The following article details how the diamond market functions from the mines to the consumer and how diamond pricing is determined in each market segment.
Flow of diamonds in the market from mining to the retail consumers:
1. GOVERNMENT & PRIVATE MINES
Nearly all rough diamonds found in the world today are controlled by a relatively small number of governments and private mine owners and conglomerates. There are some smugglers who pilfer from the concessions of those who control the rough from both government and private mines. However, as a percentage of the total world production their numbers have little effect on the overall market.
2. ROUGH BUYERS & DIAMOND MANUFACTURERS
Traditionally, diamond rough was bought only by diamond manufacturers for their own supply and for the supply of smaller cutting houses. Today, there are funds buying rough for investment. Most of these companies do not manufacture the polished diamonds. Rather, they put the goods in storage and most monetize the rough for liquidity.
3. EXPORT & IMPORT WHOLESALERS & BROKERS
Once the rough is polished, it is sorted and priced for sale to the export and import wholesalers and diamond brokers. India is the largest trading center by weight. However, it is difficult for Indian manufacturers to find the larger rough required to supply large diamonds to the world market as DeBeers limits the large rough to India to protect the other cutting centers from India's labor cost advantage.
Most larger, more expensive goods are manufactured in Israel, Antwerp and New York. There are goods cut in Russia and South Africa and several other countries. Israel, Antwerp and New York remain the most important centers in the world for larger diamonds. It is in these centers that the wholesalers and brokers find the polished diamonds for there customers in their home countries.
4. DISCOUNT RETAIL AND INTERNET
Today, because of the change in the way consumers are prepared to compare and buy, the discount retailer and the internet stores have become a major user of diamonds. With few exceptions, they buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills and assets to buy directly in the major bourses of the world.
5. FULL SERVICE RETAIL STORES
The consumer purchases the majority of diamonds imported from high end "carriage trade" stores (Tiffany, Cartier, etc.), large volume chain stores (Zales, Sterling, Fred Meyer etc.) or from independent jewelers. Like the discount and internet stores, with few exceptions, these retailers buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills and assets to buy directly in the major bourses of the world.
I have given the flow of diamonds from rough to the consumer in order to better illustrate how diamonds are priced at each level of the market and what the average profit is at the various levels.
The price of rough is dependent as much on the time, place, skill, desire and need of the parties involved as it is on the shape, size, color and clarity of the stones in any rough parcel. There are tenders that create set prices for sights in Russia, South Africa and from DeBeers and other suppliers. However, these prices vary enough to say that in reality, no two parcels will ever be priced the same and some suppliers will buy better than others. For mining profits you can look at companies whose information is in the public domain.
Still, there is a range of price for all goods and the rough rarely will exceed or be less than the range it falls into. All things being equal, the range is usually within 10% either way.
In order for a diamond manufacturer to stay in business, he needs to realize a gross profit of 30-40% from the rough to a polished stone. The net profit in the industry is 5-8%.
If a piece of rough has a cost of $100, he must be able to sell the stone for $130 or more or he will soon be out of business. Obviously, some stones will yield less and some more. The difference is a combination of skill and luck.
The importer-exporter-wholesale-broker group buys the polished diamonds from the manufacturers to sell to other importer-exporter-wholesale-brokers and retail establishments. When the importer-exporter-wholesale-broker sells to other importer-exporter-wholesale-brokers, his profit margin is from 1%-15% depending on the factors outlined in the purchasing of rough. The average "in trade" sale profit is about 5%.
When the importer-exporter-wholesale-broker sells to jewelers his profit is usually 10%-30% depending again on the above combination of factors. The average is about 20%.
The internet and discount retailers supply the public with diamonds and will have a profit of about 25%-40% gross. There are exceptions of course, but most consumers shy away from these companies when the diamond has a cost above $15,000. Rarely, do they sell important stones.
Full retail stores have a 1.6 to 3.0 times cost mark up depending on the store's policy for credit availability and cost of the diamond. Smaller diamonds under a $1,000 will sell retail for $2,000-$3,000 or more. The larger and more expensive the diamond, the smaller the mark up. It is rare for most chains and independents to sell important stones over $50,000 retail.
The carriage trade is a different animal altogether. They are blessed with fame, name and are well financed. Because of this, they have learned they do not have to be shy in their profit structures. Few companies have their capacity and fame and because of the lack of competition, they have generally higher mark ups.
This brings us to the mark ups that these companies enjoy for larger goods. Generally, high end pieces do not have large mark ups because the total dollar profits are very large. If they pay $1,000,000 for a diamond they will sell it for $1,600,000 to $2,000,000 depending on the availability of the diamond and on the skill of the customer in negotiation. On diamonds of great rarity, they may sell them with a greater profit margin. If there competition cannot find another stone to compete with them, they will of course take advantage of the situation.
In order for the customer to feel good about his purchase price and for insurance company's requirements, the appraisal was created. The stores themselves do appraisals and there are labs that do independent appraisals. The appraisal is an approximation used primarily for insurance purposes. Many stones are easy to appraise because many comparable stones are available. This is especially true when similar diamonds are listed on RAPNET, the wholesale price list for the industry
Flow of diamonds in the market from mining to the retail consumers:
1. GOVERNMENT & PRIVATE MINES
Nearly all rough diamonds found in the world today are controlled by a relatively small number of governments and private mine owners and conglomerates. There are some smugglers who pilfer from the concessions of those who control the rough from both government and private mines. However, as a percentage of the total world production their numbers have little effect on the overall market.
2. ROUGH BUYERS & DIAMOND MANUFACTURERS
Traditionally, diamond rough was bought only by diamond manufacturers for their own supply and for the supply of smaller cutting houses. Today, there are funds buying rough for investment. Most of these companies do not manufacture the polished diamonds. Rather, they put the goods in storage and most monetize the rough for liquidity.
3. EXPORT & IMPORT WHOLESALERS & BROKERS
Once the rough is polished, it is sorted and priced for sale to the export and import wholesalers and diamond brokers. India is the largest trading center by weight. However, it is difficult for Indian manufacturers to find the larger rough required to supply large diamonds to the world market as DeBeers limits the large rough to India to protect the other cutting centers from India's labor cost advantage.
Most larger, more expensive goods are manufactured in Israel, Antwerp and New York. There are goods cut in Russia and South Africa and several other countries. Israel, Antwerp and New York remain the most important centers in the world for larger diamonds. It is in these centers that the wholesalers and brokers find the polished diamonds for there customers in their home countries.
4. DISCOUNT RETAIL AND INTERNET
Today, because of the change in the way consumers are prepared to compare and buy, the discount retailer and the internet stores have become a major user of diamonds. With few exceptions, they buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills and assets to buy directly in the major bourses of the world.
5. FULL SERVICE RETAIL STORES
The consumer purchases the majority of diamonds imported from high end "carriage trade" stores (Tiffany, Cartier, etc.), large volume chain stores (Zales, Sterling, Fred Meyer etc.) or from independent jewelers. Like the discount and internet stores, with few exceptions, these retailers buy in the country of their business from wholesalers and brokers. Most of these companies lack the time, skills and assets to buy directly in the major bourses of the world.
I have given the flow of diamonds from rough to the consumer in order to better illustrate how diamonds are priced at each level of the market and what the average profit is at the various levels.
The price of rough is dependent as much on the time, place, skill, desire and need of the parties involved as it is on the shape, size, color and clarity of the stones in any rough parcel. There are tenders that create set prices for sights in Russia, South Africa and from DeBeers and other suppliers. However, these prices vary enough to say that in reality, no two parcels will ever be priced the same and some suppliers will buy better than others. For mining profits you can look at companies whose information is in the public domain.
Still, there is a range of price for all goods and the rough rarely will exceed or be less than the range it falls into. All things being equal, the range is usually within 10% either way.
In order for a diamond manufacturer to stay in business, he needs to realize a gross profit of 30-40% from the rough to a polished stone. The net profit in the industry is 5-8%.
If a piece of rough has a cost of $100, he must be able to sell the stone for $130 or more or he will soon be out of business. Obviously, some stones will yield less and some more. The difference is a combination of skill and luck.
The importer-exporter-wholesale-broker group buys the polished diamonds from the manufacturers to sell to other importer-exporter-wholesale-brokers and retail establishments. When the importer-exporter-wholesale-broker sells to other importer-exporter-wholesale-brokers, his profit margin is from 1%-15% depending on the factors outlined in the purchasing of rough. The average "in trade" sale profit is about 5%.
When the importer-exporter-wholesale-broker sells to jewelers his profit is usually 10%-30% depending again on the above combination of factors. The average is about 20%.
The internet and discount retailers supply the public with diamonds and will have a profit of about 25%-40% gross. There are exceptions of course, but most consumers shy away from these companies when the diamond has a cost above $15,000. Rarely, do they sell important stones.
Full retail stores have a 1.6 to 3.0 times cost mark up depending on the store's policy for credit availability and cost of the diamond. Smaller diamonds under a $1,000 will sell retail for $2,000-$3,000 or more. The larger and more expensive the diamond, the smaller the mark up. It is rare for most chains and independents to sell important stones over $50,000 retail.
The carriage trade is a different animal altogether. They are blessed with fame, name and are well financed. Because of this, they have learned they do not have to be shy in their profit structures. Few companies have their capacity and fame and because of the lack of competition, they have generally higher mark ups.
This brings us to the mark ups that these companies enjoy for larger goods. Generally, high end pieces do not have large mark ups because the total dollar profits are very large. If they pay $1,000,000 for a diamond they will sell it for $1,600,000 to $2,000,000 depending on the availability of the diamond and on the skill of the customer in negotiation. On diamonds of great rarity, they may sell them with a greater profit margin. If there competition cannot find another stone to compete with them, they will of course take advantage of the situation.
In order for the customer to feel good about his purchase price and for insurance company's requirements, the appraisal was created. The stores themselves do appraisals and there are labs that do independent appraisals. The appraisal is an approximation used primarily for insurance purposes. Many stones are easy to appraise because many comparable stones are available. This is especially true when similar diamonds are listed on RAPNET, the wholesale price list for the industry