The #Diamond Family is Dysfunction

De Beers rough sales totaled $520 million in May and $530 million in June. Alrosa has sold rough totaling 2.5 billion over the first half of this year. In May rough prices rose about 3.5% and in June 2.5%. In the same two month period, polished diamond prices declined. Diamond manufacturers are suffering with poor sales and meager profit. Diamonds did not perform well in the Las Vegas or Hong Kong shows. Idex reports that improvements in the diamond trade have petered out since the start of 2017.

According to recent reports global rough diamond production will increase by 9 percent in 2017. Rough and Polished analysts predict that, “industry is likely to prevent rough prices from dropping substantially. Instead, the mining companies will find different ways to avoid lowering their prices.” Diamond miners will keep rough prices high.  

The diamond pipeline is dysfunctional. Miners have a primary obligation to their shareholders. The overall health of their downstream partners is of secondary concern. There is too much rough production, prices are too high and polished prices are unable to keep up. Diamond manufacturers are surviving by opening new channels of distribution. It may be said that this situation is the natural progression of disruption and is apparent in all business but I see the diamond industry as a more unique case study.

The large diamond mining companies are the industry disruptors. They are infiltrating every level of the diamond pipeline. They sell polished diamonds via online auction. They are retailers. They brand loose diamonds and finished jewellery. They own laboratories. They list on commodity exchanges. They sell diamond detection equipment. They sell rough to manufactures and they buy used diamonds off the street. They are seeking to invest in new ventures inside and outside of the diamond trade. There is very little that they won’t do.

Diamond cutters are suffering. They are resorting to cannibalizing their clientele. The Israeli Diamond Exchange has instituted dedicated offices to assist members in cutting the throats of their traditional customers. They train members to sell direct to end users. They provide computers, 360 degree cameras and expert e-commerce advice.

Corporate mining employees are not interested in the long term health of the industry. They are interested in immediate and measurable results and a quick promotion. Dominion Diamond Corporation employees are responsible for an exclusive contract between CanadaMark and e-commerce jewellery retailer James Allen. Selling direct to the public depreciates diamond worth. Retail diamond prices fall. Miners and manufacturers are eroding retail diamond prices and will soon end up with the same profit they made before disrupting the market... but more important, with the unfortunate side effect of permanently damaging diamond worth and perception along the way.

It is said that a business is like a baby... neither a baby nor a business can care for itself. It is the obligation of a parent not to let harm come to a baby and it is the obligation of a business owner not to let harm come to their business. Those participating in the diamond business are negligent to allow the worth and perception of diamonds to depreciate. This is happening and the diamond family is in need of an immediate intervention!

The diamond family is dysfunctional. Mining companies and manufacturers are focusing on Internet sales. Eliminating the middleman is the name of the game. They feel that the traditional ambassadors of diamonds, the brick and mortar jewellers, are superfluous. The physical encounter ‘the touch and feel of luxury’ is not needed. The diamond industry, unlike all other luxury products, wants to commoditize.  Emotion and luxury is to be replaced by price and a diamond report.

Barbara Thau of Forbes Magazine could act as a therapist for the beleaguered diamond family. She says that, “To say that digital commerce is killing off physical stores is lazy thinking and a half-truth. On the contrary, pure play online shopping is the imperiled model, evidenced by the lack of e-commerce-only retailers...that have gained any meaningful heft and influence... The spate of retail bankruptcies, store closings and liquidations...reflect a mixed brew of factors, including a vastly overstored retail landscape.” Studies show that 70% of Millennials and 77% of generation Z prefer shopping at brick and mortar retail stores. Meanwhile, diamond mining companies and diamond cutters are making it their business to eliminate their partners in brick and mortar jewellery stores. They are throwing the baby out with the bath water!