VOL. 44 NO.6 JUNE 2021
The diamond trade is relying less on the banks after emerging from its recent hardships in better financial shape
AUCTIONS
RETAIL
ESTATE
GEMSTONE
THE EXTRAORDINARY JEWELS THAT STOLE THE SHOW IN NEW YORK AND HONG KONG
HOW TO NURTURE A MORE PERSONAL CONNECTION WITH YOUR CUSTOMERS
COLLECTORS ARE LOOKING FOR VINTAGE FLORAL DESIGNS THAT SPARK JOY
SPOTLIGHT ON THE AQUATIC ALLURE OF PARAIBA TOURMALINE
CONTENTS VOL. 44 NO. 6 JUNE 2021
IN-DEPTH
STYLE & DESIGN
8 NEWS
32 JEWELRY
Key stories and stats.
CONNOISSEUR
Pearl engagement rings are wooing brides-to-be as a complement to diamonds.
COVER
10 BANKING ON DIAMONDS
Having improved its creditworthiness in recent years, the industry is learning to rely less on its lenders.
14 FROM CRISIS TO CRISIS
The 2008 economic crash left the diamond-financing sector cautious, but the coronavirus has restored some balance.
16 LOAN STARS Government funding is helping many retailers emerge from the pandemic in good shape.
18 AUCTION REPORT Magnificent Jewels sales in New York and Hong Kong: Analysis and results.
34 STYLE Colorful jewels that let us escape to a fantasy wonderland are just the ticket after a dark and difficult year.
36 DESIGNER Known for her distinctive carabiner-clip creations, Marla Aaron is quietly doing her part to help the disadvantaged.
40 LEGACY A new exhibition explores the Roaring ’20s through the eyes of style icon Marjorie Merriweather Post.
42 ESTATE JEWELS
43 COLORED GEMSTONE
Dealer Mark Schaffer discusses the allure of floral motifs in antique and vintage pieces.
The stunning Paraiba tourmaline is the star of a book by jeweler Doris Hangartner.
MARKETS & PRICING 47 TRADE REPORT India tackles virus crisis.
RETAIL
34 PAGE
28 RETAIL PROFILE Marie Helene Morrow creates a dynamic vibe at Reinhold Jewelers in Puerto Rico.
48 USA 52 INDIA 53 ISRAEL 54 ANTWERP 55 HONG KONG
Catering to clients is important, but building a relationship is what will keep them coming back. Correction: In the April 2021 issue of Rapaport Magazine, the article “Getting into shape” incorrectly stated that the trillion cut was trademarked by the Henry Meyer Diamond Company in New York in 1962. It was trademarked by Finker et al. in 1978.
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56 DIAMOND DATA 61 PRICE LIST 73 RAPNET PRICE LIST 82 DIRECTORY 86 CALENDAR 88 THE FINAL CUT
IMAGES: AISHA BAKER; LEO BIEBER
30 RETAILRAP
2 JUNE 2021
43 PAGE
E D I TO R ’S LETTER STO N E S W I T H STO R I E S
I
Carolina Bucci designed this playful Girandola ring, which spins on the wearer’s finger to symbolize the transition between global lockdown and the return to the freedom of outdoor life. Featuring diamonds and sapphires in 18-karat gold, it perfectly captures the current mood.
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Sonia Esther Soltani
EDITOR IN CHIEF
S O N IA . S O LTA N I @ DIA MO N DS.N ET
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EDITOR'S PICK
n my days reviewing luxury spas, I learned a few things about the body’s energy points and the healing power of stones. I know many industry people who have a personal collection of gems and are well-versed in their various properties. Not just a mere adornment, jewels have real therapeutic power, as a British jewelry writer shared on a podcast I listened to recently. She candidly told the show’s host that in some of her life’s lowest moments, turning to the fascinating stories of gems had helped her escape from reality and given her strength. Back in April, Rapaport Magazine explored Unearthed: Surprising Stories Behind the Jewels by Dr. Jeffrey Edward Post. The book showcases the backstories of the Smithsonian Institution’s extraordinary collection. As Post told writer Phyllis Schiller, these are tales of “romance, or power, or war, or enviable wealth.” In other words, they are absolutely gripping. Our mission at Rapaport has always been to offer you essential information that means better business. With this in mind, and with colored gemstones gaining popularity in the bridal market, next month’s issue will introduce an expanded, dedicated section on the subject. It will include insights about prices, treatments, grading, cuts and sourcing — and of course, you can expect some fascinating tales about historic pieces and chakras.
C OV E R
Having improved its creditworthiness before and during the pandemic, the industry is learning to rely less on its lenders. B Y AV I K R AW I T Z
I
n both financial and diamond industry terms, 2017 seems like an eternity ago. Bankers at the Dubai Diamond Conference in October of that year gave a stark warning to the diamond sector: The trade is over-financed, insufficiently transparent, not profitable enough, and altogether too risky. This was their unanimous observation, to the discomfort of the audience. With bank credit amounting to an estimated $13 billion at the time, lenders claimed the industry could function sufficiently on just $8 billion. Bankers were already reducing their exposure to the trade’s risks, and many had closed their diamond units altogether. Today, bank credit has reached that $8 billion level, according to estimates from Bain & Company (see graph). Meanwhile, the diamond industry appears to have enhanced its stature among lenders. In an unexpected twist, the midstream radically improved its liquidity position during the challenging pandemic period. “We’re seeing that our clients had much better profitability in 2020 than 2019,” reports Davy Blommaert, head of diamond lending at the Dubai-based National Bank of Fujairah (NBF). Because supply was limited, he explains, diamond value went up during the pandemic, whereas 2019 was a tough year that saw an excess of polished on the market.
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As factories closed and rough buying froze during the lockdowns of 2020’s second quarter, diamond cutters were able to reduce the inventory that had been weighing on their businesses. The lack of new polished meant other suppliers, too, could focus on selling old stock that had been difficult to move. Unlike in previous years, when the decline in financing was due to banks’ reluctance to take on the risks the industry carried, last year’s dramatic drop resulted from lower demand for funding. When banks finance a diamond company, they look at its assets, which are typically inventory and receivables — the outstanding payments that clients owe the company — explains Blommaert. Less inventory means companies are more liquid, he says, and the more liquid they are, the more they want to buy for cash rather than on credit terms, since they have sufficient funds and can get a discount with cash. Currently, inventory and receivables are both low, meaning diamantaires are holding fewer assets that need financing, Blommaert observes, adding that he personally has “never known leverage in our industry to be so low.” PROFITABLE ROUGH
Many credit De Beers and Alrosa with the improvement, as they allowed greater flexibility in their rough sales during the
IMAGES: DAVE HOPKINS@PHOSPHOR ART
crisis. The two miners — which combined account for about half of global rough production — let clients refuse goods between March and September, thereby reducing supply while keeping prices stable. As a result, there was less need for financing, since the banks usually fund those rough purchases, explains Olya Linde, a partner with Bain & Company’s energy and natural resources division, as well as coauthor of Bain’s annual diamond report. Meanwhile, prices at rough auctions and tenders fell 20% to 30% as smaller miners that needed liquidity were forced to sell. Many in the trade took advantage of that, Linde notes — and Blommaert says they are reaping the benefits today, since both rough and polished prices have recovered. Before Covid-19, rough from a given mine would sell at around $100 per carat, but that dropped to about $73 during the pandemic, Blommaert elaborates. While it has since gone back up to around $110, those who bought at the lower rate are now enjoying increased profitability. Manufacturers usually achieve a margin of some 3%, he says, but if their cost was $73 and they are selling polished at the same price as before, they’ll suddenly see significant gains. IMPROVING THE RISK PROFILE
All of the banking and industry professionals Rapaport Magazine interviewed agree that 2020 was healthy for the midstream, which improved its profits despite the challenging conditions.
DIAMOND MIDSTREAM OUTSTANDING DEBT $18 $16 $14
$ BILLIONS
$12 $10 $8
ESTIMATE
$6 $4 $2 $LEVERAGE LEVEL >
2002
2008
2013
2017
2019
2020
51%
66%
75%
61%
53%
54%
Based on data from Bain & Company. Leverage level is the ratio between total outstanding debt, and revenues from cutting and polishing.
“[The trade] embraced technology and the changes that were forced upon it,” says Linde. “And it was able to clean up its inventory due to the disruptions in the supply chain.” Importantly, there were very few reports of bankruptcies in the manufacturing and trading centers. That has raised banks’ tolerance for the industry, according to one Indiabased banker who has requested anonymity. “When the pandemic and lockdowns were declared, there was some resistance from banks to extend finance, as they thought the trade would face more risk, challenges and stress,” says Colin Shah, chairman of India’s Gem & Jewellery Export Promotion Council (GJEPC). “After one year, the trade has come back strong, standing on its own feet, and operating with near-normal capacity. So the earlier concerns perceived by the banks are no longer relevant.” Even before Covid-19, the industry was slowly improving its risk profile among lenders. That was largely because banks were steadily leaving the industry or taking steps to protect themselves from its hazards. Antwerp Diamond Bank, Standard Chartered Bank and Israel’s Bank Leumi all stopped funding the sector in the last six years, resulting in more than $2 billion worth of credit leaving the trade. Just as significantly, ABN Amro — one of the largest lenders to the industry — reduced its credit facility for rough buying, influencing others to do the same. Diamantaires were forced to self-finance a portion of their rough purchases. This served the trade well during the pandemic, says Blommaert, as traders have learned how to work with less reliance on the banks. TRANSPARENCY MATTERS
Another thing contributing to the industry’s improved profile in recent years has been the shift to more corporate structures. De Beers’ program to ensure that sightholders comply with International Financial Reporting Standards (IFRS) has helped the market a lot. The wider adoption of measures such as IFRS accounting guidelines has facilitated greater financing opportunities, according to Hilmar Hauer, head of debt products at Channel Capital, which provides securitized financing to the diamond trade. “For the global capital markets, the improved transparency is a really important factor when we analyze companies,” he comments. The anonymous Indian banker agrees that “the industry is becoming more transparent and bringing in better corporate governance.” The industry has also made some strides in improving its reputation among consumers, according to Erik Jens, ▶
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founder of LuxuryFintech and former head of ABN Amro’s diamond and jewelry client division. The trade has become increasingly focused on doing the right thing, with initiatives such as Diamonds Do Good, the Responsible Jewellery Council (RJC) and the World Jewellery Confederation (CIBJO) working to raise the industry’s corporate social responsibility (CSR) standards, he notes. Jens foresees this opening up new financing avenues for the sector. He also points to a trend in which banks are tying their loans to a company’s sustainability platform. In April, jewelry brand Pandora secured a new EUR 950 million ($1.15 billion) credit facility that links the borrowing costs to the progress the company makes toward its environmental goals. These goals include becoming carbon-neutral and using only recycled silver and gold in its products. A JUICY PAST
Reputational risk factors are important to regulators such as the central banks, which set compliance standards for the banking sector. Guided by the Basel Accords — which require lenders, and consequently their customers, to have a minimum amount of equity and liquidity — those standards continue to tighten. This has implications for the diamond trade, Jens points out. “When the regulators say an industry is [an] increased risk, it creates a portfolio decision for credit committees, boards and management teams,” he explains. “They have to decide if they want to finance the business or not, [taking into account any stringencies the industry has put in place to mitigate the risks].” Banks would still rather lose money on a real estate firm or coffee trader than on a diamond company, given that the latter sector garners a lot more press than others, he says.
“AFTER ONE YEAR, THE TRADE HAS COME BACK STRONG, STANDING ON ITS OWN FEET, AND OPERATING WITH NEAR-NORMAL CAPACITY. SO THE EARLIER CONCERNS [OF] THE BANKS ARE NO LONGER RELEVANT”
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“There was a mystery about the diamond trade, and these [negative stories] have been very juicy in the past.” That said, diamonds performed better than many other asset classes during the pandemic, Blommaert notes. SUPPORTIVE MEASURES
Blommaert, Hauer and the Indian banker all stress that they are comfortable with the industry’s current risk profile. Furthermore, lenders and governments provided significant support for the trade during the pandemic. As Covid-19 spread, the Reserve Bank of India revised its lending guidelines to let companies realign their working capital and get extensions on their loans, Shah reports. The Indian government also guaranteed loans to micro, small and medium enterprises — which included many diamond companies — amounting to INR 3 trillion (about $41 billion). In Israel, 300 diamantaires received loans of between NIS 250,000 ($75,000) and NIS 4 million ($1.2 million), reports Yoram Dvash, president of the World Federation of Diamond Bourses (WFDB), who recently stepped down as president of the Israel Diamond Exchange (IDE). The government guaranteed 85% of the loans, and the banks covered the rest, waiving repayment and interest during the first year, he adds. Meanwhile, Belgium introduced emergency financial concessions to help companies survive the downturn, offering businesses extra time to repay loans and meet tax obligations. The country’s parliament also passed a law entitling diamond companies to open bank accounts — a great relief to diamantaires who have suffered repeated rejections from lenders in recent years, according to Chaim Pluczenik, president of the Antwerp World Diamond Centre (AWDC). FINDING ALTERNATIVES
While the Belgian law was supposed to go into effect on May 1, its implementation has been postponed, to the frustration of Antwerp-based dealers. For years, the country’s banks have shunned the industry, and diamantaires have struggled to open even a personal account because they are associated with the trade. Many turned to fintech for banking solutions, or simply to ensure they could receive and make payments on a deal. While one such platform, Ebury, was discontinued after failing to meet compliance standards — temporarily freezing its clients’ funds in the process — other options are available. More non-bank institutions are becoming interested in the industry, according to an Antwerp-based sightholder who has requested anonymity. Various initiatives targeting smaller diamond companies have launched in recent years, with peer-to-peer financing
gaining traction, notes Bain’s annual report on the diamond industry. However, the majority of non-bank lending goes to larger manufacturers via asset-backed securitization — a financial instrument that uses a company’s assets, such as debt, inventory or equity, as collateral. IN IT FOR THE LONG TERM
IMAGES: SHUTTERSTOCK; DAVE HOPKINS@PHOSPHOR ART
Providers such as Channel Capital Advisors and Guggenheim Securities use asset-backed securitization for a limited number of clients — those that have sufficient scale and can withstand the necessary scrutiny. Manufacturer Rosy Blue, for instance, has a credit facility with Channel, while fellow manufacturers Pluczenik Diamond Company and Diarough have deals with Guggenheim. While the existence of those arrangements is public knowledge, most deals are private, in keeping with the nature of some parts of the diamond industry, Channel’s Hauer says. These types of deals are also subject to tremendous scrutiny by the lender. Channel does in-depth due diligence in vetting its clients, working to understand their businesses and ensure they have the requisite corporate governance structures in place, Hauer affirms. To qualify, companies must have the revenue flow to pay back the loan over the agreed term — typically three to five years. The advantage of this arrangement for diamond companies is that it provides secure long-term funding. Whereas with typical working capital lines, a bank may pull its credit facility on short notice, debt providers such as Channel and Guggenheim are committed for the long haul. As long as the company continues to comply with the loan terms, the financing cannot be withdrawn. As part of those terms, the diamond companies agree to utilize the full sum available to them for the duration of the loan period. Hauer notes a rise in diamond companies’ interest in nonbank financing, and has found that more securitization management firms, in turn, are willing to work with the diamond sector. Banks’ continued exit from diamond financing has contributed to those trends, as has the trade’s solid performance within the securitization system, he says. BUILDING GOODWILL
Still, the bulk of lending is done by the banks, and their response to the pandemic signaled that the working relationship between diamantaires and their lenders was beginning to thaw. “The industry was always complaining about the banks, and the banks were complaining about the industry,” Jens says. “But I think those pain points have been reduced a lot. The relationship has become more normalized.”
That changing dynamic will be important, as the need for financing is likely to rise along with trading activity in 2021. Already, a spike in rough demand since the beginning of the year has caused some concern about overdue payments, says Pluczenik. De Beers’ rough sales for January through April more than doubled year on year to $2.04 billion in total, and rough prices have largely returned to pre-pandemic levels. However, few expect such high demand to persist for the rest of the year. Furthermore, De Beers and Alrosa are being careful not to oversupply the market — thus keeping demand for financing in check, Blommaert says. NO PRESSURE
Diamantaires should not take the current availability of financing for granted, warn Blommaert and Jens. Because receivables declined and businesses didn’t use their full credit lines in 2020, banks may decide to reduce those facilities. If a bank provides credit with a limit of $50 million, for example, and the diamantaire only uses $20 million, the bank still has to carry capital reserves for the $50 million, Jens explains. “They’re not making money on it, and they have to pay.” The banks are waiting to see how the market evolves before making any decisions about raising or lowering their diamond clients’ credit. While there is optimism about consumer demand in the US and China, there are also concerns that the pandemic will linger through 2022, as Bain expects. The recent spike in infection rates in India has fueled concerns about supply disruptions, as well as fears that the full recovery might take longer than expected. Manufacturing in India declined an estimated 30% to 40% in April and May due to high worker absenteeism and limitations resulting from the pandemic. Meanwhile, the Gemological Institute of America (GIA) is reporting a backlog of over a month at its Mumbai and Surat labs. For now, however, the diamond industry is confident that it has sufficient liquidity to see it through any setbacks, and that it has built up enough goodwill to sustain its newfound favor with the banking sector. “I don’t think there is business that people are not able to do because they don’t have the funding,” says the anonymous Indian banker. Liquidity has remained stable despite the disruptions from the new Covid-19 wave in India, since demand continues, he stresses. “People have liquidity that is fueling their business at the moment,” agrees Dvash. “Business is moving, and turnover is very quick when you buy. I don’t feel there is pressure from the banks on the trade — neither in Israel, Belgium or India.” ◼
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C OV E R
The 2008 economic crash left the diamond-financing sector cautious, but the effects of the coronavirus have restored some balance. B Y AV I K R AW I T Z
F
or just over a decade, the diamond midstream — consisting of manufacturers and dealers — has served as a repository for the trade’s inventory and absorbed much of its credit risk. Manufacturers pay up front for rough, process the stone, and then typically sell the polished on credit, offering terms of 30 to 60 days. Since it can be six to nine months before they recoup their initial outlay, they have relied on banks to finance their rough purchases and sustain their operations. However, the 2008 financial crisis marked a drastic change for the banks and a turning point for the trade. Lenders became increasingly reluctant to extend credit to the diamond sector, putting pressure on manufacturers just when they were taking on a higher level of risk.
CHANGES IN THE LANDSCAPE
Historically, De Beers bore the industry’s inventory burden by stockpiling rough, while jewelry retailers were willing to purchase inventory and hold it until it eventually got sold, says industry advisor Varda Shine, a former De Beers executive. However, two things changed this financing landscape. In the late 1990s, she relates, many retailers moved to memo, or consignment, arrangements with diamond suppliers, requiring dealers to hold more of the trade’s inventory. Then, in the early 2000s, De Beers sold its rough stockpile as part of efforts to break its monopoly, shifting more of that rough toward manufacturers. Following the 2008 crisis, retailers required even less inventory, and global rough production dropped to align with the lower demand (see graph). At the same time, De Beers
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turned its focus toward branding efforts, and further avoided accumulating supply by selling off unprofitable mines. On top of all this, millennials were just emerging as the core engagement ring customers. Consumer habits and tastes began to change, and retailers became more selective in the goods they were stocking. Demand for diamond jewelry also stagnated in the absence of any industry-wide category marketing and as new luxury products in the tech space competed for shoppers’ wallets. Retailers avoided holding excess inventory, having found themselves stuck with a surplus that had lost value during the 2008 downturn. Meanwhile, the financial crisis drove the banks to raise their compliance requirements via the Basel Accords — regulations that aimed to reduce the hazards of lending. Companies with tight margins and non-transparent practices — traits common in the diamond world — became less desirable clients. SQUEEZING THE MIDSTREAM
All those developments created the perfect storm for the diamond midstream. It had to take on the industry’s inventory to satisfy retailers’ just-in-time needs and growing memo orders, while also tightening operations to appease the banks. Of course, not all banks were on board. The trade in India had access to financing that other centers did not. Many nonspecialist banks in the country took advantage of government incentives that aimed to support export industries. Lenders could get better interest rates if they allocated a certain percentage of loans to exports, and one way to reach those targets more quickly was to finance high-value diamond shipments. That created an uneven playing field: While
companies in Belgium, Israel and the US were being squeezed by their lenders, companies in India had the funding to buy rough, helping strengthen the country’s position as the world’s largest manufacturing center. The excess financing led to excess inventory and unsustainable rough prices. Miners continued to push rough onto the market at ever-rising prices, and manufacturers continued to buy, even as polished prices softened. Roughmarket corrections occurred from time to time, but the cycle would inevitably start again. The latest round saw three new mines come onstream in 2017, adding some 6 million to 7 million carats to annual global production. The midstream’s polished inventory subsequently rose until the market could no longer sustain such high levels and such low-to-nonexistent profit margins. Polished supply peaked in 2019, and prices continued their long-term downward spiral. A HEALTHIER STATE
It was under those circumstances that the trade began 2020. A rough-price correction was underway, and the industry was expecting further price declines even before the pandemic started. However, Covid-19 helped the industry restore the balance. The rough market froze during 2020’s secondquarter lockdowns, while polished sales continued online, enabling the midstream to reduce its inventory.
Still, as in 2008, the crisis accelerated a fundamental change in the way business was done, setting the scene for further midstream inventory adjustments. This time, Generation Z emerged as the driving force behind the market, with trends such as environmentally friendly and genderneutral jewelry gaining traction. Consumers increasingly care about sustainability, and they are hyper-aware of online trends. That’s pushing jewelers to be selective again in their sourcing and more thoughtful in the collections they display. In addition, the digital revolution is empowering retailers to sell more while owning even less inventory. Miners, for their part, have opted to lower supply rather than reduce prices. That policy will likely continue, as the pandemic-induced drop in global rough output is now setting a lower bar for the foreseeable future (see graph). Miners are also striving to supply according to demand, meaning there should be fewer excess goods floating about. We can expect rough prices to rise in this constrained supply environment. All of that may put pressure on the midstream in the long term. Polished suppliers will continue to bear the inventory burden even as their costs rise. But they are better equipped to deal with that challenge because of the financing shifts that began in 2008 and intensified during the Covid-19 crisis. The drop in bank funding will hopefully keep rough prices in check and result in a more profitable trade going forward. ◼
GLOBAL ROUGH PRODUCTION 200,000
$16
180,000
$14
160,000 $12 140,000 $10
100,000
$8
80,000
40,000
ESTIMATE
ESTIMATE
$6
60,000
IMAGES: DAVE HOPKINS@PHOSPHOR ART
$ BILLIONS
CARATS '000
120,000
$4 $2
20,000 -
$-
VOLUME
VALUE
Based on Kimberley Process data and Rapaport estimates.
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C OV E R
Government funding and smart money management are helping many jewelers emerge from the last year in good shape. BY LARA EWEN
D
espite the lockdowns, mask mandates, economic anxiety and fraught political landscape, 2020 wasn’t a bad year for jewelers. “So many retailers find themselves in the best cash positions they have had in years, if not the best in their history,” says Abe Sherman, CEO of business consulting firm Buyers Intelligence Group. US jewelry sales figures for March 2021 testify to that: They more than doubled year on year, increasing by 106%, according to Mastercard SpendingPulse. One reason for the surge was the strong base comparison with March 2020, notes the analytics service, since that was when the pandemic first started to hit retail. However, Mastercard also points to consumers having extra cash for jewelry due to government stimulus payments. Independent jewelers’ bottom lines also benefitted from widespread governmental assistance. In January, the US Department of Treasury reported that its Paycheck Protection Program (PPP) had so far “successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs.” This combination of factors has been extremely beneficial for the jewelry industry’s financial well-being, says Sherman,
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whose company specializes in the sector. “As far as we can tell, nearly all of our clients have either significantly reduced their debt or paid off all debt completely. This was due to three primary reasons. The first, of course, is the support the government provided through the PPP and [Economic Injury Disaster Loan (EIDL)] programs. The second is due to a significant reduction of inventories. Finally, retailers worked to reduce their expenses, including hours of operations — [and] thus their payroll — and also reduced advertising costs and travel, having not attended any or most trade shows.” USING WHAT’S AVAILABLE
The PPP funding certainly made pandemic restrictions easier to bear, acknowledges Rick Hamann, executive vice president at Sartor Hamann, which has three stores in Nebraska. Even though his business is debt-free and always has been, he says, he took advantage of the PPP loans when the opportunity arose. “We had a bank here locally providing them.” The pandemic forced him to shut down two of his stores completely and run the third store by appointment only, so the extra money came in handy. “We saw a big drop-
off during that time period, but we were able to pay our employees and our business [expenses] using the PPP loan and our own cash reserves,” he relates. “And since the money was available, we took it.” So did Richard Lee Mathis, owner of Symmetry Jewelers in New Orleans, Louisiana. “We were paying payroll out of our line of credit, and then we got the PPP,” he says, adding that he was one of the first in his area to receive it, because his team “had started filling out the PPP paperwork immediately.” Once his business reopened, Mathis approached his bank to talk about financing options. “We got our books together, and when we went back to the bank, we said we wanted to combine our line of credit and our mortgage in one loan,” he says. “We were able to get a new loan with a payment that’s lower than the [previous combined] mortgage payment and interest on our line of credit. So we were able to consolidate both loans and clear up our line of credit.” The upshot: His business is now in good shape, despite the tumultuous year. “We’re actually doing quite well,” he says. GRAPPLING WITH THE HURDLES
IMAGES: SHUTTERSTOCK; DAVE HOPKINS@PHOSPHOR ART
Of course, getting credit from banks comes with its own challenges, retailers note. Hamann doesn’t feel comfortable with financing in general, explaining that his family-run business has never wanted to work with banks. “When my father started the store, they took over an existing store,” he recounts. “They paid $50,000, and took
“CONSIDERING THE TRILLIONS OF DOLLARS THAT HAVE BEEN PUMPED INTO THE ECONOMY, RETAILERS WITH DRAMATICALLY IMPROVED BALANCE SHEETS WOULD FIND THIS A GREAT TIME TO REFINANCE LONG-TERM DEBT”
that from my grandfather. They didn’t believe in bank loans. There’s an old-school emotional idea that they don’t want to be beholden to anyone.” Banks don’t understand the jewelry industry well enough to service its needs adequately, Hamann maintains. “In a car dealership, they have a floor-plan loan going, where everything is financed through the vendor or the bank. The bank can identify, ‘That’s a Camaro, and I know what that’s worth.’ But the bank doesn’t know what a diamond is worth. And what do they do with a diamond if they owned it? They don’t know what to do with it.” Mathis says the biggest challenge with any financing is qualifying for it. “It’s crazy that you have to be profitable to be able to borrow money,” he remarks. “They should open it up more. If you’re putting up your inventory for collateral, you should be eligible for financing. But the banks don’t want to be sitting on inventory.” It helps to have a free-standing store, rather than a mall store, he adds. “We didn’t have that much inventory, but we own the building, and that was enough to put up the collateral. That was worth more than what we were borrowing. But if you’re in a mall, that would be tough. And there are more mall stores than free-standing stores. I would not want to be in a mall.” EAGER TO LEND
Fortunately, says Sherman, banks are currently offering retail-friendly terms. “Some of our clients who are rebuilding their stores are finding their local bankers happy to loan them the funds,” he reports. Vendor relationships can also be streamlined, which simplifies the balance sheet. “Retailers are looking forward to closer partnerships with fewer suppliers, and suppliers are looking to do business with fewer retailers,” says Sherman. “Considering the trillions of dollars that have been pumped into the economy, retailers with dramatically improved balance sheets would find this a great time to refinance long-term debt, such as mortgages, or term loans [that they’ve taken to build out their stores].” Mathis agrees that now is an especially good time to talk to banks about financing. “The interest rate remains fairly low. And what happened with us is that our books looked so much better than they did two years ago that our bank worked with us. That’s why we were able to swing it. The banks are just anxious to give out money right now. They want to make sure the economy doesn’t collapse.” ◼
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THE FINAL CUT
TALES OF ‘ WHOA’
Rapaport Magazine asks industry insiders: What’s the wildest thing that’s happened to you in the course of your career? By Leah Meirovich
SALLY MORRIS ON DIRECTOR OF PUBLIC RELATIONS FOR NATURAL DIAMONDS, DE BEERS
A
number of wild things have happened in my career, but a standout is the time my friend Scott and I went to Egypt...for a night! It was 1998, and we were working at the American Foundation for AIDS Research in New York. Mouna Ayoub, an extremely important donor, said we must attend another charity event she was involved in — for a children’s organization patronized by the first lady of Egypt, Suzanne Mubarak. She thought it was a great way to connect with other potential donors for our cause. I don’t remember the reasons now, but it had to be a short trip, so Mouna sent tickets for us to fly to Cairo on the day of the event. On landing, we went straight to the hotel to shower and change. Maybe an hour later, we were whisked off in a car after watching Mouna quickly press her couture gown (Dior) and put on her jewelry (JAR). The event was outdoors, directly in front of the pyramids.... The high point of the night was [singer] Shirley Bassey performing “Diamonds Are Forever” against the backdrop of the Sphinx at Giza. It was all absolutely glamorous, and we stayed up all night. Early the next morning, we flew home to go back to work. Even now, it’s hard to believe it all really happened, but [there’s] footage of the event online.
ALE AH ARUNDALE FOUNDER, JEWELERS HELPING JEWELERS, OLYMPIAN DIAMONDS
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eing a fifth-generation jeweler, I’ve had many wild things happen, but I think the “out there” diamond requests I get are the most fun. One time, I had a lady call and ask for a pair of blue diamonds of 1 carat each — but here’s the kicker: She requested that the diamonds have black carbon spots right in the center to look like her eyeballs. Can you imagine?! I also remember when an extravagant young man called to purchase large diamonds to use for knobs for lamps on his yacht. (Hey, diamonds aren’t just for weddings, you know.) Less wild but still fun are all the times when people asked for certain letters or grades, like the time a man needed an H-colored diamond because the girl’s name was Hilary. And the last fun story that comes to mind is a lady who had a 3-carat old Euro and demanded it be cut in half so she could give a piece to each of her two daughters. 88 JUNE 2021
DIAMONDS.NET
KE ALEBOGA PULE FOUNDER AND MANAGING DIRECTOR, NUNGU DIAMONDS
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eing invited to serve as a board member of Diamonds Do Good has to be it for me. I remember watching the movie Blood Diamond in 2007 or 2008 as a young man in Africa, and at the time still far from the diamond industry. I was left reeling with emotion. Fast-track to January of 2021: I could never have imaged that an organization whose founding was motivated by Nelson Mandela would invite me to play a role in writing a new narrative about Africa and diamonds. In many ways, watching that movie drove me to be part of the diamond industry; my passion for the trade came from a place of knowing that diamonds from Africa cannot forever be known as “blood diamonds,” that they can have a far different future from what characterized their former narrative.