Without question: Is the industry becoming complacent?

by charlene_voisin | October 1, 2014 9:00 am

By Hemdeep Patel

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Earlier this year, I had the opportunity to visit my daughter’s Grade 4 class to make a brief presentation on gemmology, as well as the gemstone and diamond industries. It was meant to be part of their geology studies, which they were studying at the time, and so the principle focus of my talk revolved around some of the core foundations of our industry.

In order to prepare, I jotted down basic facts regarding how gemstones and diamonds are mined and cut, as well as some of the interesting features of a few varieties. With information in hand, I felt quite prepared to educate this group of nine-year-olds on the finer points of our industry.

As the students listened to my presentation, I found myself fielding a wide range of ‘why’ questions. Why are the months of the year assigned a specific birthstone? Why are some gemstones given certain names? Now these questions led me to think of those we ask within our industry about how things are done. Though many of us have a fairly good understanding of the jewellery marketplace, I think we have entered a stage in the rapid growth of the industry where we have stopped asking some ‘why’ questions and accepted issues and trends as the new norm. And in some cases, we have refrained from asking questions entirely.

Critical questions may not have quick or easy answers, but rest assured they have to be thought about in a meaningful way, as they can have a direct impact on the success and health of our industry and by extension, your business. The most unique feature of the jewellery industry is that many wide-ranging global and local factors and trends affect the marketplace, such as how the changing price of rough diamonds or gemstones at the mining level impacts the price of polished stones; likewise, the surge in the price of gold over the last five years. Consider also how many jewellers use social media to increase their brand awareness. This is one industry where a knowledgeable member can be well-prepared to make wise choices for their business.

Up for interpretation

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Since joining the industry full-time 20 years ago, the question of standardization of diamond grading amongst all laboratories has been one for which I have struggled to find an easy answer. Though I understand the grading policies of laboratories vary, hence the differences in grading results, the idea the industry can use the same grading language and scales to describe very different looking stones has never sat well with me. To someone on the outside looking in, they would have a tough time accepting our grading scales as logical. Rather, laboratories might suggest that grading terms are only loose suggestions of what the grades could be and perhaps the grades of three labs might be needed to average out the results for any particular stone.

To some, this may seem time-consuming and expensive. However, consider the cost of a report might be anywhere from less than one per cent to three per cent that of the average diamond sold as a centre for an engagement ring. In addition, since many of the leading gemmological laboratories are located in major cutting centres, the impact on time might be insignificant. Of course, that is not to say many stones are already shipped to multiple laboratories to obtain the best grade possible to maximize the bottom line.

As a consumer, I know I would have a hard time accepting a salesperson’s explanation of how the value or grade of any particular item they are offering for sale can be up for interpretation and is subjective in nature. And if the item for sale costs thousands, if not tens of thousands of dollars, I would tread lightly into a scenario where the selling price was based on a single grader’s subjective evaluation and would expect to be shown the merits beyond the report.

 Getting a grip on the grading gap

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Gemmological diamond reports and jewellery appraisals continue to play an important role in our industry, since they are the key methods in which grades are presented to customers. As the number of laboratories increase, the various grading methodologies and techniques are creating deviations from the traditional grading scale. Diamonds that were once graded as VS2 from one laboratory are now graded as VS1 from another. And now SI2-graded stones comprise what would have traditionally been I1 diamonds. The loosening of grading scales has filtered down from the laboratories and through the diamond supply chain, as people have found the easiest way to keep profits intact is to widen the grading scale.

The information provided by these gemmological reports is then presented to consumers in one of three methods. One group of retailers sells diamonds by allowing customers to inspect the stone with the use of a loupe or microscope while showing them the gemmological report to interpret the details. This sales method allows the client to see how what they viewed through the microscope or loupe relates to the lab’s findings. Even though many retailers are not set up for this level of sales support, those jewellers who are able to provide it find they are able to close deals with even the most skeptical of buyers. In other words, each diamond is being sold on its merits, as well as on the report that accompanies it.

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Alternatively, there are other retailers who do not provide this level of sales support and find there is still enough business to be successful. They are able to do so as there is a significant segment of buyers that is not interested in the way a diamond is graded, but rather is focused on buying a stone of a particular set of grades at the lowest price. By accessing the large network of available diamond reports, these retailers can find a suitable stone for their clients.

The final method encompasses a whole host of well-established e-tailers providing a massive virtual inventory of discounted GIA-graded diamonds i.e. stones that can’t be inspected, but are bought on the basis of a report containing findings, language, and diagrams that consumers usually find foreign and without any context. Here again, the sale is made on the basis of price, without context or useful explanation. In fact, consumers likely rank all the stones by price and simply purchase the least expensive one.

All three kinds of retailers have found themselves at a crossroads of what the next step should be. Many brick-and-mortar storeowners are re-evaluating the business of buying and holding diamond inventory, with some preferring to order stones on memo whenever there is a potential sale. Others find selling a diamond with a misstated grading report is key to keeping them afloat and in business.

Those retailers who have built their business on a full sales support-buying experience have continued to push forward and have found customers appreciate the added expertise and are willing to pay the premium. Yet, there remains increased competition with e-tailers, and as technology improves, frustration may increase. My belief is they will adopt technology that allows consumers to view the actual stone online, including all its grading characteristics. This is just another question brick-and-mortar retailers will have to address at some point and counteract. How that will happen is something we should all start thinking about now.

Progress on some fronts

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Undisclosed synthetic diamonds is another issue the industry, and in particular, gemmologists, need to get a handle on. In an article I wrote on the subject in the December 2011 issue of Jewellery Business, one of the key issues I touched upon made headlines throughout the trade in 2012—a large number of .30-point lab-grown diamonds without identifying laser inscriptions were discovered at two IGI laboratories. Although these labs were well-equipped and able to identify the stones, I can confidently say many more undisclosed stones have made their way into the stream carrying diamond reports from laboratories without the expertise to make these types of identification. To complicate matters, the per-stone manufacturing cost of synthetics is decreasing to the point where it is cost-effective to produce man-made diamonds as small as one point.

Over the last couple of years, there has been a concerted effort on the part of gemmological labs to build a simple methodology of identifying synthetics, as well as companies producing machines with which to flag potential lab-grown stones. Where does this leave the jewellery industry as a whole? How can a business strengthen and protect its brand from unknowingly misrepresenting a synthetic as a natural diamond? The answer lies in the people with which you deal and in the insistence on asking questions, such as are the diamonds offered for sale graded by GIA or a comparable laboratory that has experience in identifying synthetics? Are the businesses you deal with knowledgeable about synthetics and have they made efforts in investing and protecting their brand from misrepresentation?

Even though legitimate synthetic diamond manufacturers have still not yet found their stride in selling their product to a global audience, they continue to rely on marketing schemes that highlight lab-growns as eco-friendly, non-conflict, and exact in every way to their natural counterpart except in price. While this line of reasoning has not yet resonated with consumers on a large scale, I believe they will become very aware in the next decade of the carbon footprint the diamond industry leaves behind and be open to accepting the alternative to what has been a norm for the last 100 years. At that time, the natural diamond industry may have to work toward marketing their product beyond simply romanticizing the billions of years it takes to create them.

Progress is only made by asking tough questions and working toward concrete solutions. However, given the complexity of the jewellery industry and opposing goals, finding answers is not always easy. Doing nothing, however, is not an option.

[6]Hemdeep Patel is head of marketing and product development of Toronto-based HKD Diamond Laboratories Canada, an advanced gemstone and diamond laboratory with locations in Bangkok, Thailand, and Mumbai, India. He also leads Creative CADworks, a 3D CAD jewellery design and production firm. Holding a B.Sc. in physics and astronomy, Patel is a third-generation member of the jewellery industry, a graduate gemmologist, and vice-president of the Ontario chapter of the GIA alumni association. Patel can be contacted via e-mail at hemdeep@hkdlab.ca[7] or sales@creativecadworks.ca[8].

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