“We are building a new state-of-the-art tender facility,” says Ahmed Bin Sulayem, Executive Chairman, DMCC

Ahmed Bin Sulayem certainly needs no introduction being widely popular globally as one of the leaders of modern Dubai. As the Executive Chairman of DMCC, Ahmed Bin Sulayem has played and continues to play a key role in establishing and positioning DMCC...

20 may 2019

De Beers scaling up Tracr ahead of formal launch

De Beers tracked 100 high-value diamonds along the value chain during the pilot of Tracr™, its industry blockchain platform, for the first time in May last year. A De Beers spokesperson Bianca Ruakere told Rough & Polished in an exclusive interview that...

13 may 2019

The perfect couple - platinum and diamonds

The Jewelry House of Leon Megé located in New York has long been firmly established in the jewelry market as a source of magnificent jewelry, in which platinum and diamonds often sparkle being married together and attracting everyone’s eyes, but are...

06 may 2019

The technology of growing single-crystal diamonds has now become industrial in nature

It is believed that the reserves of natural diamonds will be exhausted by the middle of the century, and therefore production of synthetic diamonds is rapidly gaining relevance. According to Business Insider India’s estimates, the global synthetic diamond...

29 april 2019

De Beers only selling Elizabeth Bay Mine in Namibia, move to sustain operations beyond 2019

Namdeb Holdings, a 50/50 joint venture between the Namibian government and De Beers is not selling Daberas, Sendelingsdrift and Southern Coastal mines in the southern African country. It had been alleged that Namdeb was planning to close and offload...

22 april 2019

Second-hand diamonds and the last retreat of the Wild West in the diamond pipeline

12 november 2018

Diamonds are forever, but the term of their ownership is limited, and not only for physiological reasons. More than $ 80 billion worth of diamond jewelry is sold every year across the world. Some part of this jewelry is returned by buyers to vendors in the same year they purchase it. The reasons may include a break in relationships, a change in fashion, preferences or urgent need for money. Even if only 5% or at least 1% is returned, this is a lot. And how many diamond jewelry pieces were sold 20 or 30 years ago and how many of them are stored in jewel boxes and safes for 100 years? According to Blue Nile estimates, the total value of jewelry goods held by consumers exceeds $ 1 trillion, and the annual volume of the secondary diamond jewelry market is estimated at billions of dollars.

In this huge sector, dominated by pawnshops, there is still no satisfactory solution for people who want to sell their diamonds and jewelry. Clients traditionally experience stress and face opaque pricing. “There is no spot market for rough or polished diamonds, which are primarily sold through private contracts, with no public disclosure of negotiated prices,” Bain noted in one of its reviews. The stakeholders of the diamond pipeline, having created and now maintaining the legend of the uniqueness of a diamond, provided for only one vector of monetization - from consumer to seller. If an average consumer returns to a seller with a jewelry piece, he or she feels that the sacral status of diamond was only a bait. With perplexity, such a consumer learns that the diamond crystal, which was once so valuable due to the association with feelings, does not fall into the category of unique gems and has a lot of flaws. The famous slogan “A diamonds is forever” acquires a paradoxical meaning at this moment - forever means that a diamond can actually never be resold. This situation is not conducive to the growth of demand for jewelry. Moreover, it can conceal quite tangible risks for diamond miners.

It is believed that men left by their beloveds played a big role in the development of the sector buying jewelry and luxury goods. They were driven by the idea of ​​getting rid of wedding rings and other memories of the past. This category included, for example, the founder of I Do Now I Don’t, the leading platform for jewelry auctions in the secondary market (which later became part of Delgatto). The slogan of another jewelry buyer with an equally emotional title, Out of Your Life, says “Ex-relationship - ex-jewelry. Why not sell? Get them out of your life for good!”. It strongly suggests getting rid of wedding rings, pendants and other artifacts reminiscent of failed weddings, divorces and partings on the very same day. Money for such a bitter reminder of the past can be received within 24 hours. Similar motives are exploited by the resource called Ex-Boyfriend Jewelry. Probably, these and similar services are a good option for a person who has received an emotional shock and facing the alternative of either drowning a jewelry piece in a sewer or giving it to the first comer. But even such a client will later think if he has been too wrought-up to sell his jewelry 3–4 times cheaper.

In 1982, Edward J. Epstein, a famous investigative journalist published an article carried by The Atlantic under the title “Have you ever tried to sell a diamond?”. He described in detail dozens of attempts by diamond jewelry owners to sell their things, and all the ordeals that they had to experience. “Selling individual diamonds at a profit, even those held over long periods of time, can be surprisingly difficult,” Epstein noted. Prices fell very significantly during resale, which was partly due to the fact that as a rule, retailers purchased their inventories at wholesale prices. Many retailers received diamonds from wholesalers on a memo basis (that is, paying for them only after they were sold), which did not at all motivate them to pay their own money to buy diamonds from customers. Coming back to Tiffany with the intention of selling a branded diamond ring, buyers learned about “a strict policy against repurchasing diamonds.” Most jewelers refused to buy and recommended visiting firms specialized in these operations. The most famous of these firms, the New York-based Empire Diamonds Corporation (still in existence) could offer no more than $ 600 for a ring graced with a half-carat diamond sold in retail for $ 2,000. All these stories about the 40-year-old trading practice have not lost their relevance and may well seem to be completely innocent to the participants of this process today.

Bringing a piece of jewelry to a vendor or to a pawnshop, its owner faces a completely different coordinate system, especially when it comes to branded jewelry. The colossal difference between the sale price in the primary market and the price offered in the secondary market is the result of both objective and subjective reasons. The first can be attributed to the initially complex pricing for diamonds as a product that is difficult to standardize. Even based on the common 4C system, two appraisers can disagree on the cost of a diamond by 30%, according to Bain's 2012 report. Finally, due to exorbitant markups in luxury retail, consumers overpay from 253% to 336% while buying a basic round solitaire ring from such brands as Tiffany, Cartier, Van Cleef and Harry Winston.

But not only luxury retail was interested in an unsurmountable price barrier between buying a diamond and re-selling it. Of course, any massive movement of diamond owners to stores for the purpose of re-selling their jewelry represents a danger first of all to the diamond mining industry. “Some hundred million women wear diamonds, while millions of others keep them in safe-deposit boxes or strongboxes as family heirlooms. It is conservatively estimated that the public holds more than 500 million carats of gem diamonds, which is more than fifty times the number of gem diamonds produced by the diamond cartel in any given year. Since the quantity of diamonds needed for engagement rings and other jewelry each year is satisfied by the production from the world's mines, this half-billion-carat supply of diamonds must be prevented from ever being put on the market. The moment a significant portion of the public begins selling diamonds from this inventory, the price of diamonds cannot be sustained. For the diamond invention to survive, the public must be inhibited from ever parting with its diamonds,” wrote Edward Epstein in 1982.

But if the movement of the public willing to sell their diamonds will become controlled to end up in a situation where some independent player may buy up everything, then such an outcome is doubly dangerous. Back in 1953, N. W. Ayer & Son, a U.S.-based advertising agency, which created the marketing strategy for De Beers and coined the famous slogan, “A diamond is forever,” remarked: “In our opinion old diamonds are in 'safe hands' only when widely dispersed and held by individuals as cherished possessions valued far above their market price." If second-hand diamonds are not widely dispersed, they may end up in the hands of some large player who, having accumulated significant reserves, will become a competitor to De Beers and ALROSA. For the time being, this is a surrealistic scenario, as it is necessary to have an unlimited financial resource to buy up diamonds on a large scale. But to completely ignore this risk for the diamond industry would be akin to forgetting the problem of synthetic diamonds, which many did not take seriously a few years ago.

One proof that the re-purchase of diamonds may be a promising direction is the wide involvement of large market participants like Blue Nile, which launched a project to buyback diamonds in the United States and Canada in January 2017. There is no high-quality source of secondary diamonds for jewelers, and such a source itself can take its place in the chain of luxury brands, explained his motivation Chris Del Gatto, one of the founders of the New-York-based CIRCA, a major player in the sector re-purchasing jewelry and luxury goods. He said: “So I took that model and thought about who’s at the source of secondary diamonds and jewelry. Not the diamonds that you pull out of the ground, but all the stuff that’s been worn and bought and worn again over the years that is out there waiting to come back into the market...I recognized that everybody used to talk about how good it was when they were able to buy something that was “fresh,” something that had been sitting in a box for 10 or 20 years and they either bought it directly from that private because they were referred to that private, or they bought it from a retail jewelry store representing that private... There wasn’t a company doing it in the right way, in a corporate way, a transparent way, an upscale way, and offering the general public basically a liquid market for their diamonds, jewelry and watches anywhere.” He compared the situation in this sector with the atmosphere of the Wild West “where people didn’t know how or where to get product.”

Perhaps at some stage such an atmosphere was beneficial to diamond producers, as it hampered massive sales of second-hand polished diamonds by their owners. In former times, this purpose was ideally served by the single-channel sales system established by De Beers, eliminating price volatility. One of the important ideas of De Beers was that if the public owning diamonds, including inherited stones, would not see a drop in their prices, it will not get wary and start selling them in large quantities. However, time has shown that the stability of diamond prices and the imperturbability of their owners are not entirely interrelated concepts. Diamond prices went through hard times during the difficult healing from the “diamond boom” of the late 1970s, as well as during the crisis of 2008-09. After each shock, the accumulated diamond inventories gradually dispersed to be replenished again, and very soon more and more new diamonds waited for their owners in stores around the world. The price volatility of rough and polished diamonds cannot be compared with gold and other commodities in any way; besides, when coming to a pawnshop, a client enters a world, which is extremely far from any objective market factors.

Thus, it can be concluded that the growth of the second-hand diamond market is not directly interrelated with price dynamics. Obviously, it is driven by other forces that are less predictable. In order to somehow evaluate them, De Beers changed its principles and entered the market of second-hand diamonds. At a minimum, this will make it possible to understand how widely consumers are willing to sell them, and whether this sector represents a threat to "original" polished diamonds.

In August 2014, De Beers established the International Institute of Diamond Valuation (IIDV) in New York, a lab for evaluating and purchasing. IIDV provides two types of services to retailers who are approached by customers wishing to sell a diamond or a jewelry piece with a Forevermark diamond. In the first case, the client refers to one of the authorized retailers, where the stone is valued on the spot and this is followed by an offer from IIDV to buy at a market price. The price deduced using the database on 100,000 diamonds is the maximum possible price for the secondary market, explained De Beers. If the customer is satisfied with the offer, the transaction is closed immediately at a jewelry store. The retailer can be both an intermediary between the client and IIDV, as well as the final buyer of the stone, if it considers the transaction attractive. The second type of service, for more expensive goods, involves sending them from a jewelry store directly to the IIDV office, where diamonds are removed from a jewelry piece and inspected using the latest De Beers technology. After several days of inspection, the client receives a price offer. Also, the client can send such a jewelry piece independently, bypassing the authorized retailers and filling out an online application.

Initially, the program was considered as a probe and was limited in volume, hence its marketing was very modest. It can be concluded that so far De Beers does not understand where the re-purchased diamonds will be sold (more precisely, the part that its authorized retailers will not buy). No matter how strategically important such a program is, it cannot work only in one direction. Perhaps this task will be solved by a special marketing campaign that stimulates the acquisition of just such stones - for example, for environmental reasons.

De Beers also motivated its involvement in this area with the need to improve consumers’ experience when they enter the sector of second-hand diamonds. “We hope that by offering fair value this will encourage other players to up their game, so the consumer experience is improved,” said Lynette Gould, who was once a spokesperson for De Beers. And this is not altruism. It is possible that the price barrier protects the diamond market from chaos, which may occur if the owners of diamonds would want to sell them en masse. But feeling disappointed, the client is unlikely to ever again think about buying jewelry. Consequently, diamond miners are directly interested in improving the liquidity of “used” diamonds. The more profitable and predictable the process of selling a used diamond by a client, the greater the demand for an original diamond. Positive consumer practices will do away with the “one-gate game” stereotype that occurs when a customer comes to a jewelry store or pawnshop and will serve as an additional source of demand for jewelry.

The only consideration that could call into question the need to be present in the market for "used" natural diamonds is the development of synthetic diamond production. To date, the industry community has not fully appreciated the effects of the lab-grown onset and the extent of possible cannibalization of the natural diamond market. One of the popular opinions is that lab-grown diamonds are a truly serious challenge and can critically change the pricing system, just as grown pearls devalued natural ones, flooding the market. In this situation, no one will care about re-purchasing natural diamonds, as well as about many other operations with them. All that remains is to work on the promotion of natural rough diamonds and, holding up your hands to heaven in the quiet of the night, ask to postpone the development of the situation in a tragic way, if possible. The other option is to deliver a preemptive strike and declassify synthetics to the level of costume jewelry. This kind of attempt was made by De Beers. We cannot yet fully assess its consequences, but most experts recognize the foresight of this initiative and consider the separation of the markets for natural and synthetic stones to be a fait accompli. So, we can hope that the re-purchasing of used diamonds is still relevant, and the issue will be solved in the coordinate system that we have today.

However, today the picture is not fundamentally different from that described by Edward Epstein. We see the same astronomical price tags on jewelry offered by branded stores, and as before, jewelry owners find themselves on the path of suffering and pain trying to sell their jewelry pieces. But there is one fundamental difference from the picture of 40 years ago - the availability of information. The main feature of the secondary market has traditionally been the opacity and lack of data on real prices of jewelry goods. With the development of digitalization and tracing, this problem will be solved, and the market will lose its similarities with the Wild West. Already, the pricing system of the Blue Nile online service is based on GIA certificates. And although so far customers wishing to sell receive second-hand price offers, which are 40-50% lower than their initial purchase price, transactions are made following a clear algorithm (perhaps needing an adjustment in terms of commissions charged by Mondiamo, the operating company) with the parties publicly fixing the price and path of a particular diamond. This is a big step forward. De Beers was also able to determine the boundaries of its own participation, focusing on the re-purchase of diamonds belonging to its Forevermark brand. If ALROSA will organize re-purchasing of diamonds tracked by the upcoming M2M platform, the “gray zone” will be reduced, and the business practice in the field of diamond buyback will begin to work for the good of the market and not against it. Owners of Tiffany’s and Cartier’s jewels are unlikely to be able to sell them close to their purchase price, but the market for basic stones, which is based on Rapaport and not on brands’ markups, is 10 times larger. Even without Tiffany and Cartier - and in some sense despite them - the key participants of the diamond pipeline have a chance to establish a full-fledged and civilized turnover of their goods, which will strengthen the credibility of the industry and protect the demand for jewelry with natural diamonds from many of today's and tomorrow’s challenges.

Igor Leikin for Rough&Polished