Diamonds4U was founded in 2000 by Chichota’s family which started their business buying rough diamonds from African countries. The company was involved in manufacturing in Israel and Asia trading directly to retailers. Diamonds4U has one office in Belgium and one office in Italy, which is the main market for them. The company is dealing with diamonds from 0.01 ct to 10 ct of any shape, color and clarity. Today, it is proud to have more than 1,000 clients over the world. Diamonds4U has always been trying to satisfy their customers offering accurate service. At the Fiera di Vicenza our correspondent in Italy had a chance to talk to Arik Chichota, the young and positive director of the company.
How has the diamond industry changed in the past two years?
In the past two years we have seen ever more technology involved in manufacturing, managing and marketing (e-commerce).
The competition for rough is turning more and more difficult. American buyers are not anymore leading the market. Asia led by China has become the most important market.
We see more triple ex GIA in the market with a very high premium, more than normal VG make.
Prices for small goods have increased like never before.
India has also turned a very big market helping Indian traders to have profits based on very good demand for J,K,L,M and cape goods.
What are the strong challenges recently facing the diamond industry? What is the state of the diamond market today?
In my opinion, the diamond industry is facing two major challenges: dealing with higher prices and competing with India.
High prices for rough are driving polished prices up to the sky and diamonds have never been so expensive. So, what at the first glance was a huge difficulty to pay higher prices to be a competitive buyer now becomes an opportunity to enjoy the increase of your stock value month after month.
As for competing with the Indian diamond industry, I should say it is possible. In the past years, we could observe the Indians taking over the manufacturing and trading sectors and succeeding in their strategy to overpay for rough. However, everybody who is going to India to buy sees how expensive their goods are and indeed they can’t be cheap. We saw what they paid for their rough, so they can’t make any magic. They believed in and bet on diamonds. We have to believe in diamonds too, branding and producing original ideas for our industry.
How do you manage to have a successful business with the current rise in prices?
The diamond industry is led by an oligopoly: De Beers, ALROSA, BHP Billiton and others are controlling the supply of rough diamonds. In 2008, when prices were falling due to the financial crisis, they stopped production, causing diamonds to go higher in their price. Because the rise in prices was global and constant, the initial resistance of clients to buy diamonds at high price generated a stimulus to invest and believe in the industry, as those who were waiting to purchase goods realized that it was an uptrend and that prices were increasing on a monthly basis. Even the clients that were working on memo terms turned eager to own diamonds and decided to buy. The conclusion is that the rise in prices was very good for the industry in general. In my opinion, there is no limit for diamond prices; diamond is an inelastic product, because it is rare and unique and there is no substitute for it. Attention, that doesn’t mean that the industry will move from USD 60 bn/year to USD 100 bn/year. What I am saying is that even with higher prices the industry will maintain the volume around USD 60 bn/year. What will probably happen is that the buyer will go for smaller or lower quality goods, keeping the same budget. On top of it, as we are talking about a luxury product, the more expensive it is, the more exclusive it is. To increase the total volume we have to invest in marketing.
What do you think, how can we avoid price fluctuations?
The industry should give sources and advantages to companies that are distributing directly to retailers. This is the only way to feel the market, from mine to fingers. It is dangerous when goods go from dealer to dealer because if they hold stock, prices may increase artificially. Or the opposite, if goods don’t reach final consumers, prices may drop. For example, 1 carat D IF in the 1980s reached USD/ct 60,000. This happened only because diamonds were traded between dealers and traders, but the public never accepted such a high price. In fact, the circle of speculation could not be closed without the end consumer, so one day prices dropped dramatically and never recovered up to now. The current price for 1 carat D IF is still USD 29,000.
Who can stabilize prices generally?
The whole chain should be committed to stabilizing prices. In my opinion, all of us should have a positive attitude, believing in the industry and not letting it go faced with the first price decrease, trying to take preventive and scientific measures to adjust supply to demand. For example, in 2008 supply should have been adjusted before prices dropped dramatically. That could have been done easily controlling supply for a few months avoiding the need to stop production after the crisis reached the diamond industry as a whole.
In addition to that, if we observe that public demand is decreasing, we should stimulate demand. The whole industry saw how good it was to be backed by the generic advertising run by De Beers. I think all the oligopoly should be constantly committed to that.
What kind of diamonds are in greatest demand now by color, clarity, carat and cut?
Round 0.30 – 0.90 F,G,H VS, GIA, HRD, IGI from excellent to good.
Do you work with investment diamonds? What is the demand for investment diamonds today?
Even though diamonds have been treasured since ancient times, they are not normally seen as an investment or store of value. Why, if world production tends to decline and prospects to find new mines are slim? If there is a growth perspective in the middle class in emerging nations, which will probably push for a higher diamond demand? Isn’t it obvious there is a potential of price increase in the long term? For the past 10 years some diamonds generated a 100% increase in price.
Personally, I see enormous upside potential for diamonds, also due to their uniqueness, rarity, and price inelasticity. Higher prices do not mean less sales, as there is almost no substitute for diamonds in the world.
Diamonds are a girl's best friend and one of the only luxury products that do not depreciate over time and use. If we buy a luxury brand handbag, it will be worth half the price we paid for the new one, just a few days later.
In addition to that, in times of hyperinflation or financial uncertainty, diamonds could be especially attractive, when credibility in the financial system is the main concern of investors. It is better to hold a diamond than certain shares or bonds of companies which can go bankrupt or on default in a few months. Not to mention the fact that a diamond can be easily transported and used by your wife until the moment you decide to sell it.
Still, even with these advantages we have three problems to solve to make diamonds be viewed as a safe long term investment and follow the performance of gold: fungibility, liquidity and a large spread between dealers and public.
Let's start with the easiest one, which in my opinion may be solved by way of increasing the certified diamond market. Fungibility, which is a property presented in most of the commodities, like wheat, gold, silver, oil or currencies, means that one unity of goods can be fully replaced by another unity, i.e. if someone is to give you a 10 euro bill he or she may choose to give you one of many 10 euro bills, because all 10 euro bills are the same.
Since grading and certification by internationally recognized laboratories are available, I do not see fungibility as a barrier for diamond investors, i.e. a one carat, round brilliant cut, D, IF, ex, ex, ex, none, can be replaced by another stone with the same characteristics.
Liquidity is the major problem, and to overcome that and boost the demand for diamonds as an investment, we need some help from the diamond industry and support from banks.
For all the reasons above mentioned and diversification purposes, I know some large private banks which are offering physical diamonds as an alternative for traditional investments.
That could be a great opportunity for the diamond industry to reduce the lack of liquidity and provide private investors with a possibility of having direct exposure to diamonds.
The oligopoly should make a joint effort to set up a kind of a fund for investors who want to invest in certified polished diamonds.
I could imagine a "basket of stones" ranging from smaller, more commercial and more liquid goods, to large, high graded and unique diamonds which tend to present a higher upside potential in the long term.
The fund could comply with liquidity rules similar to a hedge fund, for instance having a minimum lock up period, when investors are not to sell before a certain period, and/or special redemption conditions, i.e. previously specified dates to exit the fund, or even a possibility of cash redemption or diamond redemption, that is if investors decide to sell they may choose whether they want cash or physical diamonds.
The major task of the oligopoly would be to provide liquidity to the fund, guaranteeing the redemption at a current market price for the "diamond basket".
Liquidity being provided, the spread between dealer and retailer prices should naturally narrow and, even keeping the margin of let's say 20%, it would still remain a very attractive investment in the long run.
The opportunity is here, now it's up to the diamond industry to make it possible and attractive for private investors.
What guarantees do you provide for diamonds sold to your customers?
First of all, we guarantee that our diamonds are conflict free and that they comply with the best practices and principles of DTC (high life standard for manufacturing workers, no child labor, etc.)
Regarding the quality, we are specialized in certified diamonds. We sell goods certified by the three major gemological institutes: GIA, HRD and IGI.
Also the price that a client pays is a guarantee devoid of speculation, since we have an automatic pricing system that considers all the parameter of a cert stone, including the laboratory, make, polish, symmetry, florescence, color and clarity upgrade, as well as color and clarity downgrade.
In what countries is you company operating? Who are your major consumers?
Europe and Dubai. We are developing other markets like Asia and trying to brand the diamonds we sell. I really wish I could develop investment diamonds, I really see a huge potential in that.
Have you tried to enter the Russian market?
No, but I really would like to enter the Russian market by selling polished goods and get a source for rough.
What diamond producing areas in the world are the most promising, in your opinion?
Angola, Zimbabwe (not sure yet), Russia and DRC.
What would you like to change in the global diamond sector?
Up to now, the diamond industry was not able to market its products in a broader way. We have not developed a market for diamonds independently from jewelry. We are all aware that the end customer will buy a diamond to make a jewelry piece. However, it is logical for me that diamonds should be the focus of jewelry and not the other way around. What I mean is that the client should be able to choose his/her diamond and then set it in a piece of jewelry of his/her choice. And this type of choice is offered just now by a few jewelry brands, like Cartier. Jewelry should be a way of selling diamonds and not the final target.
We all see the poor results presented by the jewelry brands of sightholders. That happens because they have been looking for a way to reach the public, but the truth is that diamonds and jewelry are two different businesses.
Imagine the power of all sightholders together marketing diamonds instead of jewelry? Maybe, Forevermark is a start and maybe diamond investments will be the future.
Veronica Novoselova, Rough&Polished, from Vicenza
