Diamonds for Wealth Preservation – How to Get There

"I began charting out my vision for a future for diamonds, in which they serve as a wealth preservation tool. It is a broad vision, and I want to start discussing how I think we should get there" Ehud wrote in a post in January 2017. Changing perceptions such that diamonds are viewed as viable for wealth preservation, as covered in the previous post, is the first step. Reaching a critical mass of believers is the next one.

Diamonds for Wealth Preservation

Ehud's vision for the diamond industry spanned beyond improving what currently exists. "The future vision of diamond consumption should have three parts: […] The third venue, and the one with a growing importance, is diamonds for wealth perseveration - a tool to store value. These diamonds will be bought and treated specifically for that purpose and with a new methodology that is based on the economy of rarity. These diamonds will need to be purchased in the right part of the diamond pipeline, purchased correctly, have an accurate grading report that goes beyond the 4Cs to serve as a tool to store value and an idea of wealth preservation."

Other Supply Chain Players - The Banks

Financial institutions are another key stakeholder in the diamond supply chain, which Ehud believed expected greater transparency from the diamond sector. "Bank financing is the lifeblood of the industry. Without it, there would be no money for exploration or new store openings," Ehud stated in 2015. He also stressed the need to boost confidence in the diamond industry. This lack of confidence is evident in, for example, the decline in available bank financing over the past several years.

Recycled Diamonds

Recycled diamonds are another aspect of the diamond supply, which Ehud believed could benefit from greater transparency of the true value of diamonds. Recycled diamonds refers to diamonds that had been bought by consumers previously and are now back on the market for sale. Ehud agreed that the term "recycled" does not do them justice. "When discussing recycled diamonds in the past, some people in the diamond industry have shied away from the term 'recycled' because it cheapens diamonds. They make a good point… Unlike cars or electronics, the wear and tear on diamonds is minimal and can be repaired to perfection. This is one of a number of important aspects of these diamonds and therefore the term recycled simply does not do them justice. They are in fact reclaimed. Reclaimed for their beauty, reclaimed as a gift, reclaimed because their value is not lost, but maintained."

Reacting To Lab-Grown Diamonds

Beyond diamond players, Ehud explored other supply-side topics that have sparked debates over the years where he believed that similar to demand-side issues, greater transparency is central to address them. Lab-grown diamonds provide a good example. While their emergence was accompanied by rising concerns across the industry, Ehud believed lab-grown diamonds can play a complementary role to that of natural diamonds, provided consumers gain a better understanding of the inherent value of natural diamonds.

Possible Solution for Fragmentation – Alliances

As another possible way to solve the problem of fragmentation in the diamond sector beyond consolidation, Ehud encouraged the industry to explore strategic alliances. “Looking at other industries, there appears to be various ways to address the challenges of excess fragmentation in parts of the diamond sector. One option our sector can consider, especially given the slow trend in consolidation between players, is to make more use of strategic alliances.”

Possible Solution for Fragmentation – Consolidation

Ehud explored possible methods of addressing the issue of fragmentation, drawing in part on lessons from other industries. First among them was simply consolidation, whether natural or through mergers and acquisitions.

Improve the Diamond Midstream

Delving further into the issue of fragmentation in the midstream (manufacturing) of the diamond sector covered in last week's post, Ehud said in August 2015, "The more we examine the facts, the clearer it becomes that the main problem faced by the diamond industry is that the midstream – the manufacturing sector of the diamond pipeline that mainly polishes diamonds – does not get its fair share of the pie."

Excess Fragmentation in the Industry

Beyond the issue of restoring demand for diamonds, Ehud also discussed in depth supply-side challenges he thought the industry should seek to overcome. Ehud was particularly concerned by the deep fragmentation in the diamond sector, which prevents players across the diamond pipeline from operating profitably and, therefore, sustainably.

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