An Interview With Rapaport, the Diamond Maverick

"The one good thing about synthetics is that it gives the natural diamond producers a kick in the butt."

Martin Rapaport is never short of words when it comes to diamonds. Coleby Nicholson met with the industry nonconformist to discuss the current state of the international diamond market.

Martin Rapaport: most people in the industry will know the name, or at least recognise the face and signature bow tie.

The founder and chairman of Rapaport Group, which publishes Rapaport magazine and operates online trading platform RapNet among other products and services, began his career in the diamond industry in 1975 as an apprentice diamond cleaver in Antwerp.

His Wikipedia page notes that he has been called a ‘maverick’ within the diamond industry and probably rightly so.

I met with Rapaport in July to discuss the state of the industry and his often counter-intuitive and controversial stances on various industry issues.

At the time, he is quick to say that the diamond industry is in a period of large “transition”.

“Overall the diamond industry has settled, it’s not expanding,” he says. “You could say the pie is shrinking and people are fighting over the little pieces of the pie.”

Rapaport explains there are several reasons for this, first of which is the fact that the boom in China quieted down a few years ago.

“In addition, the US market has become more picky,” he continues. “Europe is gone, and with the oil price the UAE is gone – when I say ‘gone’, I mean that these markets are not a driving force in diamond demand.”

Rapaport also notes that there is some concern that recent rough sales, to the tune of about US$1.8 billion, are entering the Indian market.

“There seems to be a lot of rough coming in and there is no increase in polished demand,” he says. “So there is concern that inventory levels are too high, but again, we are chatting here now in July-August, and the Christmas season is around the corner where demand, specifically in December, can be triple or at least double the demand of the rest of the year.”

EVOLVING NEEDS

The industry may be in holding mode but Rapaport says there is optimism about next year, as well as in the longer-term, and that many changes are taking place at the consumer end.

“The US is approximately 51 per cent of the market at US$42 billion – that would be diamond jewellery with metal. Rapaport Group expects the US market to probably pick up strongly next year,” he explains.

“The consumerism issue is amazing in the US. First of all, you have the Millennials, who offer a whole different type of consumer demand. The Millennials are primarily focused on three things: an experience; customisation – their ring should be a little different, but it doesn’t mean customising from scratch; and finally, extreme customer service.”

Further to this, he predicts an increasing interest in social responsibility from Millennials.

“With this cultural shift in demand in the US is the emergence of what I would call the ‘we’ generation,” Rapaport explains.

“Everything is community and social. So the idea that people want to know where their diamonds are coming from is going to grow, and I believe it will evolve competition.”

He envisions a time when customers will shop around based on whether a retailer offers a diamond from a ‘good source’.

“A guy will come up and say, ‘My diamonds have a very good source,’ and I’ll go to another store and I’ll say, ‘That guy told me his diamond had a good source, what about yours?’ Consider what happened with XXX GIA certification. There was no cut grade. People didn’t ask for cut grades but now cut grades have come into the fore and everyone demands it.”

NATURAL VS SYNTHETICS

Regardless, Rapaport believes that many other “problems” still exist in the industry.

One of the major advancements impacting the traditional natural diamond industry is the rise of synthetics.

Rapaport says consumer transparency is linked here too because despite the powerful marketing campaigns, synthetic diamonds are not identical to natural diamonds.

“That is a fundamental problem because the consumer is being misled by thinking that synthetic diamonds are identical, when they are not identical because there is no natural scarcity,” he explains.

Rapaport believes that there will never be a shortage of synthetic diamonds, stating that production is only going to increase, which will inevitably lead to a price collapse.

This, he continues, presents a challenge for retailers because they could be selling a synthetic today for US$10,000 but as the cost of production falls, that stone will have a value of US$100 in 10 years’ time.

“If your customer came back to you, it would look as though they were dealt a bad hand,” Rapaport states. “So if retailers want to sell synthetics, they need to tell their customer that the prices of these things will probably fall significantly more than natural diamonds.”

While this may be true, Rapaport says the natural diamond producers are not communicating the ‘scarcity value’ in an effective way.

“The one good thing about synthetics is that it gives the natural diamond producers a kick in the butt. So I think that’s excellent,” he states. “It’s high time that the diamond mining companies took responsibility for their product because essentially they are the people that claw back the profits.”

However, Rapaport says the matter is complex and references a recent announcement by the Gem & Jewellery Export Promotion Council that it would contribute US$2 million to the Diamond Producers Association – the international group backed by mining companies and developed to promote generic diamonds.

“I think it’s silly to give US$2 million to the mining companies because let’s say the industry gets together and promotes natural diamonds.

“Let’s say there is a lot of demand for these [natural] diamonds because of the promotion by the private sector industry [the non-mining sector]. Do you think that the rough diamond suppliers are going to lower their prices or raise their prices?” he asks.

“The story of the diamond industry is, if you get up there and you do too much promotion of generic diamonds, then the diamond mining companies raise the price and what you are doing therefore is creating higher prices for yourself.”

Rapaport believes that just as the industry shouldn’t be supporting synthetic diamonds if there is no wish for that support, the industry shouldn’t support generic natural diamonds unless there are assurances that the results of investments will be available to those making the investments.

“Don’t plant trees if someone else eats your fruit,” he says. “If the private sector here, the non-mining sector, spends money on generic diamond promotions, and the mining companies raise the price then that’s not rational. I mean, people can throw the money away, no problem, but it’s not fair.

“So if we spend money promoting it we should get the fruits of our money and we should not see increases in rough diamond prices.”

Wrapping up his assessment of the current state of the diamond industry, Rapaport says this is a period of re-assessment, re-configuration and re-doing.

“This doesn’t mean that there aren’t a lot of interesting changes taking place,” he concludes.

Oh, and that bow tie was present, naturally.