A Parcel of Rough Diamonds
The price of rough diamonds is dependent as much on the time, place, skill, desire and need of the parties involved as it is on the shape, size, color and clarity of the stones in any rough parcel. There are tenders that create set prices for sights in Russia, South Africa and from DeBeers and other suppliers. However, these prices vary enough to say that in reality, no two parcels will
ever be priced the same and some suppliers will buy better than others. For mining profits you can look at companies whose information is in the public domain. Still, there is a range of price for all goods and the rough diamond will rarely be outside it's given range which is usually 10% either way.
In order for a diamond manufacturer to stay in business, he needs to realize a gross profit of 30%-40% from the rough to a polished diamond. The net profit in the industry is 5%-8%. For example, if rough diamond has cost the manufacturer $100, he must be able to sell the stone for $130 or more, or he will soon be out of business. Obviously, some stones will yield less and some more. The difference is a combination of skill and luck.
The importer-exporter-wholesale-broker group buys the polished diamonds from the manufacturers to sell to other importer-exporter-wholesale-brokers and retail establishments. When the importer-exporter-wholesale-broker sells to other importer-exporter-wholesale-brokers, his profit margin is from 1%-15% depending on the factors outlined in the purchasing of rough diamonds. The average “in trade” sale profit is about 5%.
When the importer-exporter-wholesale-broker sells to jewelers, his profit is usually 10%-30%, depending again upon the above combination of factors. The average is about 20%.
Internet and discount retailers supply the public with diamonds and will have a profit of about 25%-40% gross. There are exceptions of course, but most consumers shy away from these companies when the diamond has a cost above $15,000. Rarely, do these retailers sell high value stones.
Full retail stores have a 1.6 to 3.0 times cost mark up depending on the store’s policy for credit availability and cost of the diamond. Smaller diamonds under a $1000 will sell retail for $2,000-$3000 or more. The larger and more expensive the diamond, the smaller the markup. It is rare for most chains and independents to sell important stones over $50,000 retail.
The carriage trade is a different animal altogether. They are blessed with fame and name, and are well financed. Because of this, they have learned they do not have to be shy in their profit structures. Few companies have their capacity and fame and because of the lack of competition, they have generally higher markups.
This brings us to the markups that these companies enjoy for larger goods. Generally, high end pieces do not have large markups because the total dollar profits are very large. If they pay $1,000,000 for a diamond they will sell it for $1,600,000 to $2,000,000 depending on the availability of the diamond and on the skill of the customer in negotiation. On diamonds of great rarity, they may sell them with a greater profit margin. If their competition cannot find another stone to compete with them, they will of course take
advantage of the situation.
In order for the customer to feel good about his purchase price and for insurance company’s requirements, the appraisal was created. The stores themselves do appraisals and there are labs that do
independent diamond appraisals. The appraisal is an approximation used primarily for insurance purposes. Many stones are easy to appraise because many comparable stones are available. This is especially true when similar diamonds are listed on RAPNET, the wholesale price list for the industry.
Louis Pearl G.G.
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