A Crash in Customer Confidence

There's a critical lesson to be learned from a diamond scandal currently unfolding in Vietnam.

And it's the importance of customer confidence.

In case you missed the big news from Ho Chi Minh City, here's what happened: PNJ (Phu Nhuan Jewelry), the country's biggest jewelry retailer, was rocked by allegations of large-scale diamond smuggling.

That prompted an unprecedented rush by customers to return goods under its buyback policy, which has, in turn, forced PNJ to revise its forecast from a $131 million profit for 2026 into a $241 million loss.

But there's a twist, as we'll see. The story broke in early July, when Vietnamese authorities announced the arrest of Dang Ngoc Thao, the former director of PNJ-Lab, the company's wholly owned diamond-certification subsidiary, together with more than 20 other people.

It was the result of an investigation into more than 28,000 diamonds that had allegedly been smuggled into Vietnam from India, through Hong Kong, in a series of 141 shipments from 2024 to June 2026.

Thao stands accused of helping to legitimize some of the smuggled stones by removing their GIA identification numbers, replacing them with PNJ-Lab numbers and issuing new certificates before selling the diamonds for his own profit.

The twist is that not a single one of these diamonds entered the PNJ supply chain.

That's not just what PNJ says, it's acknowledged by the Vietnamese authorities themselves. Their investigation found that the stones were sold directly to individual customers and NOT through PNJ stores.

So if you'd bought a diamond from any of PNJ's 430 outlets across Vietnam, there'd be absolutely no reason for you to be concerned about its provenance.

And yet, there's been a flood of buybacks. PNJ's published policy generally offers 80% of the original invoice value for diamond jewelry, rising to 90% when exchanging for a higher-value item.

For larger loose round diamonds graded VS1/VVS1 or better, the rates are higher, reaching 95% for buybacks and 98% for exchanges.

Thousands of customers have been taking advantage of the buyback scheme - with devastating consequences for PNJ.

It's important to understand what this does - and does not - mean. Many customers are exchanging their diamonds and jewelry for more expensive PNJ products so, yes, that's another sale.

But it doesn't automatically erase the loss on the item being taken back. PNJ has to account for the shortfall between what it gives the customer as buyback or exchange value and what the returned item is ultimately worth to the company. The new sale can generate a margin, but the buyback loss still has to be absorbed.

The company bought back nearly $192 million of merchandise between July 1, when the story broke, and September 3, recording a $55 million loss on those transactions.

And PNJ is now working on the assumption that customers could eventually resell or exchange goods with a value equivalent to 80% of the merchandise it has previously sold.

It's worried not just about the immediate rush for buybacks, but about the long-term damage to its reputation.

The customer may well understand that the diamond they bought is perfectly legitimate, but if and when they come to sell it some day, what will a potential buyer think?

Customer confidence is not just about whether the product is good. It is about whether the customer believes the product will remain valuable, saleable and trusted in the future.

PS: PNJ shares fell 6.99% on September 30 and another 6.95% on October 1, extending their decline to more than 60% since the diamond-smuggling scandal emerged. PNJ says it will continue to honor 100% of its buyback obligations.

Have a fabulous weekend.