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Proprietary Cuts: Their Own Brand of Trouble
Creating specialist shapes is more complicated than you might think.
Aug 22, 2018 10:46 AM
By Joshua Freedman
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RAPAPORT... Creating and launching a proprietary cut is difficult for almost any
diamantaire. The costs can be prohibitively high, even for larger companies. In
addition, the weak prices of non-round goods mean there’s no guarantee the
venture will boost profits.
Take the example of Pieter Bombeke (pictured), one of Antwerp’s
best-known cutters and a specialist in making innovative, non-generic shapes.
Bombeke has created many shapes of his own, but until recently had only
patented one: Solomon’s Seal, which uses an optical effect to make the Star of
David appear on the stone. He has since begun registering another two creations:
the Xiao Long — Chinese for “little dragon” — and the Dreamcatcher, which has a
spiral-like appearance.
It’s a difficult business. Many bespoke cuts don’t lend
themselves to large-scale production, and are therefore hard to make money
from, Bombeke explains.
“Both of the models I’m protecting now are easy to take into
production,” he notes. “Lots of the new creations in diamonds, you need to be a
master to be able to cut them. The [Xiao Long and the Dreamcatcher] can be done
in the same way you cut a brilliant — mass production without too much of a
problem, just with a small change in the equipment.”
Patent absurdity
Cutters such as Bombeke have many proprietary shapes under
their belts, yet can’t afford to protect and defend every design, explains Alexander
Dayekh of Antwerp-based Dayekh Gems. It’s a vicious cycle in a market where
dishonest competitors have been known to buy a tiny diamond with a particular
cut, put it through a stone-scanning machine, and reverse-engineer larger, more
expensive versions of that same branded cut. Even if the original craftsman has
patented the stone, impostors can simply change one facet and win any ensuing
court case.
“It means you’re paying for protection but can’t enforce
it,” Dayekh sums up.
The imperative to protect intellectual property means
relatively high legal fees in the initial stage. Those amounts rise sharply if
another company contests the patent, or if the need arises to sue someone who
has stolen the design, especially if the culprit is in another country. That’s
on top of the cost of buying rough and marketing the product. Simulation
technology lets artisans experiment with cuts, but they still have to do some
of the work with real stones.
“If you take a painter, his raw materials are a canvas or a
piece of paper, and he can turn that into a masterpiece,” says Dayekh, who has
launched the Antwerp Diamond Guild to help people in this sector (see box).
“But for us, our canvas is very expensive — it’s a rough diamond. So just to
experiment, we have to invest a lot of money.”
Princess of sales
More established companies can at least handle the high
startup costs. New York-based Hasenfeld-Stein spent close to $70,000 obtaining
a patent for its FirePrincess cut (then called FireMark), estimates company
president Hertz Hasenfeld — and the process took three years due to several
challenges to the application. The launch of the cut in 2008 was an attempt to
create a more attractive version of the princess, which Hasenfeld says was
mainly a lower-end stone because cutters manufactured it to maximize yield
rather than for its beauty. The firm, a De Beers sightholder, later introduced
another cut, the FireCushion, at a much lower cost, as it received a patent
uncontested in just three months.
The FirePrincess and the FireCushion initially commanded a
15% price premium over their generic counterparts, but required 15% extra
rough, negating any direct profit. For the FirePrincess, both percentages are
now down to about 7% or 8% due to a market-wide improvement in the quality of
generic princesses. However, Hasenfeld sees the products as a success, since
they have brought in committed repeat buyers.
“The difference is, [now] I have sworn clientele...instead
of every time I manufacture a stone having to go and peddle and find a client
for it,” he notes. “Every stone is not a new sales pitch.”
One of the largest costs is maintaining the right inventory
of the special cut, Hasenfeld adds. Retailers want to be able to buy
merchandise on demand, but having too much stock is expensive.
“You’re constantly trying to project how many different
stones your clients are going to buy, and what they will be buying,” he says.
“We try and use scientific tools, but it’s a cost.”
Hard to pull off
Smolensk Diamonds, a subsidiary of Russian manufacturer
Kristall Smolensk, has less happy memories of its escapades in branded cuts.
The company had a group of experienced polishers in Russia who were working on
creating new cuts, but discontinued that operation about 10 years ago because
it didn’t bring in much business, recalls Raymond Cohen, Smolensk Diamonds’
manager in Belgium.
“It’s good to have a new cut, but if you don’t have somebody
who’s interested in it, you don’t make it,” he says.
The huge costs of producing and marketing new cuts means
they can’t get off the ground unless there’s a solid client base willing to buy
the goods repeatedly, Cohen explains. This was generally not the case for
Smolensk.
In addition, slicing up rough diamonds for a speculative
purpose, and for a relatively low volume of polished, made the project
difficult, even for a large company like Smolensk. “If you need one kilo of
meat, you’re not going to buy the whole cow,” Cohen says.
Smolensk’s one success was the Phoenix, which took
rectangular rough that had little other purpose, and used it to make a longer,
cut-cornered version of the princess. It developed a selling arrangement with a
UK jeweler, and continued making the Phoenix until two or three years ago.
Even so, there were difficulties. The Phoenix didn’t sell
for any premium, and Smolensk sometimes found itself a victim of its own
success when demand outpaced supply.
“We didn’t know what to do with the rectangular [rough], so
we created a cut for that,” Cohen recalls. “At the beginning, it’s good,
because you get rid of the rectangular shapes, but then when you need more, you
have a problem.”
Minority report
Business development can also be “disastrous” given the
massive marketing costs and the low chances of turning the endeavor into a
commercial success, Cohen warns.
The May decision by the Gemological Institute of America
(GIA) to place branded-cut names on its grading reports — as long as the
manufacturer can produce the relevant patent documents — could help companies
in that regard. Hasenfeld-Stein, which is participating in the GIA’s program,
has inscribed the FireCushion brand on girdles and certificates before, “but
nothing speaks as loud as the top line saying FireCushion or FirePrincess,”
Hasenfeld notes.
For retailers, “generics is pretty much a dying business,”
he continues. “There’s always someone selling cheaper — online, or the
next-door fellow. The more tools you give the jeweler, the easier it is for
them to sell that branded cut that separates him from someone else.”
Dayekh also anticipates benefits from the GIA’s move, though
he notes that other laboratories, such as HRD Antwerp and the International
Gemological Institute (IGI), have been recognizing proprietary cuts for a
while.
“Imagine you’re selling Nike shoes, and you want to provide
your customers with a certificate that says this is a Nike, but all you have is
a report that says this is a sports shoe,” Dayekh explains. “That’s the
difference. We don’t want to provide sports shoes anymore; we want to give them
the Nike.”
Image: Backes & Strauss
This article was first published in the August issue of Rapaport Magazine.
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Tags:
ADG, Alexander Dayekh, Antwerp, Antwerp Diamond Guild, Belgium, Dayekh Gems, De Beers, Dreamcatcher, FireCushion, FireMark, FirePrincess, Gemex Systems, Gemological Institute of America, GIA, Hasenfeld-Stein, Hertz Hasenfeld, Joshua Freedman, Kristall Smolensk, little dragon, new york, phoenix, Pieter Bombeke, Proprietary cuts, Raymond Cohen, SmART certificate, Smolensk Diamonds, Solomon’s Seal, Xiao Long
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