Rewarding investment
The trade has to re-embrace the old, though functional, selling model of efficiently passing down risk by rewarding investment in polished inventory. Selling online or just in time is not proper risk mitigation. Sightholders either have to raise prices to extract better margins from online vendors for just-in-time purchases or offer bigger discounts to volume buyers to reward them for acquiring polished risk. I suspect they would be more open to the first solution, as they have smaller margins to work with after dealing with online vendors.
As long as margins are non-existent, the model cannot be fixed by reducing prices, output, or sight allotments. This is the equivalent of a soldier bleeding from the head while pressure is applied to his abdomen. Prices have to be raised on players who do not want to assume the risk of owning goods and financially rewarding those who inject capital or liquidity. This can allow the trade sufficient capital to operate as it once did. De Beers and sightholders have to re-evaluate their vertical integration model as a potential failure and figure out how they can pass on diamond ownership risk successfully to allow a healthy flow of capital to re-enter the industry.
Isaac Mimar is CEO of MDL Diamond Merchants, a diamond house based in Toronto. A second-generation diamantaire, he has an economics and finance degree from the University of Toronto, holds a gemmology degree from Gemological Institute of America (GIA), and currently serves as treasurer of the Ontario chapter of the GIA alumni association. Mimar is also an active member of the Diamond Bourse of Canada (DBC) which is now affiliated with the World Federation of Diamond Bourses (WFDB). He can be contacted via e-mail at issac@mdldiamonds.com.
