How managing risk could help turn the diamond industry around
By Isaac Mimar
Much has been written and debated among the trade about the current troubles facing the diamond industry. Not a day goes by we are not bombarded with headlines about the high price of rough or theories on how to make selling diamonds profitable again.
Members at all levels of the pipeline have offered various opinions regarding a solution. Most have merit to some extent or another. Without a doubt, unravelling the issue is complex and coming up with viable solutions is equally challenging, to say the least. Expert opinions range from the importance of creating a generic marketing campaign to increase consumer demand to changing how goods are sold (i.e. auction versus sight).
I propose, however, that the industry remains in its current state of crisis because no one is investing in diamonds. What do I mean by this? Well, for the past decade, retailers and wholesalers have been divesting from diamonds by buying and holding inventory for which there is consumer demand. Their thinking is reasonable. By diverting capital that was once used to buy diamonds and investing it in branded products consumers are actually purchasing, they are able to enjoy better margins and bigger profits. Capital is mobile, but this practice is at the centre of the challenges the diamond industry is currently facing. If a retailer or wholesaler cannot make money on diamonds, they have no reason to invest in them. In other words, why buy and hold product that ties up much-needed capital?
