Surviving the Squeeze
There are strategies to maintain good diamond inventory in the coming
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.
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.