The difficulties of acquiring a regular supply of rough diamonds and credit from the banks, shrinking margins and the lack of global generic marketing, these are some of the issues addressed by International Diamond Manufacturers Association (IDMA) President Maxim Shkadov in this interview.
You were re-elected as IDMA president at the 36th World Diamond Congress in June, what set of skills would you say you bring to the position?
I run the largest diamond manufacturing operation in Europe, Kristall Smolensk, in Smolensk, in western Russia. And in spite of what many may think, my company, too, is struggling continuously to obtain steady rough supplies, the right rough, to keep out plant working. Kristall is accounts for eight percent of the annual income of the workers of Smolensk, so I carry a heavy responsibility.
We are DTC sightholders, get supplies from Alrosa, and still, we’re struggling. Like our colleagues in the market, we are subject to volatility in rough prices, which are mostly unpredictable and unmanageable, and provoke the emergence of speculative bubbles and destroy the manufacturers’ margin while also complicating the availability of financing by the banks.
So, yes, I do think I know what we are dealing with, industry-wide.
What are the main challenges facing IDMA members today? You spoke at the IDMA meeting of the challenge of profitability. How difficult is the situation today for diamond manufacturers?
The large diamond mining firms, while “blessed” with their own problems, seem to have lost the notion that the regulation of the rough diamond market is the chief prerequisite for the long-term growth and stability of the diamond supply pipeline. Our market, which trades in rough and polished diamonds, also trades in dreams! For dreams to be sustained, people need to be in an optimistic frame of mind to respond to the marketing of feel-good products, such as diamonds and diamond jewelry. However, the feel-good factor has to emanate first and foremost from the direct clients of the mining companies.
[two_third]It seems to me that the mining companies should be thinking about – and listening to – their clients. For diamond manufacturers, winning a sight, or a contract, has always been an achievement, something that gave you confidence in the future, that would instill the illusion of success. However, today, a sight or contract now looks more like a punishment. Sightholders and contract holders can only hope to make their two to three percent profit, if at all. The balance is clearly not in their favor. And, as we know, refusing a purchase is so risky that it is not really an option, as it may lead to losing the contract with the supplier and thus losing business. At the same time, mining companies continue to report – double digit – record profits annually. [/two_third][one_third_last]
“However, today, a sight or contract now looks more like a punishment. Sightholders and contract holders can only hope to make their two to three percent profit, if at all.”
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What is your view on the increasing trend of rough diamond tenders? Are they causing damage to the diamond manufacturers?
Why talk about tenders only? The current sight, preferred customer and core client system is ultimately unhealthy for the market. How many companies have a sight or similar sales contract? About 150? And how many diamond manufacturing firms are operating in the market? About 5,000? Doesn’t anyone think that it is highly undesirable that 150 companies buy the bulk of the rough from the producers, under any condition and pay any price demanded? If anyone cared to look at the big picture – at the entire downstream market and its potential in the luxury product market – it would become crystal clear that the current supply model of rough is impeding the potential development and growth of the diamond and diamond jewelry market. Tenders and auctions basically do three things. – and none of them are good. They do not allow for long-term relationships to develop, they do not leave a chance for the SMEs in the market And they are the base for price developments.
[two_third]How can the manufacturers be convinced not to fall into this trap of paying any price for rough, just to get the rough? I think the answer lies in the interaction of financial partners with their clients, the diamantaires. I think we need to talk to the banks, get them to sit around the table with us and try and set the ground rules for the financing of rough. I’d like to include ALL the banks that are involved in financing the diamond trade’s supply pipeline, including those from and in India. We need to be inclusive and make sure the Indian banks become an integral part of this effort. The Indian banks are very influential and could very well hold the key to the solution of this whole issue.[/two_third][one_third_last]
“It would become crystal clear that the current supply model of rough is impeding the potential development and growth of the diamond and diamond jewelry market.”
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How realistic is it to expect banks to want to enter financing of the diamond industry since they frequently complain about the lack of transparency in the trade?
This is obviously a very serious problem. Banks are leaving the sector and we are not seeing any new blood infused into the system. That is why we – IDMA – are pushing hard for an international diamond industry banking summit that will bring the industry, the current banks in the sector and hopefully other interested banks to the table to discuss the prospects for our industry. This event is planned toward the end of the calendar year. As mentioned previously, we hope that banks from all the diamond centers will participate
The issue of generic marketing is clearly critical to the diamond industry, so why are the many industry players reluctant to commit to financing it? How do you rate the prospects of the World Diamond Mark Foundation?
The current lack of the generic marketing efforts, as they were executed by the Diamond Promotion Service is clearly felt. Ever since De Beers’ departure from generic advertising of cut diamonds, diamonds have lost their strong conceptual support. Driving consumer demand for diamond jeweler, has much slowed down in recent years. It is necessary for all major players in diamond mining to come together and work out a consolidated approach, a kind of a road map for the industry.
Driving demand for diamond jewelry by direct advertising and creative marketing solutions should become a matter of greater priority. Otherwise diamond manufacturing will incresingly become a weaker, less efficient and less attractive business, allowing dubious traders a bigger share. At the same time, increased demand for diamonds will bring about healthy competition and development opportunities for market participants.
The diamond miners conducted endless fruitless discussions on the need for generic marketing lasting nearly 10 years. Nothing was done. It was obvious that the market was suffering due to the absence of a regulator which could undertake generic marketing, get rid of or, at least reduce, the volatility of rough pricing, replacing it with the stable gradual growth that is central to our concept of what diamonds are, and guarantee the purity of the product with the most demanding business ethics principles.
However, the gauntlet has now been picked up by the World Diamond Mark Foundation, and we believe that we now stand a very serious chance of re-introducing generic diamond promotion and marketing programs into the downstream market. The World Diamond Mark (WDM) is a non-profit organization incorporated in Hong Kong and established in 2012 by the World Federation of Diamond Bourses to promote consumer desirability and confidence in diamonds. The World Diamond Mark’s global objective is to ensure the health and future growth of the diamond and jewelry industry in the luxury market sector through the creation of consumer demand, via a network of accredited retailers and generic marketing campaigns. It is based on three core activities:
- Education and training of the jewelry retail business community about diamonds through the Authorised Diamond Dealer (ADD) concept of accredited retailers
- Confidence building with the consumer through the WDM’s Authorised Diamond Dealer retailer accreditation program
- Generic consumer marketing and promotional programs in core markets for diamonds and diamond jewelry, to improve diamond jewelry sales and market share
Do you see the increasing spread of technology as a help or danger to diamond manufacturers?
Technology is a must, an absolute must. The more technology, the more perfect the product.
Is the diamond industry united enough to take on the challenges that it faces?
We will see. There is a lot of goodwill in the industry and to succeed in the diamond industry, you must be an optimist.
