Financial Times - Wednesday May 31, 2001

Their value drops like a stone when you buy them in the high street. But Simon London finds there are ways to limit your losses.

Diamonds are a commodity, just like pork bellies or tin. Granted, a diamond is rather prettier than a piece of pork, but it is a commodity nonetheless. A stone of any given weight, colour clarity and cut has a wholesale price. This is the same in Antwerp, London, New York or Tokyo.

The diamond industry, dominated by the mighty DeBeers, doesn't want you to think about crystallised carbon in this way. It likes to emphasise the "timeless beauty" of diamonds, a marketing effort that helps protect profits within the retail diamond trade.

The result is that diamonds purchased from a high street jeweller depreciate, appropriately enough, like a stone. A £10,000 pair of diamond earrings on sale in your local high street will be worth perhaps half to one third this amount when you walk out of the shop.

There are, however, ways for the canny buyer to get good quality diamonds at prices much closer to the wholesale level and thus avoid the worst ravages of depreciation.

The first step is to understand why diamonds bought on the high street carry such a huge mark-up. One reason is that high street jewellers have to carry a massive amount of stock; this means large sums of working capital, which has to be financed. Another is that diamonds pass through many hands before they reach the high street. The "diamond pipeline" as it is known in the trade, is extremely long.

The mining company that digs rough diamonds from the ground will probably sell them to DeBeers. It handles about 70 per cent of world trade in rough stones although its grip has loosened in recent years, thanks partly to the chaos in war-torn producing countries such as Sierra Leone and Congo.

DeBeers sells its rough stones to "sightholders" - essentially dealers - at one of its ten annual auctions. They sell to other dealers, or to cutters or manufacturers of jewellery. Only then does the polished stone find its way into the shop window.

The good news for consumers is that this old order is starting to break down. Wholesalers, manufacturers and even mining companies have started shortening the diamond pipeline by selling direct to the public. The Internet is helping to make this possible.

Toronto-listed Rex mines, which digs its stones in South Africa, has taken the revolutionary step of selling its diamonds on its Rex Diamonds.com web site. No DeBeers, no sightholders, no dealers, no retailers.
At present, Rex is selling only a range of finished jewellery. But Serge Muller, chairman, says it will be selling cut and polished loose stones to the public on a new site, rexgems.com, by the end of the year.
If you cannot buy direct from the mine, the next best thing is to buy from a wholesaler. This has not been easy. Jonathan Weissbart, who operates from Hatton Garden - the hub of London's diamond trade - says: "I'm dealing in a volume business. I don't want to spend an hour explaining something to a customer who will come back five minutes later and change their mind."

That said, Weissbart concedes that he would be reluctant to turn away a wealthy customer who knew what he wanted and was ready to pay hard cash.

The divide between wholesalers, manufacturers, and retailers is starting to blur, anyway. More manufacturers now sell diamond jewellery at discount prices over the Internet. A growing number of US companies will also sell loose diamonds at discount prices. Try mondera.com, diasource.com, diamonds4u.com and nydex.com to get an idea of prices. Diamondring.com, which claims to be "the diamonds portal", has links to many similar sites.

In the UK, the idea has yet to catch on. One of the pioneers is Simon Lewis, a Hatton Garden manufacturer who also runs thediamondshop.co.uk to sell stones direct to the public. He says his prices are as close as possible to wholesale. The company makes its money by turning the stones into individually designed pieces of jewellery, though there is nothing to stop you going elsewhere for this service.

If buying loose stones sounds risky, bear in mind that cut and polished stones are commodity items that can be tested and graded by specialist laboratories. These issue certificates showing the stone's weight in carats, as well as its colour, clarity and the dimensions of the cut.

The two main global certification schemes are run by the Gemological Institute of America (GIA) and the Antwerp-based Diamond High Council (HRD). Almost all of the stones on sale over the Internet are certificated.

So, how much cheaper is it to buy online?

For the sake of argument, let us assume that I want to buy my nearest-and-dearest a pair of diamond stud earrings on a budget of about £10,000. I want round, brilliant cut stones (the most popular modern cut) with a colour grade of at least G to H (pure white to the naked eye) and clarity of VS1 to VS2 (flawless, unless you examine them under a microscope).

On my local high street, Mappin & Webb, a good quality chain, offers a pair of 0.9carat stones (1.8 carats weight for the pair)set in a simple white gold setting for £11,000. A discount of at least 10 per cent should be available to anyone willing to haggle, bringing the asking price just inside budget.

Online in the US, companies such as diasource.com and Nydex price eqiuivalent stones at about $4000 to $5000 each, although they do vary according to the quality of the cut. This adds up to, say, $10,000 for a pair of stones (£7,750 at today's weak sterling-dollar exchange rate).

If you don't want to buy from a US web site in dollars, Simon Lewis advertises stones in the same bracket for about £3,500, and you can visit his Hatton Garden workshop to inspect the goods. All his stones come with full GIA certification.

Lewis says that setting a pair of stones in a simple 18-carat gold claw setting would not cost much more than £100. In other words, he can sell you a pair of good quality, 0.9 carat diamond stud earrings at £7,000 to £7,500 - a saving of up to 30 per cent on the (already discounted) high street price.

Will diamonds bought online in this way depreciate? In the short term, yes - but far less than the 50 per cent-plus you suffer when buying in the high street. In the long run, your stones stand a fighting chance of holding their value in real terms.

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