Surviving the Squeeze

August 1998


Surviving the Squeeze

There are strategies to maintain good diamond inventory in the coming supply crunch

You can wring your hands and worry whether you'll have enough good-quality diamonds for Christmas now that De Beers has cut its allocations in half. Or you can understand the situation and deal with it proactively.

First, consider why De Beers cut its allocations. A surplus started to grow at an alarming pace last year when diamond sales in the Far East fell amid the continuing financial crisis there. By cutting allocations, De Beers hopes to stop the surplus from growing larger and to firm up prices. "[De Beers] moved decisively ... to restore sentiment in the cutting centers by a sustained reduction in the size of its sights," De Beers Chairman Nicholas Oppenheimer said in his annual address (appropriately titled "Challenging Year for Diamond Market").

Meanwhile, De Beers is openly embracing the U.S. market, where sales remain strong and are projected to grow 9% this year. Eli Haas, president of the Diamond Dealers Club in New York City, confirms De Beers is paying more attention to the U.S. market – at least in the form of active dialogue.

Regardless, tightening supplies of good-quality diamonds of a carat or more could be felt in the U.S. by the end of the year.

Good and Bad
Some sightholders (the select companies to which De Beers sells its diamonds) are encouraged. They are obliged to buy parcels of diamonds in a range of sizes and qualities selected by De Beers. If their allocations are smaller, there's less pressure to turn over slow-moving, not-so-fine goods, says one DDC member. "Restrictions will have the healthy effect of tightening the market and firming up prices," he says.

Not everyone is happy, however. "Within a few weeks, we will encounter the first selective shortages," says Itzhak Forem, president of the Israel Diamond Exchange. "This will lead to polished price increases, especially in larger sizes and better colors." This is where retailers will feel the difference.

Fighting Back
Top qualities in larger sizes are already harder to get. As the supply tightens further, they will be even harder and more costly to obtain. There are a few things a retailer can do.

Acknowledge that competition for the best diamonds is fierce and is helping drive up prices. Consider that as easy as it is to love top-end diamonds, it may be time to look at slower-moving goods, says Todd Wolleman of Leo Wolleman Inc., New York City. "You have to be aware of where the opportunities lie," he says. There is less demand – and greater bargaining power – when buying slightly off-color diamonds with excellent make. "The profits are greater too," he says.

This doesn't mean lowering your standards. "I look for factors not usually described on a grading report: brilliance and dispersion," he says. "When a diamond offers up a rainbow of colors and is a ball of fire, it's hard to pass up."

Meanwhile, Martin Rapaport, diamond dealer, author and publisher of the Rapaport Reportprice guide, encourages retailers to improve partnering skills with dealers. "Retailers and dealers have to forge new relationships because they are necessary," he said at a recent talk at the DDC. "As the crunch comes, retailers who rely on memo shopping will get killed."

He also encourages retailers to keep the situation in perspective: "Shortages of diamonds are not a problem," he says. "Shortages of customers – that's a problem."

– by Robert Weldon, G.G.

Copyright © 1998 by Bond Communications.


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