Today, most retail jewelers and wholesale diamond dealers are in a bind. Over the years the margins in diamonds have diminished to unacceptable levels. Margins began to disappear with the emergence and popularity of the diamond grading laboratories in the 1980’s, especially with the dominance of the Gemological Institute of America (G.I.A.). Because of grading certificates, diamond dealers are no longer able to use their skills to purchase from cutting manufacturers. Without a certificate, manufacturer and diamond dealer would argue about the quality of the diamonds and would come to an agreement based on their respective skills. With a certificate, this was no longer possible because the grade was already determined by the labs. This eliminated the opportunity to buy a stone as one grade and receive a G.I.A. certificate with a higher grade. The difference between one color up or down or oneclarity up or down is often greater than 15%.
The second significant factor eliminating margins is the “Rappaport Diamond Report.” It is a wholesale price list of diamonds for rounds and various shapes in grades from the top to bottom. With this list, the unskilled person could determine the value of a diamond with a certificate and the Rappaport. This took away another skill of a diamond dealer and jeweler and thus it also eroded the margins because the unskilled did not need years of experience to know the market value of diamonds and left little room for negotiations.
The third major factor to erode margins in diamonds is the emergence of FedEX. Before FedEx, a jeweler was unable to have diamonds for his customers until the mail delivered diamonds to his store from diamond dealers. Because of this, jewelers would buy diamonds and maintain stock in their stores. This allowed dealers to turn their inventory quicker and this in itself increased yearly margins. With FedEx, a jewelry store could call several dealers and have three to five stones in his store the next day. Who needs to buy inventory when you have near instant delivery on memo?
Not only could jewelers receive several stones at once, they could also compare prices from the competing diamond dealers. Diamond dealers knowing this, would lower their margins in order to compete. G.I.A., Rappaport and FedEx were the major destroyers of margin until the internet. Now with online stores, no sales tax and free shipping, the margins have fallen even lower.
I will not even address the rising costs of labor, rent, percentage payments to the malls and a thousand other costs that pummel the poor retailer. However, when you add the diminishing margins and the escalating costs, it does not take a genius to figure out that diamond dealers and jewelers are losing a very protracted, expensive battle.
For the small jeweler or diamond dealer, recovering margins is a monumental task. One I am not sure is possible. For the larger retailer and diamond dealer there is only one clear choice that will allow them to recover the margins of the past. They must buy diamonds in the rough in Africa and contract the cutting to restore profitability. This is not an easy task. Anyone who has read my website is familiar with the issues in buying rough diamonds in Africa. However, because it is difficult and because most diamond dealers and jewelers do not know how to buy rough, the opportunity exists. It has been my experience that when things are difficult to accomplish and when the places are difficult to access, money can be made.
The margins can be restored buying rough. You must have the skills, expertise, connections and ability to buy rough or you cannot succeed. If you do not have the right connections, skills and abilities then hire a rough diamond gemologist who does.
Louis Pearl G.G.
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