In the light of serious changes in the diamond market throughout this year, many in the diamond industry wonder what is coming next. Rough&Polished caught up with Dror Galili, currently a partner of VJ Designs and also a former Vice President, Business Development, of Almod Diamonds, a permanent NDTC sightholder, who agreed to comment on the events.
How do long-time DTC sightholders feel and how do they see the market now in the course of major changes taking place in the industry? We mean the exit of the Oppenheimer family from De Beers, a possible privatization of ALROSA and also the intent of Rio Tinto and BHP Billiton to leave the diamond industry.
I think that the rough market worldwide is very challenging these days; sightholders are monitoring these changes and evaluate whether it will have an impact on their rough supply at viable prices. In this atmosphere of serious changes and slow economies, we see that leading diamond companies of the industry are very cautious these days in regards to purchases and manufacturing of rough.
Do you feel any changes or problems in your work? How did you work before and how does it look like now?
Nowadays, we live in a global and very competitive world with lower profit margins, rising manufacturing costs, less available bank credit and a very educated consumer. This means that differentiation, effectiveness and efficiency in our products and working processes are a must in order to maintain success. In our family-oriented industry, we would see a continuation of the shift from a “family-oriented” mentality to a “corporate-oriented” mentality in which every segment of the business is operated and measured by the highest professional criteria.
Are there any prospects for the diamond market as a whole?
I am optimistic and believe in the diamond market as a whole. In my humble opinion, even though consumer taste changes and the disposable income allocated for diamonds purchases might change from time to time based on various factors, consumers will always continue to purchase diamonds and jewelry as symbols of love, memorable moments and a way to communicate their emotions. That being said, we all must change the way we communicate a diamond and jewelry sale to a consumer; it should be about the product proposition and values of diamonds and not solely about the price.
How much has the diamond industry changed in the past two years?
In the past, there was clarity among diamond and jewelry companies’ and each player functioned in his area of expertise within the supply chain of the industry; it was healthy and profitable to all players. In recent years, due to decreasing profit margins, globalization, technology and other factors, companies expanded and still expanding their operations upstream or downstream in order to enjoy direct supply on one hand and direct sales to the end consumer on the other. Therefore, we see an increasing activity in Supply platforms such as tenders and e-tenders as well as Sales platforms such as trading networks, e-commerce.
In your opinion, what kind of challenges the diamond industry is facing lately?
I would choose two characteristics that in my opinion create challenges to companies within our industry: high debts of leading economies and easy access to information.
First, we all see the main dominant economies struggling with serious debt issues which negatively impact the banks. These leading banks are tightening their belts and in particular close or shrink their diamonds, jewelry and precious metal divisions as they view our industry as a higher risk. The inability of small, medium and sometimes even large diamond companies to receive an affordable line of credit from banks within our industry is a major problem that must be addressed with creative thinking at the higher levels of our industry.
Second, in terms of information accessibility, the customer is exposed to so much information about diamonds and jewelry that when they visit their supplier, it is much more difficult to close a sale. Therefore, I think that all of us, wholesalers and retailers, should think out of the box, be innovative, and different with our diamond value proposition; for example, create your own diamond brand, create your own appealing diamond package, sell your customer emotions and dreams instead of a commodity based solely on price. Some companies that I know are doing it in a very successful way and I encourage our other friends in the industry to do the same.
What is your personal view of current prices for rough diamonds? Is it possible to forecast prices?
I think that the rough prices are too high in the context of the global economy and what the end consumer is willing to pay for a polished diamond. Even though no one can really predict future prices, I feel that rough prices will go down.
What kind of development trends do you see for the diamond industry and market nowadays?
I believe that branding is one of the best strategies to differentiate a business or a product and provide to the consumer a real value proposition for a price provides a respectable profit margin to the seller. We should all learn from successful industries such as Clothing and Watches and apply it to diamonds and jewelry.
What was 2011 for you, and what do you expect in 2012?
2011 was a year full of challenges and changes. In terms of 2012, I expect that the stabilization of the decrease in activity in Asia and the increase of trading activity in the USA, especially after the elections in Q4 2012, will result in annual positive results for companies that will work efficiently and be ready with the right inventory for the 2012 holiday season.
How do you manage to have a successful business with the current high prices?
For few generations, our family has been a manufacturer and wholesaler of diamonds and jewelry.
Our clients enjoy our expertise, integrity, superb quality and service. We have our Design Your Own program and Fine Jewelry collection as well as tailored designs in a variety of metals to satisfy your customer needs.
Do you think diamonds could be traded as a commodity at the exchange?
The idea of establishing an Exchange mechanism for rough and/or polished diamonds that will truly reflect market prices exist for many years now, but it has been very challenging to execute it into a reality due to the many unique factors that determine a rough and/or polished diamond price. I think that the industry has to create a committee of the most professional experts to seriously discuss it and publish its conclusions for review by the diamond community as if it will be created in a wrong way, it will have a very negative impact on our industry.
Some analysts forecast that global diamond output will start shrinking by 2013. What is your take?
Like many colleagues of mine in the industry, I am noticing a decline in available commercial goods of HI colors and SI clarity, which most American consumers’ desire. Shrinkage of diamond output means another increase in price, which no one can afford in the foreseen future. This factor just strengthens the need to sell diamonds as a brand and not as a commodity.
How do you feel about the transfer of DTC to Botswana?
So far I cannot say anything, still too early to predict how this might affect whole industry or how it could affect the pricing.
In your opinion, what kind of efforts should be taken by diamond industry players to keep the diamond market in good trim? If there was something you could change or influence in the industry, what would that be?
The diamond players must insist on the existence of available banking credit to our industry that will support the operations and efforts of small and medium companies. I think that respectable organizations such as the WFDB, De Beers and other global industry organizations should lead this very important mission.
Thank you very much for this interview and I would like to wish our team, our suppliers and customers a very prosperous and successful H2 2012.
Veronica Novoselova, Rough&Polished correspondent in Italy
