Why Retailers Should Care About What’s Happening UpstreamAugust 07, 14
This column often discusses issues that are very “upstream.” Upstream is the term describing the initial part of the jewelry pipeline – mining, manufacturing and their related issues. Some feel that upstream topics are not relevant to the downstream, meaning retailers. That because they are facing very different issues, upstream subjects are not important to them and they can’t relate. Dear retailer, how wrong that is!
Here is one glaring example: ethical mining. In the US and Europe consumers are not interested in buying products made from materials dubiously sourced. This is not an upstream issue – this is a downstream issue that originates upstream and therefore should be of great importance to retailers. Think diamonds from Zimbabwe or gold from Congo.
But what about trading issues or pure economic cost concerns? A recent topic in the news (and one that I fear won’t go away soon), relates to diamond certification. What happens at labs, what are the differences between them and how this is represented to consumers (overtly or quietly) also has direct implications on the downstream. You the retailer must know the difference between the labs and understand the premiums that certificates from different labs carry – because it is of direct relevance to your business.
What issues surround rough diamonds are an elusive one yet have a direct impact on a retailers’ business. Because many don’t see it, a retailer who understands this has a great advantage over his competition.
Point in case – rising rough diamond prices in January coupled with an announced decline in supply by a number of diamond miners. The first conclusion you the retailer should arrive at is that the price of rough diamonds will rise. This is because manufacturers, the companies polishing diamonds, will compete for the fewer goods in the market and further drive up the price of the raw material.
As an informed retailer, you also know that it takes about 100 days to polish diamonds, which means that rough bought in January is available as loose polished diamonds in April. If you are following the accounts about GIA then you also know about the backlog and that submitted diamonds smaller than 1-carat have a turnaround time of five months. The larger the diamond, the shorter it takes, but you know that most diamonds are smaller than 1-carat. This makes the rough diamond purchased in January available for sale only in September
Why should you care about it? Because manufacturers who bought rough for cash in January won’t be paid for those goods before November due to the 30-days+ payment terms. And because of that, they are already increasing prices now in July! Guess what, there is a very good chance that prices will keep rising as the more expensively bought goods finally become available. If you tracked another upstream issue, bank financing, then you know that the banks are tightening the screws on diamond companies, which makes them even more pressed to cover their expenses.
A golden piece of advice I once received was not to worry about whether a reader knows how to make good use of information. “You should focus on giving high-quality information, and they will know how to use it to their advantage,” I was told. The context was information for diamond traders, but a good businessperson, in any sector, always knows how to make good use of information.
So here is my question to you: did you know about the rising rough diamond prices, decline in supply, length of polishing phase, grading turnaround time, financing issues and payment terms? If your answer is yes, than good for you – you had all the information you needed to make a well-informed decision ahead of the downstream price hikes.
If you didn’t, then you are possibly missing opportunities to protect your margins and improve your profitability. That would be a shame and this, my friend, is why it’s important for you to follow upstream news. It has direct bearing on you, your business and the consumers you want to see in your store!