Insanity of the Diamond Industry: A Diamantaire's Plea for Profitability

Opinion piece
28/07/2015 23:33

It has been stated repeatedly that the high cost of rough has led to a lack of profitability in the diamond industry. Neil Reiff, President at N.D. Reiff Co., believes that retail pricing is simply too low. He cites a situation where a retailer's client said he could buy the same diamond on offer at 1.7% above wholesale via the Internet. Reiff thinks this is insane: "There is no point and no purpose in selling anything at a profit margin of 1.7% over cost. No matter how efficiently one may run a business. No matter how much one may grow revenues."

The problem, he says, is not a lack of potential for profit, but that "We, as an industry, have destroyed profitability. More significantly, we have destroyed the perceived value of a diamond", and should learn from those that do it right. In 2014, Tiffany's sales were $4.2B - a 5% increase YoY, with a gross margin of 64.3%. Tiffany’s markup on cost was 280%. Signet Corporation had a gross margin of 36.2% - a markup over cost of more than 156%. Signet's 2015 Annual Report states: "Our research consistently tells us the main reason people buy jewelry where they do is not price . . . but trust." Adding value is what jewelers do, and it makes no sense to sell marginally over cost.

Reiff concludes: "The mistaken belief... that price is all that matters will destroy our industry. Increasing one’s revenues without making a profit is a pointless endeavor that leads nowhere. Selling diamonds to the consumer public at wholesale pricing accomplishes nothing except lowering the value of diamonds. The end result of this price-cutting actually diminishes the revenues of the industry as a whole."