Market NewsCommentIs history repeating itself?

Is history repeating itself?

By Gillian Arnold.

It isn’t really amazing that the end consumer, not to mention the diamond market in general, is confused - especially regarding quality and price relativity, what’s a fair deal and what isn’t.

One of the major contributing factors to this confusion is the intense competition within the market, at every level, from diamantaire, diamantaire-turned jewellery manufacturer, the mall or high street chains competing with Wal-Mart, and with internet retailers now selling sizeable quantities of diamond rings.

The most confusion is caused by the varying levels of pricing to the end consumer, resulting from the many role changes taking place in the market, but perhaps the greatest confusion results from ultra-competition amongst diamantaires, who seem willing to buy market penetration at any cost!

I have never been able to understand how the oil cartel can work so successfully, while instead, when translating this concept to diamonds, it would seem it can’t work. Every time I think about this, it brings back to mind what I saw happening in the gold chain business in the early 90s, a business I was involved for almost a decade.

Automatic gold chain, and let’s call it a commodity since the way it is sold nowadays, is basically fine gold plus labour. This is true of Italian & Turkish factories, it is true of the wholesaler, and it is true for QVC and Television Home Shopping, which I believe started the demise of gold being viewed as jewellery, and instead turned gold jewellery into a commodity.

It is not the commodity issue which bothers me so much. It is the fact that I am seeing history repeat itself and not for the better.

In the early nineties, gold chain in Italy was still a reasonable business to be in.

Labour was reasonable, usually in old Italian lira around 2,500 lira (US$1.50) a gram. There are not a lot of big gold chain manufacturers in Italy because to stay in business requires huge investments in technology and work-in-process fine gold to keep the huge machine of sales going. 

Chains had to be lighter, more durable, fancier patterns applied to the old staid herringbone chain etc., but despite the fact that this small group used to meet regularly to discuss pricing, using a gentleman’s agreement as the basis, none of them really honoured the price agreements, and it is true to say that every manufacturer would undercut another to get the business.

Gradually, the prices eroded until finally, one could find labour prices at 400 lira a gram. At this price, one could not make any money, especially since these makers had become the bank for their customers who only transferred gold at the time of shipment. 

One of the more enterprising Italian chain makers went off to Malta because at the time, Malta benefited from GSP, i.e. no duty into the States, and so that manufacturer could ask for 1,800 lira a gram, because the no duty preference treatment allowed both the buyer to have a financial reward, and the chain maker could make a reasonable margin.

Today, most of the chain business has moved offshore, to Turkey and to other countries with GSP arrangements with the US, the largest market and Vicenza, once the capital of gold has seen its industry halved.

I have been a manufacturer of diamond jewellery in Italy for seven years. I also had distribution into 117 stores in the US. My jewellery sold through very well despite the fact that labour in Italy costs much more, but it is also true to say that the quality I produced would pass anyone’s quality control, even someone as stringent as Tiffany.

But to continue producing in Italy was not to be, because being that so much of the competitive product within my distribution was produced in Hong Kong, China and Thailand, my client wanted my designs produced in China!

A large part of the diamond industry has moved to China and India, for cutting and polishing, and for 'jewellery' production since even Thailand and Hong Kong have become expensive, but I would ask you, where do we go after China for better prices and where does the Mall or High Street retailer go, after they have lowered the status quo on jewellery?

I believe it is time to learn something from history, and time to look at more than just price under-cutting to gain market penetration. 

Diamonds used to mean something more than just making it accessible to everyone at the lowest price. Where is the logic? Nobody wins this way!

Gillian Arnold is Harvard Business School Graduate who started her career in Retail 30 years ago. Gillian was a diamond jewellery manufacturer in Valenza in Northern Italy for 7 years with worldwide distribution, and an award-winning designer of diamond fashion. She began her marketing career in Luxury Branding working as president of Karl Lagerfeld. Gillian was also the founder & owner of Carolina Herrera Bijoux.  Most recently she designed exclusively for Bailey Banks, and today is an independent consultant to the diamond industry living in Rome.

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