Ehud Laniado passed away on March 2, 2019.

Ehud Arye Laniado

It is hard to digest this news from someone who made a lasting impression during his lifetime.

Ehud’s writings on the diamond industry over the years are reminiscent of his desire to share his thoughts on the diamond industry, which remain as relevant today as when first published.

In honour of his strive, this page is dedicated to collating some of Ehud's key insights in a series entitled “Insights from Ehud Laniado” that will be released weekly.

Given his vast experience across the entire diamond value chain and diamond centres globally, Ehud developed a rare ability to take a bird’s eye view of the sector yet dive into the finest detail. He never shied away from highlighting the most pressing challenges faced by the industry and offered practical ways to address these, including by sharing his own tools that he developed over the years.

Chief amongst his ideas include restoring consumer trust and demand through improved pricing transparency, marketing and education; his Crystal Clear approach at diamond pricing alongside pricing tools he developed at Mercury Diamond; reinforcing the midstream and other aspects of the supply chain; how natural diamonds can co-exist with lab-grown diamonds; and how to turn the opportunity for diamond for wealth preservation into a reality.

Click here to scroll down to the latest Insight


The Challenge of the Diamond Consumer

Over the last five years, Ehud often discussed the need for the diamond industry to act in unison to address some of its most pressing challenges. As a first step, there is the need to ask the right question, starting with what explains the decline in consumer demand.

This past February, right after Valentine’s Day, he stated: “Consider the following: diamond jewelry sales are not as good as they used to be. The decent margins wholesalers and retailers used to have on diamonds have withered. While luxury sales are growing, diamond jewelry sales are losing market share in the category. Consumers are losing interest in traditional diamond jewelry, opting instead for alternatives such as lab-grown. Considering all this, my question to the industry is ‘what are we doing to turn this around?”

Ehud sought to enlist the diamond industry to examine the steps that brought us to this point, from the decline in marketing to the limited attention to evolving consumer needs. These trends, which Ehud explored in depth, led to a decline in consumer demand for diamond jewelry and a rise in interest in alternatives. From other luxury items such as vacations and handbags to different stones to set in jewelry, including precious stones and lab-grown. According to Ehud, our diamond industry partly brought the decline on itself.

On the positive side, he always believed that the diamond industry could change its course and generate renewed consumer interest in diamonds. In the coming weeks, we will examine that idea in light of his publications.

Related articles:

Demand is Shrinking for a Reason
From Tulips to Diamonds - Why Now?
Low Consumer Demand and High Rough Supply

A Vision: Three Diamond Venues

Ehud always believed that the diamond industry could change its course and generate renewed consumer interest in diamonds. Ehud envisaged three demand directions for polished diamonds, each fulfilling a certain need, each addressing different budgets, and each fitting different economic approaches to buying diamonds.

In Ehud's words: "The future vision of diamond consumption should have three parts: The traditional market of diamond jewelry. With a popular price point and made from the cheaper part of diamond production, can compete with other gifts in the shops. The second is that of fine and high-end diamond jewelry. These niche market items are expertly designed and are fit for the bridal and the luxury sector. The third venue, and the one with a growing importance, is diamonds for wealth perseveration - a tool to store value. These diamonds will be bought and treated specifically for that purpose and with a new methodology that is based on the economy of rarity."

This vision builds on the existing diamond markets to create a new one, to continue strengthening the current offering of diamonds as a component in jewelry, while taking diamonds beyond that point. Ehud believed that as only a component of the jewelry industry, the diamond market was not taking advantage of other opportunities. He firmly believed that the diamond industry must carve out its own destiny.

Ehud's vision for three venues was driven by his belief that their fundamental characteristics which have possessed people's admiration such as their rarity, have not changed, but have perhaps gotten somewhat lost along the way. It was also grounded deep in the co-existence of multiple venues found in other commodities, such as gold and art, which are used both as adornment and for wealth preservation.

To deliver this vision, he believed the diamond industry needed to tackle a number of issues that prevent it from reaching its full potential. These issues will be discussed in upcoming articles.

Related articles:
Natural Diamonds as Wealth Preservation
The Diamond's Place in the Consumer's Heart
Changes in Demand Reveal Trends and Uncover Issues

Marketing the Case for Rarity

A lot of work is required to create and sustain demand for polished diamonds. As in every industry, it is a task for product makers. Unlike other industries, it was a single producer that took it upon itself. But if De Beers relinquishes this task, who will market diamonds and diamond jewelry?

"By the early 21st century, diamond marketing quickly became the responsibility of individual firms from midstream diamond manufacturers to diamond jewelry retailers.Ultimately this strategy fell far short of expectations, as diamond companies focused mainly on the marketing of their own brands, and failed to establish or maintain demand for diamonds generally in the minds of consumers," Ehud wrote in an October 2015 post.

"It seems that as an industry, we might not be loud enough when compared to other luxury sectors," he noted, adding that another issue was "whether our industry is unified around a clear and compelling central message to win the hearts and minds of consumers, especially of the new generation of buyers who has been less exposed to De Beers' "a Diamond is Forever" industry-wide campaign."

In Ehud's mind, an essential component in promoting diamonds should be brought forward more prominently. "One key differentiator of diamonds is their ability to maintain their value due to the economy of rarity," he stated in May 2015.

"When we talk of the rarity of diamonds, we are not just talking about the finite and declining supply of diamonds found in the earth," he argued."We are also talking of the increasing rarity of diamonds in the light of increasing demand for diamonds and what happens to diamonds once they are polished. All these factors combine to make diamonds even rarer."

This led Ehud to the conclusion: "If the public can understand the rarity of high quality 1-carat and larger natural diamonds, I believe such items will become an asset and not an expense, which is how they are perceived today."

Ehud was convinced that the diamond industry possesses strong messages upon which to base a solid marketing campaign for the future. The question to then consider is which producers will lead on delivering such a campaign for the sector as a whole, especially now that the diamond sector is more fragmented than ever. Ehud explored some options drawing from the experience of other sectors, which will be explored next.

Related articles:
Opinion - Is the rarity of diamonds a myth?
The Growing Rareness of Pink Diamonds
A Vision for the Future of White Natural Diamonds

Together We Are Stronger - Branding Alliances

Ehud welcomed the generic diamond marketing campaigns that emphasized the rarity of diamonds. In July 2016, he wrote "The return of a relevant generic diamond marketing campaign is a blessing. 'Real is rare. A diamond is real' is a step forward to changing the current consumer mindset and is naturally inspired by 'A diamond is forever'".

At the same time, Ehud realized that in the current market structure, allocating sufficient funds to invest in an impactful marketing initiative is not simple, and suggested a possible solution, "In view of our fragmented sector, diamond players should consider branding alliances to jointly invest in promoting diamonds".

Such a joint effort should not be limited to smaller companies. According to his vision, the leading companies must play a key role. "Branding alliances must be well organized and funded to achieve the possible, yet ambitious objective, of promoting the inherent value of diamonds in the hearts and minds of consumers.

This requires the involvement and contribution from the industry as a whole, from De Beers and Alrosa to the more fragmented midstream and downstream markets.

Could we envisage for example diamond exchanges and the other trade bodies mentioned above creating a large common marketing fund with pro-rata contribution from players across the sector?

If a fraction of our industry's $22 bn wholesale and $78 bn retail turnover was set aside such that a marketing fund of say $100 m p.a. could be created, this would go a long way in promoting diamonds as a unique product, complementing the marketing efforts of individual brands."

Working together towards a common goal, developing a joint strategy, and executing it was a worthy cause in Ehud's eyes. Especially as it had clear benefits for every single industry stakeholder and others as well.

Related articles:
Strategic alliances as one way to address excess fragmentation in the diamond industry
The Three Keys to Diamond Brand Power
Champagne, Cognac, Chocolate and Brandy: How the Industry Markets Brown Diamonds

Making Diamond Prices Transparent

Pricing is at the heart of making the case for rarity of diamonds, which in turn is key for restoring consumer demand. Pricing, however, has also been the Achilles' heel of the diamond industry, especially in a context of increased consumer knowledge.

"Technology is changing our industry in an immense way. Buyers are better informed than ever and internet jewelers have opened up a new world that allows buyers to educate themselves and to shop around while they cut costs and overheads," Ehud said in a February 2016 interview.

"A completely new approach has to be based on a fully transparent market to gain the trust and understanding of the marketplace," he expanded.

This means everything from disclosing everything about the characteristics of the diamond, through how it was priced, to continuous and always available information on its current value. Consumer education about every parameter of a diamond and how each component of the diamond pushes the price up or down must be created and offered smartly so all understand the premise and the promise."

Ehud challenged the belief that the asymmetry of information between diamond sellers and buyers was an advantage over time. Instead, he believed that pricing transparency was essential to drive and sustain consumer demand. He stated, "I believe that if consumers were more educated about diamond prices and if they had access to information on diamond prices, we'd all be selling more diamonds and more jewelry."

Detailed information about diamonds should not be a trade secret, but a way to drive interest in diamonds. "Let's make all information known, and let's make diamond prices clear and accurate, once and for all," he concluded. To help demonstrate how pricing transparency can be realized in practice, Ehud shared the key principles of the diamond pricing system he pioneered and used for 40 years. These principles will be shared in the next few articles.

Related articles:
The Case for Transparency – How
Mercury Crystal Clear™: Gaining Transparency in the Diamond Market
Transparency offers clearer, brighter future for diamonds

Making Diamond Prices Transparent

Ehud's case for pricing transparency in the diamond industry was made clear in the previous Insight blog. This means making every piece of information about a diamond available to consumers. To help demonstrate how this can be put into practice, Ehud shared his own diamond pricing model, which he used for decades to price both rough and polished diamonds.

"Mercury Crystal Clear™ is an innovative methodology for valuing rough and polished diamonds, which I have been developing as principal of Mercury– a rough and polished diamond pricing consultancy", Ehud recounted in October 2015. "Mercury Crystal Clear™ is about making diamonds' value known and transparent, based on the conviction that diamond buyers today lack sufficient clarity about what they are paying for."

It was a serious effort on Ehud's part and a burning desire. "I strongly believe that two complimentary processes – full disclosure of price components to consumers along with accurately translating polished diamond prices into rough diamond prices – are part of what I like to call a CRYSTAL CLEAR philosophy".

Ehud had a detailed plan for the market, and his Crystal Clear philosophy embodied it. In the following Insight blogs, we will describe key components of this method.

Related articles:

Mercury Crystal Clear™: Gaining Transparency in the Diamond Market
Living Up to the Diamond Promise
Empowering the Consumer with Transparency

Crystal Clear – The 5th C

A key component of Mercury Crystal Clear™, the diamond pricing system which Ehud founded, is expanding consumer knowledge of diamond characteristics beyond the 4Cs (Carat, Color, Clarity and Cut) known to the ordinary buyer.

"The importance of a transparent and easily understood pricing system for diamonds cannot be stressed enough. For many years, the general press and many consumers have been stating that the misunderstood differences in diamond prices are a turn-off."

The missing link is the realization that beyond the 4Cs there are various other characteristics called "irregularities," which should be included when evaluating the price of a diamond. These can create significant differences in price between two similarly graded diamonds with the same 4C characteristics.

"Irregularities are all those extra features of a diamond that are not reflected in the 4Cs, but are stated in a grading report: comments, type of inclusions, location of inclusions, etc.," Ehud explained in a blog post. He then added, "Several weeks ago, I unveiled Mercury Crystal Clear™ and a transaction-based price list. This is a transparent system that tracks transaction prices throughout the diamond pipeline, taking into account the type of transaction (retail/wholesale), size of transaction, and includes full details of each irregularity the sold diamond may exhibit."

In another blog post on the topic, Ehud shared the following, "I am passionate about pulling back the veil on the issue of irregularities. It is information that is well known to diamond industry insiders, but to few others. Anyone buying a diamond needs to know this, because comments and irregularities are crucial to determining the value of a diamond. They provide precious information that may not impact the 4Cs of a diamond, but could still impact the price."

"I believe in helping diamond buyers with their decision-making by spreading information about irregularities and their role in determining the prices of polished diamonds, assessing the rarity of particular diamonds," he added.

Related articles:

Today's diamond buying public needs clarity on pricing that is Crystal Clear
New Year, New Challenges for the Diamond Industry
My Secret to Setting Record Prices for Diamonds

Crystal Clear – The Need for Transaction Prices

As yet another key pillar of Mercury Crystal Clear™, Ehud emphasized the need to improve pricing systems by using actual transaction prices rather than benchmark pricing, which has traditionally been more common in the diamond industry.

"Existing benchmark lists do not provide accurate polished diamond prices, because this is not what they were established to do. Instead, they were developed to provide some form of benchmark for polished diamond prices to be used as a reference point for negotiation between sellers and buyers."

"This should come as no surprise considering that these lists are not derived from actual transaction prices. Benchmark lists appear to be based largely on asking prices, some more data-driven than others. But, as we know, there can be large differences between asking prices and real transaction prices."

In addition, Ehud stressed that a transaction-based diamond pricelist, together with a pricing system that factors in all diamond characteristics found on a diamond certificate, is necessary to understand the true price movements of a category of diamonds.

In contrast, benchmark lists, which are usually based on the 4Cs alone, could wrongly indicate price movements as a result of comparing over a period two diamonds that have the same 4Cs, but have different irregularities, thereby not comparing apples to apples.

"Moreover, these lists do not take into account additional factors which affect diamond pricing beyond the 4Cs, namely comments and other irregularities. As we know, these factors can significantly affect diamond prices," he added.

Ehud also explained in the following passage, published in March 2017, the wider benefits of disclosing transaction prices: "Transaction price lists have many advantages, first and foremost being disclosure. We have nothing to be afraid of in giving our clients transaction prices, because anyone who adds value over the average transaction price can and should ask for the appropriate price.

Having knowledge of the transaction prices will eliminate any feeling among our clients, the retailers, that we are preventing them from knowing something of importance, that we are hiding something.

Disclosing transaction prices will also allow retailers to talk with confidence about the value proposition of diamonds, without worries that they are being cheated in any way, a sentiment that is growing in the consumer market, mostly in the US and in Europe.

Having this information available to the general public won't hurt the diamond industry any more than publishing wholesale prices of cotton has hurt the sales of the textile industry. Publicly-available transaction prices won't hurt the allure of diamonds; all they will do is give consumers an extra layer of confidence in the product we are selling."

A more detailed and technical explanation of how Ehud's polished pricing system can be used in practice, can found here.

The next blog will cover how Mercury Crystal Clear™ can be used to price rough diamonds through reverse engineering.

Related articles:

The case for Transaction Price
Today's diamond buying public needs clarity on pricing that is Crystal Clear
Mercury Crystal Clear™: Gaining Transparency in the Diamond Market

Turning Crystal Clear Theory into Practice: Mercury Diamond Price List

The introduction of a transaction-based polished diamond price list is possible. The Mercury Diamond™ Price List which Ehud founded, provides wholesale polished diamond prices based on transaction prices in the wholesale market.

"In doing so, I aimed to highlight the potential benefits to the diamond industry that using price lists backed by actual diamond transactions can have. This is because these lists, such as that produced by Mercury Diamond, provide, in my opinion, a better reflection of market prices than benchmark lists, which are based on asking prices."

The key components of the price list are:

  • We developed a system that collects transaction prices from a wide range of manufacturers, traders, and retailers, all of which reflect wholesale polished diamond prices as they are bought and sold around the world.
  • These many monthly transactions are augmented by constant market research that backs, double-checks, verifies and completes the transaction data.
  • The system covers over 18,000 polished diamond categories across the 4Cs, covering polished diamonds weighing up to 30 carats with clarities ranging from Flawless to I3, in colors from D to P and in the various shapes.
  • The price list provides a price for a top stone without any irregularities.
  • A separate table lists all diamond irregularities and provides the discount or premium to be applied to the base price to find the exact current price of any polished diamond, regardless of its characteristics.
  • The polished diamond pricing system was reviewed and validated by one of the Big 4 accounting firms.
  • Traders will not only find the current transaction price of each diamond, but by applying their manufacturing costs, they can also "reverse engineer" to calculate the cost of rough diamonds.

With this data in hand, Mercury Diamond™ also developed the Mercury Price Calculator™ (The MPC™), a tool that automatically calculates the price of a diamond based on the information contained in a diamond's certificate, computing every possible combination of 4Cs and irregularities.

How the MPC™ works and brings Ehud's vision to practice:

Upon receipt of the certificate of a diamond, a person wants to know its wholesale price. Mercury Diamond™ automatically retrieves all its information, including the 4Cs and irregularities.

Once this information is retrieved, the MPC™:

  • Calculates the value of the diamond as a "top stone" (i.e. without comments or other irregularities) according to the 4Cs, based on the Mercury Diamond Price List™.
  • It then factors in discounts or premiums based on any comments or irregularities found on that particular stone.
  • In some cases, it may need to account for additional information on the physical characteristics of the diamond not found on the certificate (e.g. presence of a tinge).

Several factors ensure that the Mercury Diamond Price List™ can operate with precision:

First, it is based on real transaction prices and other hard market data. It thereby avoids the possible disconnect that can occur between asking prices and other information supplied by diamond players, and the actual prices at which diamonds are traded.

Second, the Mercury Diamond™ proprietary table of discounts and premiums for irregularities means that when it collects transaction data for individual stones, it can factor in the impact of irregularities and net it off the price of a top stone shown on the Mercury Diamond Price List.

Third, it can complement any lack of market data through a proprietary process of association, based on the established industry principle that price changes of certain diamonds are closely linked to price changes of similar stones.

The Mercury Diamond Price List™ is fully independent and has been validated by one of the Big Four accounting firms, which is the pricing system for both rough and polished diamonds from which this list is derived and currently has a patent pending in the United States.

Crystal Clear – From Rough to Polish

Improving the pricing transparency of polished diamonds is the first part of the two main components of the Crystal Clear philosophy. The other part, driven by the first, is the ability to then determine the prices of rough diamonds.

The rationale that Ehud used here was that, ultimately, it is consumers who determine the price of a rough diamond based on how much they are willing to pay for its polished output.

"I've always felt that the only way to determine the value of rough diamonds is by the value of the polished diamond outcome from that rough diamond, minus the manufacturing costs and profit. Why start from the price of polished diamonds? Because the power to set the price of polished diamonds is in the hands of consumers. The average price consumers pay for a particular polished diamond sets its value."

The Crystal Clear philosophy for calculating rough diamond prices out of their polished value was not theoretical. He shared a practical methodology with the diamond community in this article, Why are Rough and Polished Prices Disconnected? , Where he provided a series of examples to his approach to pricing rough diamonds.

Ehud also discussed the risk of loss when the price of rough diamonds is determined by a miner and disconnected from retail prices.

"The importance and necessity of the role of the gatekeeper are no longer open to question. The current manner of pricing rough diamonds is out of touch with the product that this raw material is yielding. A change is needed now, before the market improves and the mining sector once again pushes $16.5 billion of rough that is not supported by real transaction prices on the wholesale level. Will they rise to the occasion? "

Once again, Ehud emphasized the benefits from this more transparent approach at setting rough diamond prices."I believe that if consumers were more educated about diamond prices and if they had access to information on diamond prices, we'd all be selling more diamonds and more jewelry. If the way diamond prices are determined became openly known and clear to consumers, then the prices themselves would be clear and publicly known. If that were the case, the way the market works to reverse engineer prices - with the price of polished diamonds translating back to impact the price of rough diamonds – the result would be accurate pricing that reflects real changes in value".

Regaining consumer trust on the industry’s weakest links

In addition to improving pricing transparency, Ehud believed that the diamond industry should also tackle the other issues that have led to a decrease in trust in the sector as a whole.

With trust being so important to the livelihood of the diamond industry, Ehud reminded us of the Power of Mazal:

"Our industry is known for its ability to close multi-million diamond trades based on Mazal, a single word verbally agreed between parties, which is worth more than a thousand words in a contract. Mazal succeeded for so long largely thanks to the strong trust between companies in our industry.

Whilst we are therefore best placed to understand the importance of trust, we have somehow gradually placed ourselves in a more vulnerable position when it comes to consumer trust. Consumers need to trust the diamonds we sell them are natural, are correctly graded and carry long-lasting value. Trust is the goodwill of our industry, it is our lifeline."

Sometimes, just choosing the right staff can make a huge difference: "Just as in any other type of sale, gaining the trust of a customer is top priority. […] For anyone who has ever shopped for diamond jewelry, the difference between a professional salesperson and someone who 'just needs a job' is immediately obvious."

This is a path the industry has walked and overcome before. For example: "Buyers also needed to place their trust in the retailer. The average local diamond jeweler was often recommended by a relative who bought their diamonds from the same retailer. He was trusted to provide a good recommendation and a nice diamond at a fair price. Over the years, the role of the local neighborhood jeweler declined, and the modern grading system was developed in its wake to support trust and fair trading."

Yet, Ehud pointed to some outstanding areas of trust to improve. "The diamond industry has great potential. We need to turn that potential into reality. This requires a new vision for diamonds. A completely new approach has to be based on a fully transparent market to gain the trust and understanding of the marketplace. This means everything from disclosing everything about the characteristics of the diamond, through how it was priced, to continuous and always available information on its current value. Consumer education about every parameter of a diamond and how each component of the diamond pushes the price up or down must be created and offered smartly so all understand the premise and the promise."

In late December 2014, just as the year was about to end and members of the diamond industry left for their winter vacations, Ehud shared a few points to consider for the year ahead, "Transparency will also open us to new outlets for our product. We need the full trust of consumers to increase our businesses. The buyers' appetite for diamonds should never dwindle: nurturing and enhancing it is of the utmost importance if we want to maintain or even increase demand."

Reinforcing the supply-side

Improve the Diamond Midstream

Delving further into the issue of fragmentation in the midstream (manufacturing) of the diamond sector covered in last week's post, Ehud said in August 2015, "The more we examine the facts, the clearer it becomes that the main problem faced by the diamond industry is that the midstream – the manufacturing sector of the diamond pipeline that mainly polishes diamonds – does not get its fair share of the pie."

"The diamond sector is viewed by the public as a lucrative sector to operate in, enticed by the allure and profitability that diamonds represent. However, the diamond industry's midstream in reality suffers from very low profitability, constantly teetering on the verge of loss, while the mining sector and retailers – respectively the upstream and downstream of the diamond pipeline - maintain much wider margins."

Ehud offered a detailed overview of the indicative margins made by a midstream market composed of many players, demonstrating a fragile midstream market has consequences for the diamond sector as a whole according to Ehud:

"It is not only that margins are narrow or that financing costs are high – the whole economic structure of the diamond pipeline is skewed against the manufacturing sector. How can a profit be made under these conditions? Where is the return on investment, let alone increasing capital? Why would banks finance a sector that cannot demonstrate growth? Of course, under these circumstances, there is no room for expenditures on advertising, it is difficult to hold a stock of goods to provide better service to clients, or even protect the price of polished diamonds. Manufacturers are in a weak position and therefore their bargaining position is unfavorable."

"It is time to wake up," Ehud stated. "It is essential for all sectors of the diamond industry that the midstream makes money and justifies its huge investment of capital, knowledge, market fluctuation and financial risks, and unlimited dedication of time.

For the sake of a long lasting and healthy industry for all its participants, we have a responsibility to adjust the current model so that the indispensable manufacturing sector receives its fair share of the profitability pie. This is a crucial step in creating a strong industry that will be stable for years to come."

The next posts will drill down into possible solutions Ehud proposed to address this problem of deep fragmentation in the diamond sector.

Related articles:

Miners vs. the Midstream: Who Needs to Change?

Excess Fragmentation in the Diamond Market and Lessons from Other Industries

Ssurvival Mode: Why the Diamond Industry's Credit Addiction is Leading Us Down the Wrong Path

Possible Solution for Fragmentation – Consolidation

Ehud explored possible methods of addressing the issue of fragmentation, drawing in part on lessons from other industries.

First among them was simply consolidation, whether natural or through mergers and acquisitions.

In the diamond industry's midstream - the diamond polishing and wholesale sector of the pipeline - Ehud believed there were too many traders and polishers between miners and retailers.

"There are very many players competing for a small pie"

Without a reduction in the number of players, competition is so high it erodes the ability to work profitably and as a result, businesses close. "A business where your revenue is declining, and your expenses are either fixed or rising, is one where profitability erodes to nearly nothing – and then beyond nothing. That is why there are so many businesses closing or going under in the midstream of the diamond pipeline. This is an unsustainable business model."

Another form of consolidation which Ehud sought to highlight was vertical integration.

"Jewelry retailers have increasingly tried to get closer to the diamond source in order to get more security on the supply of precious gems and to provide consumers with more transparency on traceability. Various routes to get up the value chain have been explored."

"Both upstream and downstream companies have recognized the benefits of working with established midstream players, including taking advantage of their manufacturing know-how… It would seem to make more sense, for instance, for a rough producer to work with midstream clients like those who integrated with jewelry retailers that can handle larger volumes, are better financed and that can get better margins as a result of being closer to its consumers."

Ehud shared various successful examples of vertical integration, from Tiffany to Chow Tai Fook and Signet Jewelers. This follows, in part, successful models in other industries, whether for example LVMH's stake in one of the world's top cashmere makers or investments by Bulgari, Cartier and other luxury watch brands in parts providers.

Ehud shared further practical advise on how to make vertical integration work, with an understanding that proper execution is key and that there is no one-size-fits-all solution.

Related articles:

Is the Midstream Working for a Wage?

A Shrinking Industry

Join the Train or You Might Miss it

Possible Solution for Fragmentation – Alliances

As another possible way to solve the problem of fragmentation in the diamond sector beyond consolidation, Ehud encouraged the industry to explore strategic alliances.

"Looking at other industries, there appears to be various ways to address the challenges of excess fragmentation in parts of the diamond sector. One option our sector can consider, especially given the slow trend in consolidation between players, is to make more use of strategic alliances."

"Alliances," Ehud stated, "provide flexibility, from acting as traditional trade associations to performing more extensive forms of cooperation in chosen areas such as branding, cost reduction in procurement and manufacturing."

Ehud often called for increased investment in marketing and therefore felt branding alliances for promotion purposes were a good idea, encouraging the industry to adopt this approach. "In the absence of mergers and acquisitions, diamond retailers could consider branding alliances to jointly invest in promoting diamonds as a brand."

Picking up on how branding alliances exist in other sectors, "'Destination alliances are common in the tourism industry, where hotels, restaurants and attractions come together, often by setting up trade associations, to jointly promote and brand their destination."

Branding alliances have, in part, been adopted by some diamond industry players. A group of six diamond miners formed the Diamond Promotion Association (DPA). It is tasked with promoting diamonds in general, much like De Beers' "a diamond is forever."

Trading alliances between midstream companies was another form of alliance Ehud recommended to consider:

"As a result of being fragmented, the midstream market is currently exposed to various challenges, including a difficulty to put in place sustainable trading strategies. Could some of these challenges be addressed through alliances and trading associations formed by various players (including smaller niche companies such as those specializing in particular stones) to help improve their position, including vis-à-vis rough sellers and polished buyers, thereby also stabilizing the sector as a whole?"

Ehud showed how airlines and car companies did so successfully and encouraged the diamond industry's midstream to find a model that would work well and prove beneficial.

Ehud also shared a concrete example of how trading alliances could apply in the diamond midstream. "A single company with $1m could, for example, raise another $1m of bank loans and achieve a trading profit of say 5% on the $2m goods traded, i.e. $100,000 gross profit. But as an alliance […], the combined $10m capital is likely to secure a higher loan proportion, say even $15m, and hence each company will be able to achieve higher trading margins of say 6% on its share of the $25m total goods traded, i.e. $1.5m gross profit for all members of the alliance or $150,000 per company."

In exploring examples from how other industries addressed problems of fragmentation, whether through consolidation, vertical integration or alliances covered in the last few posts, Ehud always sought to encourage the diamond sector to be creative and dare to consider more structural and industry-wide solutions to challenges felt by individual players.

Related articles:

Excess Fragmentation in the Diamond Market and Lessons from Other Industries

(Slide share version)

Together We Are Stronger - Branding Alliances

Priorities for the new Diamond Producer Association

Reacting To Lab-Grown Diamonds

Beyond diamond players, Ehud explored other supply-side topics that have sparked debates over the years where he believed that similar to demand-side issues, greater transparency is central to address them. Lab-grown diamonds provide a good example.

While their emergence was accompanied by rising concerns across the industry, Ehud believed lab-grown diamonds can play a complementary role to that of natural diamonds, provided consumers gain a better understanding of the inherent value of natural diamonds.

"Man-made Diamonds, lab-made Diamonds, lab grown diamonds, synthetic diamonds and many other names have been given to what many consider to be a threat to the diamond industry. When referring to the matter it is almost as if people are asking, "to be or not to be?" I say: to be and to thrive", Ehud said in 2014.

"There is no doubt that there is a market for lab made diamonds in the jewellery arena. If it becomes cheaper than natural diamonds, it will appeal to the younger generation or to those who do not have sufficient means to buy natural diamonds."

Ehud took this approach for a reason. He held the opinion that "Natural and lab-grown diamonds are two complementary products," and therefore, "most people will continue to buy natural diamonds for emotional reasons and because they are one of nature's miracles, as well as for wealth preservation."

"Natural diamonds are a very different type of product than lab-grown. The latter can be created to order, just like posters of artwork can be printed. Posters can be the most beautiful works of art, but they cost a fraction of the original."

"The same is true for diamonds: A natural diamond is the rarest and purest piece of nature: no two stones are alike and each one is typically between 1 and 3 billion years old. By contrast, lab-grown stones can be endlessly reproduced by technology, at speed and scale. While natural diamonds are uniquely prized both for jewelry and as long-term stores of value, lab-grown stones have no intrinsic value and are an alternative material for jewelry manufacturing."

"In the future that I envision, the diamond world will act similarly to the art world. There will be those who buy diamond jewelry, those who buy jewelry set with lab-grown goods, and a market of collectors who buy diamonds as assets, but who also appreciate diamonds for their beauty. Based on the economy of rarity, we must create a separation in consumers' minds of diamonds as a component in jewelry. We must instill the understanding that diamonds stand alone, and can be used as an economic asset."

Related articles:

De Beers Shakes Industry Foundations Lab-Grown Initiative

Diamond Prices are Sliding, and that is A Warning Sign

The History of Lab Grown Diamonds: Value Proposition n

Recycled Diamonds

Recycled diamonds are another aspect of the diamond supply, which Ehud believed could benefit from greater transparency of the true value of diamonds. Recycled diamonds refers to diamonds that had been bought by consumers previously and are now back on the market for sale.

Ehud agreed that the term "recycled" does not do them justice. "When discussing recycled diamonds in the past, some people in the diamond industry have shied away from the term 'recycled' because it cheapens diamonds. They make a good point… Unlike cars or electronics, the wear and tear on diamonds is minimal and can be repaired to perfection. This is one of a number of important aspects of these diamonds and therefore the term recycled simply does not do them justice. They are in fact reclaimed. Reclaimed for their beauty, reclaimed as a gift, reclaimed because their value is not lost, but maintained."

Ehud also helped explain some of the drivers behind the recent increase in the number of consumers selling their diamond.

"If you wanted to sell your jewellery prior to the advent of the Internet, you had only a few options…the situation today is very different; the Internet has spawned myriad new options for consumers who are looking to sell diamond jewellery, as well as just about anything else. Online classified sites allow sellers and buyers to connect in local markets, or even across the planet.Auction sites like eBay gives sellers a more effective tool for maximizing price through wider exposure. As a result, a search of for "diamond ring" returns almost 1.7 million individual listings."

Ehud saw this trend as a sign that consumers appreciate the value of diamonds.

"The reclaiming process we have witnessed in recent years has another important aspect. It establishes the understanding that diamonds do not have to come straight from the mine to have a value. The consumer market is establishing that diamonds previously owned by consumers are also valuable. It is perfectly okay to buy a reclaimed diamond."

Now that recycled - or reclaimed - diamonds have established their place in the diamond pipeline, Ehud saw it as essential to ensure that this source of supply benefits too from a clear pricing system.

"Although recycling has not reached a level which would fundamentally change the industry, and will probably never do so, it is clear that more and more consumers conceive recycling as a possible exit for a valuable asset, which means that recycled diamonds are here to stay. The market thus needs a crystal clear system that will make it possible for those recycling their diamonds to be able to define and receive the correct price for their diamonds."

Related articles:

Recycling diamonds: A trend that is here to stay

Opinion: The crystal-clear value of reclaimed diamonds

Other Supply Chain Players - The Banks

Financial institutions are another key stakeholder in the diamond supply chain, which Ehud believed expected greater transparency from the diamond sector.

"Bank financing is the lifeblood of the industry. Without it, there would be no money for exploration or new store openings," Ehud stated in 2015. He also stressed the need to boost confidence in the diamond industry. This lack of confidence is evident in, for example, the decline in available bank financing over the past several years.

One of the keys to building this confidence, according to Ehud, is greater transparency in diamond pricing.

"The banks have in-depth knowledge about the companies they finance... They have very intimate knowledge about the costs, values, types and quantities of the rough diamonds these clients purchase... The question usually arises when it comes to the value of rough diamonds sourced from other suppliers, and the value of polished diamonds. What is the value of these items? Knowing the costs is good, but if goods are in inventory for a while, and it is not unusual for prices to rise and decline, what are they then worth?".

Furthermore, when buying diamonds, the bank wants to know if the company paid market prices. Sometimes, a company pays high prices (because having the goods is important enough to pay a little extra for them), but their inventory value should perhaps be lower - from the bank's perspective. Other times, a company has an opportunity to buy at a great price, in which case the company has a higher-value inventory that the cost reflects."

In addition to diamond pricing, Ehud highlighted several other avenues to explore for improving transparency vis a vis the financial institutions.

"The banks demanded that the industry move to IFRS, and in my opinion, justly so," Ehud stated in a post advocating price transparency. "Compliance with IFRS would determine how the value of diamond stocks is reported."

"To be accepted by banks, diamond companies, government authorities and even insurance firms, this third-party assessment system should be transparent, in order to be accepted by all. This is possible if prices of all diamonds are known, if the reason for the variations in prices are clear and understood, and if the methods by which the data on prices is collected are verified and monitored. Each and every component of this process requires full disclosure to the market and stakeholders. In one word, transparency.

Transparency also strengthens the confidence the banks financing the diamond industry have in the sector. With a few banks deciding to cease their financing of diamond operations, and others decreasing their financing of the diamond industry, this confidence-building measure can play an important role in bringing back and increasing financing to the industry."

Taking this further, "More bank involvement in the diamond industry could be beneficial in a number of other areas, including the creation of a market for diamonds as a possible wealth preservation asset."

Related articles:

Support Services: Banks

Banks Keep Walking Away and We Must Learn the Lesson

A Call for Transparency

Diamonds for Wealth Preservation

Ehud’s vision for the diamond industry spanned beyond improving what currently exists.

“The future vision of diamond consumption should have three parts: […] The third venue, and the one with a growing importance, is diamonds for wealth perseveration - a tool to store value. These diamonds will be bought and treated specifically for that purpose and with a new methodology that is based on the economy of rarity. These diamonds will need to be purchased in the right part of the diamond pipeline, purchased correctly, have an accurate grading report that goes beyond the 4Cs to serve as a tool to store value and an idea of wealth preservation.”

The potential of diamonds for wealth preservation has often been discussed inside and outside the diamond industry. Ehud offered a detailed look at some of the key aspects required to turn this vision into reality, in order to unlock this potential new market which, aside from a set of initiatives, has not yet taken off at scale.

He first sought to address core objections made to the very concept of diamonds being viable as investments. He believed such concerns were largely based on the lack of pricing transparency, which can lead to the mistaken belief that diamonds cannot be accurately valued.

“Many say that diamonds are not fit for wealth preservation, because their price is an “unknown.” What they mean is that different retailers might price diamonds with similar or even identical 4C characteristics very differently. What these people often don’t know is that the differences in price are sometimes the result of differences between the diamonds that the famous 4Cs simply don’t cover. I call these characteristics “irregularities.”

Ehud believed that this issue of pricing had to be addressed to change outside perceptions of diamonds for wealth preservation. While pricing diamonds is more complex than pricing other fungible commodities like gold, he believed that Mercury Crystal Clear™ which he founded is an example of a diamond pricing system that could successfully be implemented to achieve this objective.

Transparent pricing is needed to attract investment capital. Diamond pricing is complex, and this is not going to change. As mentioned above, unlike with other commodities, each diamond is unique, presenting significant challenges to valuing diamonds as such. However, we can close the gap so that some of the similarities and dissimilarities in diamond pricing can be properly understood, quantified, and factored into a diamond price system. This is where Mercury Crystal Clear™ comes into play…We believe that this unique approach to pricing transparency is the way to restore confidence in diamond pricing in the eyes of consumers, Wall Street investors, and diamond buyers.

Ehud shared thoughts on other key requirements to enable this new market to become reality. These insights will be shared in the following posts.

Related articles:

Natural Diamonds as Wealth Preservation

Crystal Clear: How Committing to the Love of Your Life Could be the Best Financial Investment You Ever Make

Symbol of Love or a Commodity Too?

Diamonds for Wealth Preservation – How to Get There

"I began charting out my vision for a future for diamonds, in which they serve as a wealth preservation tool. It is a broad vision, and I want to start discussing how I think we should get there" Ehud wrote in a post in January 2017.

Changing perceptions such that diamonds are viewed as viable for wealth preservation, as covered in the previous post, is the first step. Reaching a critical mass of believers is the next one.

"The underlying requirement for a successful market of any kind is a belief in the traded item. Be it a soft commodity such as rice, a hard commodity like gold, or a modern commodity like art, in all cases there is a widespread acceptance of the viability of the traded item.

For diamonds to play a role as a potential wealth preservation asset, we need to reach a critical mass of people interested in diamonds, and confident that whichever diamond they buy, they will find a buyer who will purchase the asset from them, paying them a premium, just as we do already with gold, bonds, stocks, art, watches, antique cars and much more."

"This group will create resell value, which will in turn create demand and form a market. For all of this to happen, we will need a critical mass of believers who will keep the value of traded diamonds sustainable."

How can a critical mass be achieved?

"There are many steps in creating a critical mass, and they involve different components that together, like legs of a table, are all needed to maintain it."

Ehud focused in particular on three aspects – trading platforms, marketing and education.

Related articles:

Symbol of Love or a Commodity Too?

Natural Diamonds as Wealth Preservation

Resale Value – in practice

Diamonds for Wealth Preservation: Trading Platforms

Ehud believed that one key component required to reach a critical mass of people who believe in diamonds for wealth preservation is the establishment of trading platforms.

""For diamonds to actually be an asset for wealth preservation, […] investors would need a place where they can buy and sell diamonds. Diamond trading platforms."

The lack of a viable mechanism to buy and then resell diamonds for investment purposes is therefore a key obstacle to overcome, and Ehud elaborated upon this.

"One of the biggest issues that the diamond industry faces in this regard is that there is no known mechanism for selling diamonds back into the diamond industry. This is because we are yet to tell the story of reselling diamonds."

"I envision a classic spot market for diamonds. A list of goods available for trade is published regularly, traders can buy and sell openly, and non-traders interested in buying or selling their diamonds can do so via brokers, just as we use banks to buy and sell shares. A database of spot prices is created, prices are updated instantaneously as trading takes place, and goods are delivered immediately to buyers."

"This diamond spot market has a full banking envelope, starting from clearing transactions, to providing financing against these assets. Of course, just like any other exchange, the local authorities will need to license it, and perform trading oversight of the kind the Securities and Exchange Commission provides for the New York Stock Exchange. The banking envelope and the oversight are essential components to forming confidence in asset trading of any kind, including diamonds."

"Around this spot trading activity, additional non-spot trading activities can be created. For example, financial instruments such as a diamonds futures market, a derivatives market, or securities, all bought and sold based on a diamond spot market."

"With a spot market backed by large banks and supervised by an appropriate authority, think of the impact on the structure of the revenue stream that international diamond spot markets can have on the diamond pipeline."

"In a previous article , we showed that out of the +$20 billion in polished diamonds manufactured annually, about $8 billion are fit for asset preservation. Instead of +$20 billion in polished diamonds that today go almost exclusively to jewelry, $8 billion can potentially be allocated to spot market trading. This means that spot markets won't just track prices of traded goods; they may even set prices of polished diamonds that are funneled to jewelry."

As Ehud stressed, and covered in previous blogs in this Insights series, a necessary condition for establishing successful trading platforms is for diamond prices to be reliable and transparent.

"The key to having a viable spot market is full disclosure about the diamond, transparency, contribution to education, and successfully bringing buyers and sellers together. […]"

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Resale Value – in practice

Diamonds and Correlation

From Tulips to Diamonds – Fungibility

Marketing Diamonds for Wealth Preservation

To reach a critical mass of believers in diamonds for wealth preservation, Ehud believed it was also essential for the industry to recalibrate its marketing efforts.

"Consumer demand has fueled the diamond industry from the 1930s to today. It is, in fact, the near-exclusive engine of the diamond industry. I envision a diversification in the revenue sources for diamonds: demand driven by consumers, as we have today, plus demand from what can broadly be called a financial market: the traditional financial markets with their institutions and investors, as well as private people, who want to buy a diamond with an understanding of its economic importance. This last group, I hope, will not consider diamonds an expense, but rather an asset."

Ehud believed that the shift in thinking of a diamond as an asset instead of an expense requires a similar shift in the industry's marketing efforts.

"For decades, the "a diamond is forever" slogan by diamond mining giant De Beers was the generic diamond marketing campaign. [I]t was the only generic marketing campaign."

"Marketing requires two different approaches working in parallel: ongoing promotional activity for diamonds in general and promotion of the idea of diamonds for wealth preservation purposes in particular."

"We believe that the industry can be re-invigorated by communicating an important, but often-ignored fact: Diamonds are themselves a physical asset, whose value has historically increased steadily and consistently over time. This revision to the industry's marketing message will help to change people's view of diamonds as an expensive extravagance, and remind them that diamonds are actually an investment with romantic utility."

Marketing diamonds for wealth preservation is an industry-wide effort, similar to the marketing efforts required to stimulate consumer demand for diamonds. In previous insights blogs, Ehud suggested practical ways to achieve this.

Related articles:

Revitalizing Diamond Marketing Efforts

How Wholesalers Market Their Polished Diamonds

Marketing the Case for Rarity

Diamonds for Wealth Preservation and Education

According to Ehud, education, like marketing, is an essential component in creating a critical mass of believers in diamonds for wealth preservation..

"There are many steps in creating a critical mass, and they involve different components that together, like the legs of a table, are all needed to maintain it. We are talking primarily about marketing, transparency, and education," he stated in early 2017.

"'Diamonds' should be synonymous with 'Wealth Preservation' in the mind of the public. We expect a meaningful part of the diamond stream to be offered through this category," Ehud stated in December 2014 . "This will include completely new education on how to perceive diamonds as a tool for storing value, serving the idea of wealth preservation with diamonds, one that fully departs from the memorable and outstanding "A diamond is forever" campaign."

Ehud believed that this process of education in diamonds is no different than that experienced by other industries that have sustained a critical mass of investors.

"Without widespread education, there would be no widespread appreciation of art, and without that, a critical mass would not have been formed to create an art market. Education starts early; in the case of art, as early as in kindergarten. For diamonds, that may be a little early, but science classes in elementary schools discuss volcanic eruptions, which is a prerequisite for diamonds appearing on the surface of the planet. Kids should know that diamonds are rare natural creations, formed at the depth of the planet over millions and even billions of years, and pushed to the surface by volcanic activity."

Ehud for instance believed in, and himself contributed to, museum programs aimed at informing the public on how diamonds are formed, polished, traded and used as well as on their rarity.

"When I gave the 110.3 carat, vivid fancy yellow Sun Drop on loan to the London Natural History Museum, it was a sensation. It created a buzz in the press, people flocked to the museum to see it, and the museum produced a lot of educational material around it, including a video clip with model Jerry Hall."

"We need to see this kind of effort expand far beyond the activities of auction houses. Just as the art world actively promotes art through education, art history, biographical information on artists, and information on specific works, so too should the diamond community play a role in promoting diamonds as an asset class."

Related articles:

Empowering the Consumer with Transparency

From Tulips to Diamonds: Why It’s Time to Rethink the Diamond Market

Rethinking Rarity

Achieving World Record Prices for Diamonds as Assets through Transparency

When considering the requirement to create a critical mass of buyers of diamonds for wealth preservation, Ehud drew many parallels with what is also required to reinvigorate traditional consumer demand for diamonds in both cases, transparency sits on, or perhaps trumps, the podium.

Ehud discussed at length how more transparency can be achieved and how it would benefit the diamond industry.

He also provided detailed accounts of how he applied "Mercury Crystal Clear™" and other principles of transparent diamond pricing, for example when selling diamonds at auctions for record prices.

"Last week [May 17, 2016], I made another record-breaking diamond sale. The 15.38-carat, fancy vivid pink, VVS2 Clarity, Type IIa Unique Pink Diamond sold for $31.5 million at Sotheby's in Geneva, becoming the most expensive Fancy Vivid pink diamond to ever sell at auction. I set another record in November, when I sold the Blue Moon for $46.5 million – the largest sum paid for any auctioned jewel. In November 2011, the Sun Drop sold for $10.9 million. You may be asking, what is my secret?"

"Over recent years, I have extensively discussed several key principles: the need for transparency in polished diamond prices; the importance of knowing transaction prices of polished before buying rough diamonds; the necessity for full disclosure of information about any diamond offered for sale; and above all, the central role that rarity plays in long-term diamond value. Together, these principles provide the framework to purchase an asset that has a resale value."

Ehud's account of the story of the Blue Moon, from purchase to sale, illustrated this in practice.

"All of the principles above were at play with each of my record transactions. Let's take the Blue Moon, for example (later renamed by the buyer, The Blue Moon of Josephine). It started as a 29.6-carat diamond found by Petra Diamonds in January 2014 at their Cullinan mine and offered on tender the following month. I, along with several other experts, examined the diamond closely. We considered what could be polished from the raw stone, and then placed a bid for it based on our understanding of the market.

"Understanding of the market" may seem like a vague description, so allow me to explain. When looking at a rough diamond, you need a great deal of expertise in order to assess the best way to polish it. With the possible outcome in mind, you valuate the potential price the polished diamond could be sold for. The latter requires carefully tracking the market, knowing transaction prices of diamonds of the same color, clarity, size and any possible irregularities the diamond may have.

Armed with that knowledge, my company, Cora International, placed a bid for the rough diamond that reflected its potential polished outcome, the cost of planning and manufacturing the rough diamond, target profit, which we subtracted from the expected selling price."

Ehud's vision is that these principles be shared widely with the audience that is trading diamonds for wealth preservation.

"We need to ensure that the knowledge that the diamond industry has on these diamonds and which investors already possess for fancy color diamonds is shared and reaches a wide audience."

Related articles:

From Tulips to Diamonds – How We Start Educating the Public

Fancy Color Direction Pricing

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