Could the group buying trend sweeping the retail buying market around the world be the trend of the future for the diamond industry? According to Antwerp Facets, with rough and diamond prices having risen rapidly – around 30-40 percent since the start of this year alone – diamond firms may find that it makes sense to band together in order to secure discounts on diamond purchases – or even simply to be able to ensure a supply of goods at all.
The most famous example of group buying is Groupon, the less than three-year-old phenomenon which currently is planning to raise $750 million via an Initial Public Offering, Antwerp Facets says. Online daily deals, a business pioneered by Groupon in 2009, are now delivered by 345 sites and estimated by industry tracking bodies to account for about $133 million in revenue in top North American markets.
Meanwhile, LivingSocial, the second-largest website dealing in daily coupons, is planning a $1 billion IPO. Many similar such companies selling group-discount coupons with expiration dates just days, and often hours, away have sprung up in countries across the world.
Retail industry experts say the trend is a direct outcome of the global financial crisis that struck in 2008. And with the economic recovery in the United States and many European countries proving to be fragile, analysts expect the popularity of the sites to grow further. For retailers, there is also a clear advantage. Rather than selling to individual buyers, they can sell tens and even hundreds of the same product by offering a reduction in price.
The diamond industry has not been slow in adopting the group-buying approach. The Surat Rough Diamond Sourcing (India) Limited (SRDSIL) was established for the purpose of sourcing rough diamonds for its members – diamond manufacturers in the polishing centre of Surat, several hours from Mumbai.
The body initially was established to import diamonds from Zimbabwe and signed a $1.2 billion agreement with Zimbabwe for the supply of a steady supply of rough goods in exchanging for providing training in diamond manufacturing for 1,000 Zimbabweans workers. But with the Kimberley Process still not having reached consensus over exports from Zimbabwe’s Marange diamond fields, the group is reportedly looking at other alternatives.
A look at the number of diamonds being processed in Surat show potential for a buying system that offers manufacturers a means bringing large amounts of rough goods into the city. According to India’s Gems and Jewellery Export Promotion Council (GJEPC), rough diamonds worth $11 billion were imported to Surat via Mumbai in fiscal year 2010-11, a 31-percent rise on the previous year.
"In theory, group buying sounds good due to the discounts it might be possible to receive," said an Antwerp diamantaire. "In practice, though, companies might not be willing to commit to it because they will presumably have to share company information. They will have to say how many goods of a certain kind they want and how much they are willing to pay. This is the type of proprietary information that you do not want anyone else to know – and certainly not your competitors."
“The sellers of goods have the upper hand; it's a seller's market,” the diamantaire said. Diamond and jewellery manufacturers, wholesalers and retailers all have to pay higher prices; they have little choice. So, the question is, would a group of buyers have much bargaining power? I am very sceptical about this because the market is really over-heated.”
But group buying could aid smaller and medium-sized companies in the rough diamond market, who traditionally have felt themselves at a disadvantage because they lack critical mass. Indeed, buyers groups with sufficient capital resources could obtain larger quantities of rough, and then lock them in at prices that would have been impossible to obtain if the smaller companies were buying the goods in smaller amounts and over a longer period of time.
Group buying is not an entirely new concept in the jewellery industry. The Independent Jewelers Organization (IJO), which was established in 1972, claims it is the largest such buying group in the world. Starting with 52 members, the company's membership has grown to almost 850 stores and 200 manufacturers worldwide. IJO said it enables its members to buy polished goods directly through their offices in Antwerp.
Group purchasing power allows its members to pass on savings to customers, the group says, while members receive benefits such as expert training, allowing them to update their knowledge, skills and experience to help the consumer make a confident jewellery purchase. IJO President and CEO Jeff Roberts says his retail jewellery members have combined sales of just over $1 billion annually, giving an indication of the amount of business the group conducts.
Roberts says his members are to be found across the United States and around 20 are in Canada. He says he only allows one jeweller per town to be a member in order to provide exclusivity. Although the main benefit for members is to reduce costs by purchasing via the buying group.
Another American jewellery buying group is the Continental Buying Group (CBG) with almost 100 members who have 300 retail jewellery outlets and annual sales volume of more than $400 million wholesale, and $1 billion at the retail level. It describes its aims as to negotiate the lowest possible prices, loose diamond volume rebates, and acting as office readily available for any special requests or hard to find diamonds. Its staff travels to a range of jewellery trade shows looking for new sources of goods, and are able to deliver diamonds directly to members' stores.
Meanwhile, in Australia, a company called Leading Edge Jewellers has been active for the past eight years and has around 140 members in its buying group. It says that the advantages for members include higher sales, margins and profits, while improving management skills and productivity and the benefits of networking. In addition, benefits can also include business insurance, consumer finance, credit card merchant rates, freight removals, shop fitting, design and shop security, and even stationery supplies and telephone rates.
Group buying is not just in the business-to-business sphere, however, since Groupon, and other similar companies, are business-to-consumer enterprises. And at the consumer level, the concept of selling diamond jewellery to consumers raises the issue of whether such sales will act to damage the industry by taking the romance and emotion out of jewellery buying. "I have criticized jewellers for price-based promotions because they erode margins and cheapen the product, so I do not think that discount buying is the right way to go," said diamond jewellery analyst Ken Gassman. "But Americans are always looking for a deal, so this might be one more way of reaching customers which is not necessarily a bad thing."
On the other hand, such sales enable companies to sell jewellery firms to sell goods that they might be left with and which they wish to move on in order to allow them to bring in new stock. Consequently, they receive a financial boost by selling goods and being in a position to refresh their inventory. Similarly, diamond producers and companies may see group selling as a way to offload certain diamonds that would give them a better price than they would secure by selling them to wholesalers, said Gassman.
"As with many aspects of the jewellery business, we are seeing constant changes. Less than a decade ago, it was claimed that Internet sales would not succeed because people would not buy an item of jewellery that they had not handled, but those sales have risen. So it's possible that the group sales could take off as well where younger buyers are concerned. If this is another channel for the sale of diamonds, then that in general terms is good for diamond jewellery sales," Gassman added.
