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New York Adapting to Changing Diamond Market

Q&A with David Lasher, Managing Director of the New York Diamond Dealers Club

Dec 21, 2014 2:32 AM   By Rapaport News
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RAPAPORT... The Diamond Dealers Club (DDC) is the trading bourse located in New York’s Diamond District, representing diamantaires that are responsible for the majority of loose diamonds that enter the U.S. Founded in 1931, the DDC has since played an active role in major industry initiatives due to its position in the world’s largest diamond consumer market. David Lasher, the DDC’s freshly appointed managing director, recently spoke to Rapaport News about the role the club plays in the New York trade and some of its recent initiatives to boost activity:

Rapaport News: What is your background?

DL: I didn’t know anyone in the diamond industry before I worked at the Diamond Dealers Club (DDC). Reuven Kaufman, president of the DDC, initiated me into the business when he hired me and for that I am indebted to him.

During my first year and a half at the DDC my role was director of marketing and development. This August I was named managing director.

Rapaport News: How many members does the club have?

DL: We have close to 1,500 members, who comprise a cross-section of the entire diamond industry. The largest membership groups are the dealers, wholesalers and smaller scale manufacturers, who together make up the bulk of the industry. But we have everyone from the world’s largest manufacturers and sightholders, to individual brokers who take stones from office to office all day long.

I would say that over 90 percent of our members live in the tri-state area [of New York, New Jersey and Connecticut], although we do have many international members that come to New York often. They join the DDC because they either want a place from which to work when they are in New York or they want to take advantage of the club’s services and initiatives, which they might not have access to in their home market.

Rapaport News: What is the most important service the club provides to its members?

DL: I think the single most important service we provide our members is our arbitration system. We also provide a secure location to trade diamonds, a shared office space for our members in the heart of New York’s diamond district, special trade events and the networking and reputational advantages that come with being a member.

However, arbitration has always been an important part of the trade and the DDC because the diamond industry operates with such different rules from everybody else.

A real estate investor might buy a property for $2.1 million and pay extra for lawyers, closing costs, etc. But the last diamond deal I witnessed was concluded for $3.5 million over the phone when one dealer said mazal to another. A person in the real estate industry would find it hard to believe that the deal was closed on just a “mazal” without signing a contract and no court would understand that either.

Also, the incredibly long time that court litigation can take, and the expense involved, is particularly devastating to our industry.

Therefore, our unique industry requires a method to resolve disputes cheaply, quickly and easily, that understands the peculiarities of our trade practices. I can’t overstate the importance of that to the industry.

Rapaport News: How does arbitration in the diamond industry differ from the handling of cases in courts?

DL: The courts are not just slower to reach decisions than arbitration panels, but they also have to abide by whatever laws and precedents exist in that specific locality. From the court’s point of view, there is no such thing as buying a stone by saying mazal. The court may consider it a contract or it may not. There is also all the minutiae of diamond transactions, which is hard for outsiders to understand. You need real experts and just bringing those experts in can make court costs astronomical.

Arbitration is particularly important for international transactions. Think about a dispute between a dealer in Hong Kong and a dealer in New York over a stone. Even if these cases were resolvable in international courts, they would involve tremendous costs and complications, such as trying to understand a foreign court system and searching for good lawyers for foreign laws in a foreign language.

The international arbitration of the World Federation of Diamond Bourses (WFDB) is a vastly simplified and unified system, and no matter where you are, you can always elect to have your arbitration in English.

Rapaport News: How has the business changed for DDC members over the years?pasting

DL: It used to be that all the diamantaires needed from the DDC was the trading infrastructure; a place to sit that was safe for buying and selling diamonds. They needed our office to deal with arbitrations, verify who was a member of the DDC and ensure that the members were all honorable, respectable people. We had little to do with creating new business because it was already there and healthy.

However, now you have external forces that are really changing the industry, and not just in New York. The generous bank financing isn’t there anymore and neither are the profit margins. That means that diamantaires are being squeezed on both sides. You have less money to play with and your rough costs are high, which means both your volume and margins are lower.

Basically, we have gone from a system where profit was more evenly distributed within the industry, and where all of the players were concerned for the overall health of the industry, to a very short-term profit-focused and even narrow-minded approach to doing business.

You have to leave enough fat on the bone for everyone, especially because the middle of the market plays such a vital role in distribution. One of the unique features of the diamond industry is the incredible speed at which the right stone is matched with the right buyer. The diamond also tends to move to wherever it can generate the most profit because of the midstream distributors. If they can’t distribute and operate at a profit, then they will leave for new opportunities to make money in other industries.

Rapaport News: How are DDC members dealing with these market forces?

DL: You definitely have to build your own brand name and add value, but I think that occupying a niche is also very important to the market’s midstream.

For diamond dealers, their brand is what they can do for their clients. If someone needs colored melee or triple-EX goods in sizes below 1-carat and without fluorescence, you want to be the person who is known for supplying that. Within specific niches it is also important if someone has a reputation for great customer service and maintaining long-term relationships.

That not only applies to dealing with the independent jewelers. When a large chain needs a very specific assortment of goods it is not going to be a sightholder who spends the time sorting through everything from their production line. Most of them are focused on making their profit from manufacturing and leave these special jobs to someone who is willing to pick through a parcel of 3,000 stones to come up with 300 that match the buyer's specifications.

Another important thing that our members are doing is buying back from the public and re-cutting stones in New York. That is probably one of the main ways that cutters in New York are employed right now.

Until recently we experienced a swing away from dedicated, long-term relationships because of goods being offered online, which made entire inventories easily accessible to a much larger number of people. However, I’m increasingly seeing that the pendulum is swinging back and people want to do business with a dealer they know and trust. In today’s uncertain market, with ever greater risks, people want trustworthy and reliable suppliers. It’s a big competitive advantage for a dealer to be able to say, “I’m a member of the DDC, I’ve been vetted, there’s an arbitration system to make sure I back up my commitments, and an entire organization dedicated to backing up the reputation of its members.”

Rapaport News: What policies have been implemented at the DDC to stimulate the market in New York?

DL: Reuven Kaufman has guided both the major projects of the DDC and the ideas behind how we need to adapt to the changing market. From my first moment working in the club, we have seen eye to eye on the direction the club needed to go. Reuven’s guideline for the DDC has been to not only focus on how many members we can bring in, but how we can build up the club and make it great.

Our keystone initiative is the diamond trading weeks that we hold jointly with other bourses, which was an idea Reuven initiated at our bourse with the Israel Diamond Exchange, and which we have since extended to our fellow diamantaires in Antwerp and India. The motivation behind the events is the belief that if you get dealers into a room together, they are going to do business and make new connections.

Since a lot of the diamond trade has moved online, the natural trend is for the industry to be less personal than it used to be. Therefore, it’s more vital than ever for people to talk to each other, because at the end of the day the diamond industry is still about trust and relationships.

Rapaport News: Where do you see the DDC headed in the next 10 years?

DL: We're working hard to find ways to add value to our members’ businesses. Our central long-term goal is for the DDC to play a greater role in strengthening ties between U.S. wholesalers and retailers. We want to bring together all sides of our industry in a way that only the DDC can, by facilitating safe transactions within the U.S. trade across the entire diamond pipeline, and ensuring that any issues that arise can be resolved quickly and efficiently.

Our other major focus is to continue to work with the bourses around the world to stimulate the trade globally and increase the amount of face-to-face interactions at the clubs by continuing to expand the trading events. I think the trading centers are increasingly realizing that we're not in it just for our respective local markets but to stimulate the trade globally. Together with our fellow bourses, we’re working with all of the major players in the field to promote the overall health of our industry, to make this a great business to be in for many years to come.
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