The Diamond Supply Crisis

A couple of weeks ago, while working with one of our jewelers in California, is asked him, how many premium and ideal certified diamonds he had in his box? To which he replied sheepishly…”maybe 20?”. I asked him, ” how can we dominate the diamond business without a dominant inventory?” The answer is now and always has been…you can’t.  He agreed of course, but to be fair, he’s not alone. Most jewelers have very few diamonds actually in stock, ready to show a customer. There are many reasons, which I will get to in a minute, but this diamond supply crisis is a real opportunity for those jewelers who are smart enough to take action.

How did we get here?

My jeweler had a long standing relationship with an excellent LA diamond supplier who kept his box full of both purchased and memo goods, but that supplier like so many had closed up shop. Just a few years ago, LA was a significant diamond distribution hub for the trade. Even east coast jewelers often did business with LA suppliers because they could call for a diamond after 6pm and still have it the next day thanks to the time zone difference and FedEx. Not so much anymore. Most of that production moved to the Far East & China as that market has exploded over the last 5 years. You want to know where the diamonds went just follow the money. As the US economy went into a tailspin, China kept right on growing.

The second thing that happened is that downturn in the US lead to an explosion in the gold buying market, and with it the “legacy” diamond market. Rising rough prices created a secondary market for used diamonds, or as I call them “legacy diamonds” and smart retailers jumped in. Stores who were strong gold and estate buyers were suddenly awash in pre-owned diamonds, creating profit margins that literally saved many of them. In 2009, 2010, & 2011 many stores were doing 30-50% of their gross volume and ALL of their profit in gold buying and legacy diamonds. This wave of legacy supply further squeezed US diamond suppliers as their clients bought less and less new production.

Add all of this to the fact that over the last decade, on line diamond selling had taken it’s toll on retailers ability to buy and stock diamonds. It makes no sense to buy a diamond for stock when retail prices are falling and any consumer can go on line and pay almost wholesale for the same stone. To a great degree, the trade screwed themselves trying to beat each other and their own retailers, directly to the consumer through the web. Keep in mind, on line diamond retailers had to stock nothing! They were given the keys to the trade’s inventory and went about destroying the value of the very product they sold. And who had worked for decades to establish that value…hard working, independent retail jewelers!

We need each other

This leads us to the current supply crisis and the opportunity it presents. The trade has been squeezed but so have the retailers. As Gold buying has slowed the legacy diamond business has also. While the legacy business is certainly here to stay for retailers, you’re not really a player in the car business with just a used car lot are you Bubba. Independent jewelers are starting to wake up and realize they need a strong wholesale diamond source if they are going to remain a serious diamond retailer. Diamond Suppliers to are realizing that the grass isn’t always greener as well. China growth is slowing and so are online diamond sales. The real business in America is still done at retail and almost all the better goods are still sold in higher end, independent jewelers. There are smart international diamond suppliers refocusing on the US market and smart jewelers are starting to realize they will only have a bright future with a strong wholesale partner.

It’s time to get serious

Now is the time to look at your diamond business and realize that only the smart players, those with strong wholesale partners and a full diamond wallet are going to succeed going forward. The spread between web prices and retail have narrowed and the sum of the bridal business’s parts is still worth the work and investment. Our strong bridal stores all do 1/3 or more of their total business diamond engagement rings and wedding bands and it’s a year around business. Without a strong dance partner, it’s going to be very tough to stay out on the dance floor. You must have it all…ideal cuts, average makes, depth in sizes, various quality levels and price points to hit every possible customer. You’re not going to do it with 20 stones in your box. It’s time to get serious. Now is the time to look long and hard at your diamond supply chain and find a partner who will invest in you as you invest in him. There is new leadership emerging in the trade and it’s critical that you are working with a partner who has deep pockets, tons of goods and the capacity to help you to dominate your market. More consolidation is ahead and believe me, only the strong, market dominant retailers will survive.

Let’s give them the truth

As a marketing guy I can tell you, the greatest advertising message is the truth. Consumers know very quickly when the promise of an advertiser is all hot air. The word gets out. If however great expectations are promised and then met, customer by customer, that firm becomes THE store to do business with and real growth starts. Keep delivering on those great expectations and a legend is born. The point is, you will never grow with empty promises. You must actually BE better. You must be the best place to buy a diamond in your market. You must have the right stock, the right partners, the right pricing, a great, focus diamond sales team and a company wide focus on winning every heart and mind. Give me that….and my job, selling you, is the easiest job in the world!