On Thursday, I watched Martin Rapaport’s webinar. The webinar ran for almost two hours. As Rapaport carried on, I became progressively more uncomfortable.
Did he ask valid questions?
He sure did. Here are some of the questions he asked.
- Are diamonds more than a luxury product?
- Are they better than shoes and pocketbooks?
- Are diamonds valuable? Why?
- Who makes them valuable?
- Who stands behind those diamonds?
- Are diamonds a store of value in troubled times?
Good questions, you’ll agree. He then continued making some more good points.
“Diamonds,” he argued, “are a store of value if and only if there is a viable ethical transparent and competitive and efficient market that provides fair value. “
Who could not agree with such a blanket statement, right?
The problem is that right now, there is no competitive and efficient market! Doesn’t he know that he was talking to an audience that collectively feels their proverbial shirts are being ripped off their backs?
Then he talked about liquidity. “It is the role and responsibility of the diamond community to participate in markets that provide liquidity for diamonds. Without liquidity, diamonds are a fraud. Without liquidity, the diamond trade is a fraud.”
Really? One of the major problems of the diamond industry and trade – the mid-tier of the diamond supply pipeline – is that they cannot create liquidity to operate their businesses, as there is almost no substantial, long-term financing available.
He then continued to talk about profits and liquidity, urging diamantaires “not to freeze.”
“The value of your inventory,” he said, “is the replacement cost. Sell below your cost replace and make money!” He then quoted a banker he said he talked to. “The banker said: as long as my client is breathing, I do not bury him.”
What a relief.
As he rambled on, he started plugging his auction platform. You have a one-carat DF, he said? Put it out there and get bids. Make the market, he said, suggesting that it should sell for what the market is – currently – ready to pay for it. Sell it, for 8k, 7k, 4k, 1k! Cut your losses and move on, was the message. He suggested that diamantaires should “make the market,” also by buying diamonds in the – again the current – market. “Put your money where your mouth is – buy them!” he shouted.
Call me naive, but how can Rap dole out this kind of advice – telling diamantaires to make their market – when hours later, he publishes a new price list, reducing polished prices some seven percent across the board?
Obviously, Rapaport wants to dance at two weddings at the same time. His auction platform suggests that the market sets the prices. His list says that HE sets the prices.
It seems, however, that the diamond business community isn’t having any of it any longer. Since Thursday, dozens of leading diamond firms have “de-listed” from the Rap’s trading platform.
Call it wishful thinking, but if something good comes out of this current crisis, the Rap list will be history. Strength comes in numbers.
Meanwhile, Rap’s latest list caused discussion fora to explode with comments.
Speaking to my colleague Andrea Hill of the consultancy Strategywerx, she offered the following observations:
“The jewelry industry is the only industry I know of where the pricing of such a valuable commodity is influenced so heavily by one business and a privately owned business at that. It puts far too much control into the hands of one person. Yes, individual dealers indeed have the right to price as they please. Still, as long as there’s so much consolidation in one list – a list that wields so much authority – then dealers cede tremendous power to an entity that they do not control nor receive any financial benefit.
Of course, with so many dealers pulling their inventory – 235 that we know of so far – we must also consider what the ramifications of that will be. Retailers are confused and have come to rely on Rapnet to tell them what they “should” pay.
Do we need this type of centralized price harmonization?
And if so, who or what should provide it?
Or could we be better off without it?
And how will that look?
I think it would be wise to start asking these hard questions immediately.
It’s also possible that this is a tempest in a teapot. Martin Rapaport may back off this position, all will be forgiven, and people will plug their stock back into his system. But there is an opportunity – before a return to business-as-usual – for the industry to evaluate – even negotiate – what it wants to do going forward.”