mmath, on Monday, Jun 9 2008, 03:45 PM, said:
Diamonds aren't all that rare. Well cut diamonds are rarer than poorly cut diamonds, but neither is scarce. Semantically, you are right: a diamond is not a true commodity because it is not fungible; however, diamonds manifest themselves in the marketplace in essentially the same way. Drop shippers really have just created perfectly competitive exchanges that peddle diamonds similarly to a commodities exchange. This gives the consumer access to the best price competition and the greatest selection.
All the market power in the diamond industry rests in the parties that control the mines. The world's supply of diamond is controlled by a strong oligopoly. They choose the quantity that hits the market. Jewelers and middlemen (pardon the sexism) are a weak force in that equation. You are at the mercy of the suppliers and, by extension, so are your customers. In other words, any middleman who claims they have one of a kind inventory is either dishonest or delusional (unless they are doing their own cutting).
From my experience, a jeweler can add value to the process by offering expertise. I would gladly have paid someone a price premium to save me that 10 weeks it took me to get a good value. My time isn't worthless. I spun my wheels a lot before I gave up. For this to happen industry wide, my experience has convinced me that there needs to be a realignment of incentives in the industry (the same way CarMax is destroying the old way of selling cars).
One of the things that has widely spread is a set of appalling misinformation regarding DeBeers, the vast stockpiles of diamonds, the artificiality of the market, etc. High on the list of nonsense is ‘The Diamond Invention’ by Edward Epstein.
It’s an interesting combination of a history lesson and a vast conspiracy theory where DeBeers and their advertising agency have manipulated people into buying something quite expensive that they have no real need for in order to further their own nefarious profits. As far as it goes, this is correct. You can’t eat diamonds and there is a valid argument that no one really
needs one. The problem, of course, is this applies to pretty much everything we buy. Who needs an ipod? Or a cell phone? Or a steak or lobster when a bowl of rice would do? What about theater tickets or international travel, scuba lessons, imported beer, more than 1 pair of shoes or 98% of the other ways we spend our money. Even the terribly poor seem to have an actual need to buy unnecessary things. To some extend these things can be attributed to modern advertising convincing us that we need these things but there really does seem to be an unspoken human need for this stuff.
Diamonds are colossally difficult to produce and they tend to come from what westerners would describe as fairly exotic places. It involves a terribly unusual set of tools and skills to fashion the rocks into the gems that you recognize as diamonds and in the end they are very cool little objects. Are they too expensive when compared to other things? Possibly, but I think probably not. The obscene profits that people seem to believe are in the diamond business don’t seem to be materializing and never really have. In this years Forbes’ list of the 500 richest people in the world, only two could be described as jewelers even in a stretch. Nicky Oppenheimer, CEO of DeBeers who presides over his grandfathers shrinking empire made the list at #173 and Beny Steinmetz at #296 who describes himself as a diamond manufacturer but who got rich dealing in Manhattan real estate more than African rocks. That’s the only two. Diamonds are a $55Billion dollar industry in the US alone, so where’s all that money going?
The problem is that diamonds are enormously labor intensive and wickedly competitive at every step. The players, including retail jewelers, aren't nearly as inefficient as you are suggesting. In case you didn’t notice, there are a lot more jewelers than there are, say, railroads or pharmaceutical companies. They spend the money on things like rent, advertising and employees, and those people spend the money on things like heat, printing and still more employees. Even the fairly efficient players like Blue Nile who you're calling 'perfectly competitive' aren’t exactly burning down the house. BN reported an 8% profit on sales in 2007.
There was just a big court case over the very issue of whether DeBeers was using their size and power to artificially inflate prices. The court ruled that they had and determined that diamonds were a whopping 4% higher than they would have been without their manipulations.
If you were one of the ‘injured parties’ who bought a diamond between 1994 and 2006, you can apply for you’re your share of the refund at
https://diamondsclassaction.com/. You may see as much as several dozen dollars for your trouble.
Neil
Edited by denverappraiser, 09 June 2008 - 06:33 PM.
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