Reporting From The Rapaport Conference: What Is The Future of Diamonds?
There are certain people in this world that others just listen to and trust, whether they like what they hear or not. For the stock market, there is Warren Buffett. For the world of diamonds, there's Martin Rapaport, the owner of Rapaport diamonds, publisher of an infamous price list and the irascible and brilliant voice of the state of the industry. Which is why I trekked across the desert this weekend to hear Rapaport opine on the future of the glittering stones at the JCK Show, the annual jewelry fair in Las Vegas.
This was my first time at the show since 2008 and the overall mood seemed if not jubilant, at least a bit less full-scale apocalyptic. The cautious optimism that I saw expressed by luxury executives at last month's Luxury Summit was in play at the Las Vegas jewelry shows as well. There was also a little air of pride in having weathered the economic storm and being able to still be in the game. And they are looking for opportunity, for ways to leap into the (hopefully) coming upturn. But, as Rapaport made abundantly clear, it's far from smooth sailing for jewelers, miners and others associated with the diamond industry going forward.
For something that has been marketed to the consumers as being "forever," diamonds are surprisingly volatile. Things are always changing in the diamond industry, whether it be the places stones are found, the amount of mining being done or the overall interest in diamonds. In the over ten year since De Beers released its stranglehold on the world diamond supply the industry has had to weather tough economic times.
What is the future? Rapaport looks to the new generation and up-and-coming diamond players for the future of the industry. The average age in India is around 25 which means in terms on energy and enthusiasm the country could be equivalent to the U.S. in the 1960s in terms of its desire to change the world and upset the status quo. He sees that we are current undergoing a shift, from one generation to another. While the older generation is more fearful, younger people are more willing to take changes. Also from a global perspective the wealth is shifting, the wealth has moved to India and China. Rapaport says that the future of diamonds lies in both foreign demand and foreign values. These countries that were seen primarily as suppliers in the past are now the home of new consumers. "Your competition is not across the street," said Rapaport speaking to the jewelers in the audience. He sees these changes as a possibility to do things in a different way. "The bigger the wave, the bigger the ride," he said, exhorting those who might fear change to view it as opportunity instead.
What is the new reality for diamond demand in the U.S.? Rapaport says the desire for diamonds remains strong but the overall uncertainty remains. Part of that is the continued high unemployment which is looking like it won't change any time soon. People have lost confidence in themselves, in their jobs, in their real estate and all that anxiety can translate into fewer sales. He also sees that the rules of the game will change once interest rates change and an industry that relies heavily on loans will start to feel the pinch. Are diamonds still a store of value? Rapaport's numbers show that larger stones have kept their value, and remain relatively scarce on the open market. But the question remains, can diamonds be commodified the way gold is? Can the diamond offer the same sort of security to those looking for a safe place to put their money?
Rapaport encouraged jewelers to buy back diamonds saying that resale is the biggest market right now and one that could be increasing. He believes that its important for jewelers to buy back diamonds (at a fair price) partly to continue the idea that diamonds are a good investment and that diamonds are another form of security. Diamonds represent both financial and emotional security. He joked that more diamonds are coming out of Florida than South Africa as older women sell off their stones. On this site we've already seen a few companies move into the "we buy diamonds" market. It's riskier than gold simply because diamonds vary greatly in terms of price and because of issues of quality and grading. I'll be discussing more about grading after the Rapaport conference on diamond grading. There are some deep concerns in the industry over the quality of some reports and this is a serious issue for diamond-buying consumers to be aware of.
Rapaport, for all his brilliance, is a little outmoded when it comes to what he thinks women want when it comes to diamonds. He said that women want "all men to suffer" when it comes to buying diamonds. As he sees it different women may want different types of stones whether they be from Tiffany & Co. or Blue Nile but that the essential relationship between a man buying a woman a diamond remains at the cornerstone of the diamond experience. He seemed to shrug off the idea that women are doing any significant diamond buying for themselves. While he seems keen to point out that women value diamonds he doesn't seem to acknowledge that female buying power independent of men is a significant factor in the market and one that will be more important going forward.
Rapaport came out strong against the situation in Zimbabwe. He pointed out that some at the Las Vegas shows are selling stones from the Marange fields. The situation there is complicated and the conflict diamond governing board, the Kimberley Process has been slow to move in even though there have been many reports of soldiers beating and raping artisan miners making these, if not conflict stones, certainly stones with an undesirable provenance. Mincing no words he said that "the Kimberley Process is full of shit" and that they don't know what they are doing. As he sees it, jewelers should be able to stand by their stones and what they represent. I'll be writing more about this issue later on a piece on Rapaport's Fair Trade Jewelry Conference.