Rapaport Magazine July 2018

VOL. 41 No.7JULY 2018

VIBRANT VINTAGE Estate jewelry is stronger than ever in the internet age SYNTHETICS

INTERVIEW

RETAILRAP

DESIGNERS

Martin Rapaport has some thoughts about De Beers’ Lightbox and what it means for our industry

François Curiel of Christie’s discusses the rise of natural colored diamonds and signature pieces

The question on everyone’s mind: Was the JCK show worth the time and expense of attending?

Find out who came back from Vegas with a prestigious Couture award to show for their designs

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CONTENTS RETAIL

STYLE & DESIGN

46 Retail profile

51 Jewelry Connoisseur

A need to adapt led San Diego’s Harold Stevens Jewelers to specialize in bridal.

Get a candy crush on sweet-looking designs.

52 Style

49 RetailRap

Sotheby’s Diamonds puts a retail spin on the traditional auction-house model.

Was the JCK show worth the time and expense of attending?

54 Show report The five top trends from Las Vegas.

COVER

28 Affairs of estate The vintage jewelry market is booming thanks to modern media, which make these storied items more accessible.

32 Interview François Curiel, chairman of Europe and Asia at Christie’s, recalls how colored stones came to fetch more than $1 million a carat.

34 Auction report & results

IN-DEPTH 14 News

The long-standing practice of memo is still providing the jewelry industry with a lifeline.

22 Opinion Martin Rapaport on De Beers’ synthetics.

26 News analysis De Beers and Botswana are negotiating a new marketing deal as the nation’s diamond sector evolves.

60 Legacy Socialite Doris Duke and designer David Webb created beautiful jewelry together, as a new exhibition shows.

62 Colored gemstone Why ethical sourcing is a fashionable move in today’s market.

MARKETS & PRICING

19 Gems of wisdom

De Beers is destroying transparency in the diamond industry.

From gems and pearls to dragons and skulls, we look at the winners of this year’s Couture Design Awards.

GemGenève’s debut helped drive buyers to the Geneva sales, which saw top prices for diamonds. In Hong Kong, a Moussaieff necklace and Rockefeller pearls lifted a mediocre Christie’s auction.

INDUSTRY: Las Vegas shows offer drama and stir important debate.

RETAIL: Power to self-purchasers.

MINING: Mir flood raises Alrosa safety precautions.

MOVERS & SHAKERS: Who’s coming, who’s going.

25 Rapaport statement

56 Designers

ON THE COVER Model Helen Bennett wears an Oriental rose pearl and diamond necklace, bracelet, earrings and ring by Cartier for Vogue in 1939. (Photo by Edward Steichen/Conde Nast via Getty Images)

65 Trade report 67 USA 72 India 73 Israel 74 Antwerp 75 Hong Kong 76 Diamond data 81 Price List 93 RapNet price list 98 Directory 102 Calendar 104 The final cut DIAMONDS.NET

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Opportunity knocks

A

IMAGE: BEN KELMER

Note from the publisher

t the JCK Las Vegas show, the message was loud and clear: Disruption is not coming to the diamond and jewelry industry; it has already arrived.

The big “disruption” takeaway at the show was, of course, De Beers’ entry into the synthetics market via its new Lightbox brand. You can read Martin Rapaport’s take on this on Page 22.

But while much of the chatter at JCK centered on Lightbox and the seemingly omnipresent blockchaintechnology discussions, the standout highlight for me was the breakfast briefing by Signet Jewelers’ impressive CEO, Gina Drosos.

Our industry needs leaders, and it is obvious Signet does, too. I believe Drosos has the experience and skill to make the changes necessary to give the jewelry chain a fighting chance. She is in the process of radically transforming how Signet operates, and there are lessons for us all in how she is going about it.

Drosos is forcing Signet to embrace the disruption our industry is experiencing, as she believes it brings with it opportunity. As part of this, she is driving the jeweler to develop more sophisticated and interactive dialogue with its customers. This “conversation” spans the physical as well as the digital environment, from stores to social media. The reason for this is obvious to Drosos: “While greater than 40% of customers start their purchasing journey online, over 90% of engagement-ring purchases are made in the store,” she said.

Finally, we are all aware the “customer is changing.”

However, Drosos believes those of us laser-focused on millennials are missing out on the growth in opportunities in the Hispanic and Latino community, LGBTQ customers, female self-purchasers, and the changing definition of what constitutes a “traditional family.” Helping supply these different segments with jewelry to mark and celebrate significant life events can help lessen our industry’s dependence on the holiday season and engagement market.

Her mantra is one we should all understand: “Only the innovators thrive.”

John Costello PUBLISHER

john.costello@diamonds.net DIAMONDS.NET

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O P INIO N

DE BEERS’ SYNTHETICS

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By MARTIN RAPAPORT

e Beers’ decision to sell synthetic diamond jewelry raises important issues that are fundamental to the future of the natural diamond industry.

Let us begin by analyzing the role of De Beers in the diamond industry. Until about 2000 and the advent of their “Supplier of Choice” program, De Beers was the custodian of diamonds. They maintained rough diamond prices by buying excess supplies of non-De Beers rough, and they spent about $170 million a year advertising generic polished diamonds. For close to 100 years, this approach worked well. The trade looked up to De Beers as the father of the diamond industry and relied on De Beers to take care of them. De Beers was family.

All that changed in 2000 when De Beers changed their strategy. Australia’s Argyle and Russia’s Alrosa had dropped out of the cartel, and De Beers found themselves with over $5 billion of inventory and a market cap well below book value. It could no longer afford to buy open-market rough to maintain rough prices, and it could not provide generic advertising to free riders. De Beers was no longer the guardian of diamonds or the diamond trade. It was no longer the “benevolent monopoly” described by Harry Oppenheimer. De Beers transitioned from a family-oriented business that optimized the long term to a corporation that focused on short-term management goals and profitability.

While De Beers is still a dominant diamond player that sells about 42% of the world’s rough diamonds, its priorities and future are based on its ability to create profits for its shareholders. De Beers is a corporation with no emotional attachment to diamonds or the trade. Those who believe in De Beers and expect it to protect them and their diamonds are living in the past. While De Beers does take proactive socially

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responsible measures to build the profitability of its brand, corporations are not altruistic. It’s all about profits. De Beers is a corporation loyal to profits, nothing more and nothing less.

SYNTHETIC OPPORTUNITIES The current situation is very interesting because it highlights the conflict between De Beers’ past and future. On the one hand, De Beers has a very large $5.3 billion business selling natural diamonds, with strong relationships and large investments in Botswana and South Africa (see Page 26). On the other hand, the contract with Botswana must be renewed in 2020, and it is likely the government will push for better terms and more diamonds to be sold through its independent Okavango company. Furthermore, South Africa is politically unstable. Who knows what will happen in Africa over the long term?

And then there is the great opportunity of synthetics. An opportunity to create an exciting new market for fashion jewelry based on synthetic diamonds; to sell new diamonds that will appeal to a new generation of millennial consumers; to transcend the stone business by designing, manufacturing and marketing their own jewelry; to use e-commerce to sell directly to consumers, track them and grow them; to transform De Beers from a mining company to a luxury consumer powerhouse.

All this opportunity is made easier by De Beers’ position that it is a primary low-cost synthetic diamond producer with detailed knowledge and expertise about the demand side of the diamond equation.

“DE BEERS CAN’T DANCE AT TWO WEDDINGS AT THE SAME TIME”

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“THERE IS A DIFFERENCE BETWEEN WHAT IS GOOD FOR DE BEERS AND WHAT IS GOOD FOR THE NATURAL DIAMOND INDUSTRY” From De Beers’ perspective, synthetic diamonds are an opportunity they cannot afford to miss. They believe that they can maintain a dominant and profitable position in both natural and synthetic diamond markets. Furthermore, a future in synthetics makes them less reliant on natural diamonds and puts them in a better negotiation position should they have “Africa problems.” From a strategic perspective, why should De Beers’ profits be limited to what comes out of the ground?

CONSEQUENCES De Beers is quick to point out the positive consequences of their synthetic move. They claim their straightforward $800-per-carat pricing model will force other synthetic diamond producers to significantly reduce prices and possibly go out of business. Theoretically, De Beers is pushing back against synthetic diamond producers that have been freeriding on the historic allure of natural diamonds. These parasites have been gaining windfall profits by selling their synthetic diamonds at a discount price to natural diamonds.

They have been getting a “scarcity premium,” even though their synthetics are not scarce. Their windfall profits are then used to increase and improve digital marketing aimed at newage diamond consumers.

The problem with De Beers’ synthetic strategy is that De Beers can’t dance at two weddings at the same time. Synthetic diamond fashion jewelry competes directly with natural diamond fashion jewelry. There are plenty of small natural diamonds (melee) priced at $800 per carat or less. Why is De Beers directly competing with the natural diamond fashion jewelry business? Does their research tell them that young women prefer synthetics to natural diamonds? The government of Botswana should be asking De Beers: Where is your exciting new marketing program for natural diamond fashion jewelry?

The most important thing to understand is that wherever and however De Beers promotes and sells synthetic diamonds, they will be competing directly with natural diamonds.

Furthermore, their claim that lower prices will push out or reduce profits of other synthetic producers only applies if they directly compete against the specific product categories of the other producers. Most of the producers are not in the fashion jewelry business; they are going after the engagement ring market. De Beers will have to go into the synthetic diamond engagement ring market. Otherwise their claims of economic benefit to the natural diamond industry are extremely limited to fashion jewelry.

And so, we now get to the heart of the diamond business – the diamond engagement ring. Essentially, there is a tradeoff between a woman’s preference for a natural diamond vs. her preference for a bigger diamond. While size is not as important to everyone, there are many women and men

for whom size is more important than whether or not the diamond is natural. The more De Beers lowers the price of synthetics, the greater the size value of synthetics, and the more diamond demand shifts from natural to synthetics. Let’s do the math.

Consider a couple with a $2,000 engagement ring budget for a round, I, SI2 quality diamond. A jeweler with a 30% margin. And a mounting from the jeweler to the couple costing $200. That leaves $1,260 for the diamond at wholesale prices. Using RapNet best prices and De Beers’ $800-per-carat synthetic price, the choice to the consumer would then be a 0.70-carat, I, SI2 or a 1.57-carat synthetic.

That’s a 124% size difference.

Now consider a couple with a $5,000 engagement ring budget for a round, I, SI2 quality diamond. A jeweler with a 30% margin. And a mounting from the jeweler to the couple costing $500. That leaves $3,150 for the diamond at wholesale prices. Using RapNet best prices and De Beers’ $800-per-carat synthetic price, the choice to the consumer would then be a 1.10-carat, I, SI2 or a 3.93-carat synthetic.

That’s a 257% difference in size.

It should come as no surprise that the lower the synthetic price, the greater the demand for synthetic diamonds at the expense of natural diamonds. The decision, “Do you want it real or do you want it big?” may depend on how much bigger.

De Beers’ move into synthetics, combined with an aggressive marketing program, legitimizes synthetic diamonds as a viable alternative to natural diamonds. If they push lower synthetic prices into the engagement ring market, they may kill the parasites and the natural diamond market along with them. If they do not go into the engagement ring market, the net result of their synthetic efforts will be to give credibility to the parasites. From the perspective of the natural diamond trade and mining companies, De Beers’ synthetic diamond marketing and pricing approach looks like a lose-lose situation.

If De Beers extends their synthetic strategy to the diamond engagement ring market, we expect natural diamond demand and prices to head south. The natural market can probably withstand their synthetic efforts in fashion jewelry, as natural inexpensive melee can compete.

However, when it comes to engagement rings and bigger diamonds, De Beers’ efforts to lower synthetic prices may significantly damage the natural market. ▶

“DO YOU WANT IT REAL OR DO YOU WANT IT BIG?” DIAMONDS.NET

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We may be better off with the parasites than with De Beers synthetics.

WHAT SHOULD WE DO? We should recognize that there is a difference between what is good for De Beers and what is good for the natural diamond industry. This does not mean that De Beers is evil, it just means that they are a corporation with a different perspective and agenda.

Right now, it looks like they are married to two wives and we are the old one. While there is room for both products, it is likely that whoever markets best will gain market share. It’s sad to see De Beers marketing against natural diamonds.

We have deep concerns for the artisanal diggers and the African mining companies, and strongly denounce those that claim synthetic diamonds are more ethical than mined diamonds. It is vital that the mining companies move quickly and decisively to market, brand and source-certify their natural diamonds. It is vital that they do so with partners that do not have conflicts of interest.

As to retailers, it’s time to carefully consider who you are and what you sell. While synthetic diamonds may not hold value due to a lack of scarcity, there is no denying that some of your customers will want size over scarcity. In the end, it’s your decision what to sell. As long as you are totally honest with your customers, there is nothing wrong with

“BEING REAL IS NOT EASY, BUT IT’S THE RIGHT THING TO DO” selling synthetics, but be sure to let consumers know that synthetics are not scarce and that their prices will most likely fall as technology advances. It should be clear to you and your customers that synthetics are not a substitute for real diamonds, because they are incapable of holding value.

When all is said and done, synthetics are a different product. Once they get cheap enough, say, like synthetic emeralds and rubies, they will not be a competitive challenge to real natural diamonds. However, until then – watch out.

In the end, each of us will have to answer the key strategic question: Should our profits be limited to what comes out of the ground?

If the most important thing to you is profit, then go ahead, sell anything to anyone at any price. However, if you and your business have real values that transcend profits, take a pass on synthetics.

You might miss out on business and make less money, but you will build confidence in who you are and what you sell.

Being real is not easy, but it’s the right thing to do. ◼

DE BEERS ROUGH DIAMOND SOURCING Based on De Beers reports and Rapaport estimates Company

Total

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% of total

$3,607

59%

($ Millions)

Debswana (Botswana) - Orapa - Jwaneng - Letlhakane - Damtshaa Namdeb (Namibia) - Offshore - Land-based De Beers Consolidated Mines (South Africa) - Venetia - Voorspoed De Beers Canada - Gahcho Kué - Victor

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Production value

Average price ($/ct.)

Production by mine (Cts. ’000s)

$159

Production by division

% of total

22,684

68%

1,805

5%

5,208

16%

3,757

11%

(Cts. ’000s)

10,185 11,857 607 35 $973

16%

$539 1,378 427

$672

11%

$129 4,602 606

$883

14%

$235 3,033 724

$6,134

$183

33,454

33,454

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STATE ME NT

De Beers Destroying Transparency in the Diamond Industry De Beers does not allow clients to disclose the source of their diamonds and attacks Rapaport for raising transparency issue

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By MARTIN RAPAPORT

he De Beers Group is refusing to allow its clients to disclose the legitimacy of diamonds from De Beers. All De Beers’ rough diamonds are now opaque. That’s 42% of the world’s legitimate diamond production in 2017, and $14.993 billion of rough diamonds from 2015 through 2017.

In a letter to clients, De Beers states: “In relation to programmes such as GIA’s ‘Mine to Market’ (M2M), or other downstream entities’ initiatives seeking to make provenance claims. We have declined all such requests.… The Sightholder Signature License Clause 3.6.6 states: ‘you will not represent that any particular diamond or diamonds are sourced, or originate, from us or any member of the De Beers Group except with our prior written consent.’”

The net effect of De Beers’ action is to deny legitimate companies and non-profit organizations such as the Gemological Institute of America (GIA) the ability to track the legitimacy of polished diamonds.

“De Beers is extending its market power from rough to polished markets through exclusive polished distribution networks such as Forevermark. They are making it impossible for independent third parties to source-certify their diamonds, thereby disabling legitimate diamond distribution systems. De Beers is using its market power to restrain competition in the market for legitimate source-certified polished diamonds,” said Martin Rapaport, Chairman of the Rapaport Group.

Rapaport is also calling out De Beers for personally attacking Martin Rapaport with false statements. In a formal statement, De Beers wrote, “As background, Martin Rapaport had requested to be able to market diamonds from the De Beers Group, using the De Beers brand, on his platform for his benefit.… What Martin wants is to be able to market diamonds from the De Beers Group, using the De Beers brand, on his platform for his benefit.”

Both statements are entirely false. Martin Rapaport and the Rapaport Group have never asked to market De Beers

diamonds using the De Beers brand — not on our RapNet platform or anywhere else. De Beers should take notice that the age-old tactic of shooting the messenger does not kill the message. The issue here is not Martin Rapaport, or the GIA, or Richline Group’s TrustChain. The issue is the ability of the global diamond industry to provide consumers with sourcecertified, legitimate diamonds.

The Rapaport Group calls on De Beers to immediately cancel its restriction on source disclosure. De Beers’ bogus claim that the legitimacy of its diamonds cannot be disclosed, to protect the De Beers brand, is false. De Beers can easily use any other name on its invoicing, such as the Diamond Trading Company or DTC, as it has in the past. Furthermore, its brand is fully legally protected in other ways.

With extensive human suffering in developing countries such as Zimbabwe, the Congo and others, as well as billions of dollars of diamonds not subject to human rights, AML and CTF compliance, the Rapaport Group begs De Beers to do the right thing and allow its clients to disclose the legitimacy of their diamonds.

The Rapaport Group asks all responsible members of the diamond industry to directly email De Beers CEO Bruce.Cleaver@ DeBeersGroup.com and request that he immediately revoke restrictions on source disclosure. Feel free to CC Martin@ Rapaport.com to ensure follow-up.

The Rapaport Group asks all responsible trade association such as the World Federation of Diamond Bourses, International Diamond Manufacturers Association, World Diamond Council, American Gem Society, Jewelers of America and the Responsible Jewellery Council to take action that will ensure all members of the diamond trade have equal opportunity to disclose the source of their rough and polished diamonds.

Finally, the Rapaport Group asks all members of the Kimberley Process and Non-Government Organizations to take proactive measures to ensure that all members of the diamond trade have equal opportunity to disclose the source of their rough and polished diamonds. ◼

“The issue is the ability of the global diamond industry to provide consumers with source-certified, legitimate diamonds”

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DE SIG NE RS

BEST IN HAUTE COUTURE Nikos Koulis won with this Universe Line necklace in 18-karat white gold, featuring 5.57 carats of emerald-cut diamonds set in clear enamel with diamond surrounds. nikoskoulis.gr

TAKING HOME THE GOLD From diamonds and pearls to dragons and skulls, here are the winners of this year’s Couture Design Awards

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BEST IN DIAMONDS BELOW $20K Studio Rêves achieved victory with these earrings featuring rose-cut diamonds and blue sapphires. The total diamond weight is 7.36 carats. studioreves.com

RECYCLED 18-KARAT GOLD BEST IN DEBUTING Los Angeles-based jewelry designer Vram Minassian won with the Echo ring in recycled 18-karat yellow gold and sterling silver, embellished with 5.74 carats of demantoid garnets and 1.52 carats of diamonds. vramjewelry.com

BEST IN INNOVATIVE

BEST IN BRIDAL Eva Fehren’s Exploding Emerald Ring, handcrafted in blackened platinum with 1.94 carats of custom-cut white diamonds and 0.48 carats of white diamond pavé, took first place in the bridal category. Like other creations by the New York-based designer, it draws inspiration from the city and its distinct architecture, especially the Art Deco era. evafehren.com

In creating these Vertigo Large Cameo hoop earrings, Stephen Webster applied computer-aided design (CAD), 3D modeling and computer numerical controlled (CNC) milling to an age-old stone-dyeing technique used as the base for hard-stone cameo carving. The result is this award-winning piece in 18-karat white gold with carved monochrome agate and white diamond pavé. stephenwebster.com DIAMONDS.NET

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