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Martin Rapaport On The Future of Diamonds |
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Wednesday, 04 June 2008 |
 You've likely never heard of Martin Rapaport but to the diamond world he's
famous. Rapaport is to diamonds what Robert Parker is to wine, a person of
tremendous influence. He runs Diamonds.Net
and his Rapaport Index defines diamond pricing for the world.
On Monday,
Rapaport spoke to the packed room at the JCK jewelry show in Las Vegas
delivering his pronouncements on the diamond market at an annual breakfast
event. Right now, the diamond industry is facing similar challenges seen by the
rest of the luxury market. Rapaport feels that the current economic climate
offers both opportunity and pitfalls for those in the diamond business.
The
news is conflicting, larger stones have been getting higher and higher prices
and the huge wealth in China, Dubai, India and Russia is creating a hunger for
luxury goods and diamonds and diamond jewelry specifically. This is also a time
when the plummeting real estate market in the U.S. and Europe means that the
Western world, which fueled the global prosperity in the beginning, is now
cutting back on spending. Independent stores and small chains are having a tough
time and the news is full of stories of stores having bankruptcy sales where
goods are being sold off at below cost.
As of 2007, the U.S. still made up
the bulk of diamond jewelry sales, clocking in at 43%. China brought in 8.5%,
Europe did 11% and the Middle East was responsible for 4.6%. Until recently, the
U.S. had been on a path of prolonged economic growth and our prosperity fueled
the global economy expanding the middle class in India and Africa. Small
jewelers in the U.S. are now competing with a global market. As I've heard
mentioned at other conferences such as the Luxury Summit, the number of
millionaires and billionaires is growing worldwide. This might be one reason why
the price of big stones is going up far faster than the prices for smaller
stones, especially those under a carat.
For jewelry sellers, as I heard in
other sessions at this show, branding is more important than ever, especially to
new luxury spending markets. Rapaport cautioned though that branding is a
"trojan horse" for the retailers. First the retailers convince their customers
which brand to buy and then the seller of the brand raises that price. Many
stores are worried about the new
DeBeers Forevermark, a branded diamond sold by DeBeers. Now the considerable
advertising budget of DeBeers will be aimed at marketing that diamond which will
be sold at premium price. Rapaport's answer to those competing against this new
stone? Hang a sign in your window advertising that you are selling for diamonds
for 10% less than Forevermark.
Overall, Rapaport is bullish about the future
of diamonds. His data shows that over time global demand for diamonds will
outpace supply by an increasing margin. He made the analogy that just as a
forest fire is a way of the forest ecosystem, righting itself for greater
growth, the current economic climate will eventually be good for the diamond
market as a whole and will benefit the smaller jeweler if they realize that
flexibility is power. Just as I heard Nick Failla say about gold at an
earlier session, Rapaport too believes that most stores should be buying
back jewelry as well as selling jewelry especially since the amount of jewelry
being sold back to jewelers will likely hit record rates in the coming years.
One of the big questions about the diamond market is whether prices are
being raised by those who are speculating or investing. Before the JCK Show,
Rapaport raised his pricing index 25%, a fact which didn't sit well with those
hoping to do major business during the show. Rapaport defended his decision
saying it was a correction based on a steady supplier price raising. Facing
increasing hostility from the audience he stated frankly that he couldn't give a
damn about suppliers or buyers, it's his job to watch the prices people are
getting for diamonds and reflect what is out there. Rapaport says the non-mining
profit in the diamond business comes from finding the right buyer for the right
diamond at the right price and that he is advocating for free, fair, open,
competitive markets. This information didn't sit well with those in the audience
who feared that their buying power had been dropped by one quarter based on
Rapaport's guidance.
Rapaport urged the jewelry retailers in the audience to
remember that "diamond dream" what is being sold is the idea behind the jewelry,
the emotional power behind the diamond remains, the real business for jewelers
is to believe in what diamonds mean to people not just the romance angle but
also the sense of the diamond as a global industry, it can do good for the
people involved. In fact, Rapaport says that jewelry stores have a
responsibility to make sure the diamond industry does well, because the industry
also supports the diggers in other countries. It can be a tool for good. His own
passion for finding ways to make sure the diamond industry is a benefit to
diggers in Sierra Leone and other places has led him to be a leader in the fair
trade jewelry movement. I'll be reporting in-depth on the fair trade jewelry
conference which he moderated later this week.
Martin
Rapaport On The Future of Diamonds - Luxist
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