Mark, the only marketing initiative for diamonds that exists today and one that was founded by WFDB and is supported by IDMA, explained, “We’ve put our emphasis on the jewelry retailers, who we think are the most important players in increasing the size of the industry. Programs are currently ongoing in Turkey and in the Gulf countries where we’re trying to improve consumer awareness of diamonds.”

Cultural Differences
   Rami Baron, president of the Diamond Dealers Club of Australia, added that “We need to understand the correct touch points of each cultural environment. Experience has proven that a broad sweeping stroke isn’t that effective, especially in countries such as China.” Ronnie VanderLinden, IDMA Secretary General, confirmed that “a vacuum has been left by the producers,” referring to the Diamond Trading Company’s (DTC) decision to cease generic marketing of diamonds.
   And Jeffrey Fischer, IDMA honorary president, emphasized the need for generic diamond advertising as a base for the industry on which individual companies can place their specific brand advertising. “I believe that brand advertising is a good thing, but generic advertising is the very foundation,” he said.
   The one thing missing from the congress was the involved presence of bankers and producers. The diamond pie is shrinking compared to the growth in other luxury goods industries. All stakeholders need to make sure everyone can live decently throughout the pipeline. “The pipeline is only as strong as its weakest link, ” concluded Blom. “If this aspect is overlooked, it can and it will break.”

Article from the Rapaport Magazine - July 2014. To subscribe click here.

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