Thaigem.com: Honest Shipping Mistake Or Intent to Deceive?
By Robert Genis
Thaigem.com of Chanthaburi, Thailand, has lately come under increased scrutiny by the gemstone trade for its marketing practices. It has been accused of overusing flowery adjectives in its verbal descriptions, of tampering with digital images to enhance the appearance of the gems it sells, of inaccurately describing the clarity of the gems it sells, and of selling stones that are not what they are purported to be. Two well known cases already documented in the press ( JCK 6/01 and Colored Stone 10/01) are Treasures of the Earth, Los Gatos, California and Turmali and Herschede Inc., Sanibel, Florida. In both cases, subsequent to the buyers' complaints of receiving gems that were not what they thought they were purchasing, Thaigem.com changed the product descriptions on its website and claimed the discrepancies were a mistake. They blamed the errors on growing pains and attacked the buyers as being unable to compete in the internet marketplace.
Recently, we saw a dossier of gemstones that were sold to a private by Thaigem.com with Chanthaburi Gemological Research Institute grading reports. The stones were later graded by an internationally respected gemstone laboratory (AGL). It was obvious that these Thaigem.com gemstones were inaccurately sold. Some examples of discrepancies include Thai rubies being sold as Burma rubies and heated stones being sold as unheated. The question in our minds was, are they simply incompetent or is this a pattern, meant to deceive? We decided to purchase gems from Thaigem.
Thaigem.com Claims
Thaigem.com makes many claims about its business. Recently, it claimed to sell $1.5 million of gemstones per month and to ship about 200 packages per day; this means the average sale is approximately $250. According to Don Kogen, CEO, Thaigem.com, "Given our continued rapid growth, this figure is no longer accurate. Thaigem.com's board of directors has made a decision not to issue any current revenue statements...the number of packages we ship has increased. The current average is around 300 per day. This represents approximately 2,000 individual products."
The company claims that its success springs from pricing its goods 50 to 75 percent lower than all competitors. All transactions transpire through Escrow.com's on-line payment system and the Federal Express 24-72 hour global express delivery service. The company claims a product return rate of only 3 percent. The average for television gemstone shopping channels is approximately 30 percent.
According to Kogen, “We actually claim to control more than 90 percent of the international online gemstone trade.” They base this statement on an Information Memorandum of November, 2000, by New Thai Equity Partners Limited, Singapore. According to Douglas W. Clayton, chairman, “A more accurate description would be that Thaigem controlled over 90 percent of gemstone listings on internet auction sites.”
In replicating New Thai Equity Partners Limited's methodology, we found on ebay 329,247 listings for jewelry, gems and watches, and 32,869 for loose gemstones. Thaigem.com had 10,475 items on-line. Whatever the numbers, this hardly translates into market share. According to Carrie Johnson's September, 2001 report, “Auctions Gain On Retail Sales”(Forrester Research, Cambridge, Massachusetts), on-line jewelry auction sales will reach $1.4 billion in 2001. Clearly, Thaigem.com is basically a high-volume, low-end, mass-marketing operation and a small player in the international gemstone market.
The Buy
Thaigem.com claims to have over one million gems and jewelry items on-line. Scrolling through the Thaigem.com website is an almost mind-numbing experience. When searching for carat-sized rubies, we found 3,600 rubies, with 822 oval “Burma” rubies between 1.00 and 1.99 and 825 “Burma” rubies above 2 carats. In a nutshell, the stones on the website appeared to be either red or pinkish in color. Although most were called pigeon-blood red, we specifically sought out the stones that appeared red, not pink. We also wanted to purchase the cleanest stones available.
The first stone we chose was a “1.55 Best Ravishing Oval Facet Blood Red Ruby from Burma.” The millimeter measurements were “7.5 x 5” and the stone was “clean.” We paid $125.15 per carat or $193.99. The second stone purchased was a “1.90 Best Ravishing Oval Facet Blood Red Ruby from Burma.” The millimeter measurements were “7.7 x 5.5” and the clarity was “clean.” We paid $125.26 per carat or $237.99. Both were to come with grading reports from the Chanthaburi Gemological Research Institute of Thailand. When checking out our purchases, we realized we had bought two different stones illustrated by the same exact photograph! According to Kogen, “Thaigem.com has never been secretive about the fact that digital images are used for more than one stone when those stones are visually identical.”
Although it took two weeks for the gems to arrive, not the 24 to 72 hours promised by the website, some time was lost by the fact that Escrow.com wanted verbal confirmation from our "mole" that she indeed wanted the stones. However, even after confirmation, the shipping still took longer than the 72 hours. When the stones arrived, they looked nothing like the universal photograph which was used to sell us the gemstones.
The Labs
Who is the Chanthaburi Gemological Research Institute (CGRI) of Thailand? According to Kogen, “The CGRI is a small local gemological assessment and appraisal institute. Given our location in Chanthaburi and in line with our policy to contribute to the local community, we made the decision to utilize the services of this institute. Whilst we are not affiliated with this lab, we are their largest customer and they sub-lease space in the Gem Center, a building leased by our sister company, the NCS Group, Co., Ltd. (formerly known as Nuntiya Care Stone, Co. Ltd.). Given our rapid growth, perhaps we have relied more on them than we should have. In consideration of recent events, we are currently in discussions with both the EGL and the AIGS to establish a local alternative to the CGRI.”
EGL does not have a lab in Thailand, and sources close to the lab deny that Thai.gem has ever contacted EGL regarding the grading of colored gemstones. It is well known that 90 percent of EGL's business is grading diamonds. AIGS of Thailand did not respond to our inquiries.
Our stones were sent to Gubelin Gem Lab (GGL) in Switzerland, the AGTA Gemological Testing Center (AGTA) in New York, and the American Gemological Laboratories (AGL) in New York for grading reports. All three of these independent labs concur on the basic information about these stones.
Sizes and Measurements
The most obvious fact that jumps out is that the weights are wrong. They are both incorrect to Thaigem.com's advantage. The 1.55 we purchased is actually a 1.54. This can possibly be explained by inaccurate scales at the Chanthaburi Gemological Research Institute of Thailand. According to Thaigem.com, the 1.55's millimeter size was 7.5 x 5. According to the three labs, the millimeter measurements were 7.60-7.61 x 5.17-5.18. The 1.90, on the other hand, weighed in at 1.70. This is a dramatic difference of 11 percent. Instead of paying $125.26 per carat for a 1.90, in reality, we paid almost $140 per carat, giving Thaigem.com a windfall profit. According to Thaigem.com, the millimeter measurements of the 1.90 were 7.7 x 5. According to the three labs, the true measurements ranged from 8.60-8.62 x 6.37-6.38.
Country of Origin
We purchased both stones as Burma rubies. According to the AGL, GGL, and AGTA, the stones are from Tanzania. Of course, Burma is deemed to be the best source of rubies in the world, and Tanzanian ruby is near the bottom. This would be analogous to buying a sapphire as Kashmir, only to discover it was Australian.
Color
Remember, our rubies were described by Thaigem.com as “Best Ravishing Blood Red Ruby” color. The Gubelin gem lab described the stones as brownish-red. The AGTA described the rubies as red. The most comprehensive color description can be seen in the AGL Colored Stone Grading Report. The AGL describes the 1.54's color and tone as 5/90 (90-95). Although the ruby is 65 percent red, it is miles away from being “Best Ravishing Blood Red Ruby.” The 90-95 tone means the stone “blacks-out,” or is way too dark. The color scan also shows significant amounts of grey and brown, negative colors in the gem world and seldom seen in Burma goods. The 1.70 is actually less red (Red 60 percent) than the 1.54. This is the reason it grades lower at 6/90 (90-95). The 1.70 also has significant amounts of brown and grey and a too-dark 90-95 tone.
Clarity
Due to intense trade criticism of the misuse of the term “flawless,” Thaigem.com in July, 2001 decided to remove the term from its verbal descriptions of the clarity of its gemstones. They created eight levels of clarity from “clean,” which represents stones that are free from inclusions to “translucent,” stones that allow light to pass through them, but the light is somewhat diffused. We purchased our stones in August, 2001 and they were purported to be “clean,” or free of inclusions. According to the AGL Colored Stone Grading Report, both of these stones are Moderately Included 2 (MI2). What this means is both stones have eye-visible inclusions and we did not receive "Clean" or "free from inclusions" stones as they were described on Thaigem.com's website.
Price
According to the Thaigem.com website, “All gemstones and jewelry sold on Thaigem.com are guaranteed to appraise up to 15 times their listed price in North American and European markets. At Thaigem.com, you don't buy, you invest!” According to our calculations, the “Burma” rubies for which we paid $431.98 (not including shipping), should be worth up to $6,479.70. According to Analytics Research and Development, Inc., a division of American Gemological Laboratories (AGL), the 1.54 was worth between $100 and $130, with an average of $115. We paid $193.99 for the stone. The 1.70 was worth between $140 and $170, with an average of $155.
Treatment
Although it is very difficult to find the section regarding treatment within its website, if you search, you can find that Thaigem.com advises you to assume all rubies are heated. According to the labs, the stones were heated, and they contained inorganic or glass residues (filling). These residues/ fillings were never mentioned nor disclosed on Thaigem.com's website.
Thaigem.com’s Response
Kogen states, “Clearly you received the wrong merchandise. Whilst regrettable, when you're dealing with a back office inventory of over 2 million gemstones and shipping around 2,000 products a day, honest slip-ups do occur.”
Kogen denies this is an ongoing problem with Thaigem.com. “Like any small to medium corporation that employs over 300 people...a few isolated instances of human or technical error are regrettably inevitable.” Further, “I could highlight how challenging it has been teaching a green workforce English and computer skills while operating such a rapidly growing business in rural Thailand. I could also talk about our dedicated quality control department for all online listings and how we now operate four levels of product QA.” Kogen claims, “No 'Big Story' here, just an honest shipping mistake.”
International Colored Gemstone Association (ICA)
The Thaigem.com home page displays membership in the International Colored Gemstone Association (ICA), as well as several other trade organizations. According to Joseph Menzie, vice president of ICA, New York, “There was a great deal of discussion about whether to give Thaigem.com membership into ICA. They were granted membership in June, 2001, however, they were instructed not to display the ICA logo on their web page until after they had met with the Industry Rules Committee to discuss approved language and specific disclosure. Despite the fact that Thaigem.com and this committee have not met, Thaigem.com has chosen to display the ICA logo contrary to ICA's instructions. I now fear Thaigem.com's marketing practices may be hurting ICA and eventually the entire gem business.”
The FTC
In October, 2001, the Federal Trade Commission (FTC) doubled to 60 the number of investigators to combat on-line fraud. However, the FTC will not confirm nor deny whether Thaigem.com is under investigation, because it is the FTC's policy not to comment.
According to Robin Rosen Spector, of the Division of Enforcement, Federal Trade Commission, “The FTC has international jurisdiction and enforcement authority if a company markets to Americans, despite the company’s residing outside the United States. The FTC has published jewelry guides that are fairly specific and substantive regarding gemstone claims that protect U.S. consumers and provide guidance to both U.S. and international marketers on how to avoid deceptive practices and comply with U.S. law.” These guides can be located on the web at: http://www.ftc.gov/os/statutes/jewelryjump.htm.
The FTC also advices that complaints regarding any gemstone or jewelry dealers be reported online at: https://www.ftc.gov/ or by calling 1-877-FTC-HELP (382-4357).
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