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Feature Stories, Diamonds, Pink Diamonds

True Colours: The 2018 Coloured Diamond Report

With consumers increasingly savvy about white diamonds, coloured diamonds continue to offer retailers a better margin. ALEX EUGENE reports on the best way to take advantage of these highly-prized stones.

There’s a scene in the film Titanic where Kate Winslet’s character Rose sits for a seductive nude portrait, wearing a 56-carat blue diamond, strung upon a chain of white diamonds.

The fictional gemstone, known as ‘the heart of the ocean’, is a replica of the famous Hope Diamond, a 45.52-carat stone reportedly stolen from an ancient statue in India, and subsequently blamed for the misfortune that afflicted its various owners. According to myth, the Hope Diamond is cursed, but this hasn’t stopped it from enchanting the collective consciousness of gemstone lovers since the 17th century.

History is abundant with intriguing tales of coloured diamonds, which have only become more popular over time.

A history of love

"Fancy-colour diamonds are so rare and beautiful they have become a serious investment opportunity."
Miri Chen, CEO of the Fancy Color Research Foundation (FCRF)

Whether invention or fact, many of the greatest love stories have involved coloured diamonds.

“There has traditionally been a romance associated with coloured diamonds and this has always attracted a premium in their pricing,” says Gersande Price, sales manager at Ellendale Diamonds. “There is no fixed price for exceptionally fine coloured diamonds.”

Brett Bolton, Director of Bolton Gems confirms this is the case: “Consumers believe price is secondary to finding the right stone for them. Colour is more of an incentive.”

Add to that the dwindling supply of some colours, notably Australian pink, and say hello to one of the most lucrative products available to jewellers.

“Despite producing 95 per cent of the world’s pink diamonds, the Argyle mine’s total pinks production is under 1 per cent, and with the upcoming closure in two to three years’ time, Argyle pink diamonds are a unique West Australian sensation around the world,” says Price.

Miri Chen, CEO of the Fancy Color Research Foundation (FCRF) says that fancy-colour diamonds are so rare and beautiful they have become a serious investment opportunity.

“Out of all diamonds in the world, only a fraction of a percent actually show special colours and are entitled to being called fancy-colour diamonds,” she says.

Maulin Shah, director of World Shiner says, “Demand is increasing for the pink diamonds; they are very unique. People are buying Argyle diamonds for investment.”

Price agrees with that sentiment. “Everyone in the market is after an Argyle diamond, for love of their land, the beautiful arrays of colours or for pure investment purpose.”

Steve Der Bedrossian, CEO of Sams Group, is matter of fact about his pink diamond stock. “A low end pink melee in a light pink colour is still going to cost around AU$1,900 a carat. But for white diamonds, the best, cleanest, small melee white diamond is never going to pass AU$750 a carat,” he explains.

The new prestige, a sea of white
Bolton Gems
Bolton Gems

Once considered exclusive and for the elite, white diamonds have become more accessible to lower ends of the market, which has made them more popular. A wealth of online information has demystified diamonds further.

More information means customers are more knowledgeable, and generally know what they want – although the quality of that knowledge may be lacking. Gary Holloway, one of the world’s leading diamond experts and owner of Holloway Diamonds says that more accurately, “consumer confidence” is high. Customers “come in confident of what they want,” he explains with a smile.

On top of that, “the white diamond market is saturated,” says Der Bedrossian. “Retailers can only bill them at 5 to 10 per cent markup. They make the money on the ring mount, not the diamond. It’s really cut throat.” Conversely, he says that pink diamonds “are more unique and every stone is individual. There’s less competition and overall I think the retailers can make more margin.”

He adds that because of the flooded white market, retailers can still make more margins on the sale of brown and black diamonds, despite the fact that they are cheaper to buy than white diamonds. Brown and black diamonds from Australia also have the upper hand due to their local origin, he says. “If it’s a diamond from Argyle, that’s what sells.”

According to Chen, there are many misconceptions that harm the industry. “Most people wrongly believe that diamonds will come out of the ground forever. This is far from the reality,” she explains.

The price advantage
World Shiner
World Shiner

Consumers are a long way from knowing everything about coloured diamonds. Holloway points out that there’s far more variation in the way coloured diamonds are viewed for quality.

Bolton agrees: “Customers are trying to use what they know about white diamonds and apply it to colour. There is no finite grading structure for coloured diamonds. Consumers need to know that clarity and symmetry is less important, and that perfection in colour matching may not be possible. Coloured diamonds are cut for colour return.”

Holloway states bluntly: “The grading system for coloured diamonds is not very good. It’s quite common to have two identical diamonds, but of a different grade. So I might buy a brown diamond that looks exactly the same as another diamond that has a higher grade, but really, you can’t tell them apart.”

Nonetheless, Der Bedrossian says customers who come asking for coloured diamonds will be well aware they have to pay more for them. “When they’ve come for a 1-carat pink diamond, it could be up to AU$1million per stone…believe me they’re going to do their homework,” he says. And with the Argyle mine estimated to close as soon as 2020, he says those prices are on the increase.

Shah agrees that there is a huge difference in the price when comparing white and natural pink diamonds, so it’s not comparable at all. “It depends on the colour, it depends on the shade and there is a different price structure,” he explains.

Chen confirms it is much harder for the average consumer to understand what makes them valuable. “The value of a fancy-coloured diamond is impacted by many parameters that are very different from those used to estimate the value of a colourless diamond,” she says.

These complexities have helped coloured diamonds to retain their mystique, for the most part shielding them from ‘price hagglers’.

Ellendale Diamonds
Ellendale Diamonds

So not only are coloured diamonds rarer, more unique and more likely to be graded as high quality, but consumers also know less about them. This makes them one of the better products for increasing retail gross margin.

Another benefit for bricks-and-mortar retailers is that coloured diamonds are much harder to properly assess on a computer screen.

“Coloured diamonds are something that customers really have to see to appreciate,” Chen says. “How accurate is a website description? Has the colour in the photo been re-touched or colour enhanced? With coloured diamonds, clients have to come into the store to see for themselves exactly what is on offer.”

Holloway stresses the importance of the jeweller’s knowledge with a striking anecdote. At a trade fair last year, he viewed two yellow diamonds that were thousands of dollars apart in price, but the lighting had effectively reversed their appearance, making each look excessively under or over-priced. Such a story reinforces the importance for jewellers to educate their customers.

A coloured point of difference

Retailers who choose to stock coloured diamonds are already ahead of the game because they will attract customers looking to fulfil a special request.

Chen says “offering fancy-colour diamonds helps retailers position themselves at a whole different level. Because of their rarity and the fact that each fancy-colour diamond is different, they allow a much more interesting dialogue with the client who will want to understand what he or she is buying.”

Shah agrees: “In white diamonds there is a lot of competition and similar stones available, but every coloured stone is different and unique so it will be easier for retailers to make a sale and a mark-up. It’s not easy to find something exactly the same at another jeweller.”

Ellendale Diamonds
Ellendale Diamonds

Price says low supply will always fuel demand. “There is a marked increase in the desirability of coloured diamonds with a very restricted supply so prices can be much higher for these diamonds,” she explains. “Argyle pink diamonds are a particular example; as the mine is closing very soon and is the world’s major source, supplier prices are revised regularly.”

The attractiveness of Australian pink diamonds isn’t just about rarity. Der Bedrossian says demand for ethically sourced stones is increasing.

“It’s what people want in Australia. It’s called a chain of custody…from ‘the ground to the finger’ they say. Argyle diamonds are always worth more. You can find the same stone on the market with a GIA certificate – it will be argyle material, you can tell – but if it doesn’t have the inscription or any paperwork saying it came from Argyle, it will be at least 25 per cent cheaper than exactly the same stone with Argyle paperwork,” he explains.

Bolton Gems are delivering on that demand from consumers: “If a retailer is an exclusive stockist of Australian Chocolate Diamonds, they get a stone with a story that starts from the day the diamond is mined. They also get diamonds at a price that allows flexibility in creativity to make a statement piece with larger diamonds.”

It’s also good news for customers of Ellendale. “We supply coloured diamonds with origin, namely from the Argyle and Ellendale Mine – Argyle pinks, yellows, champagne, cognacs, Ellendale yellow and whites. Our diamond inventory covers melee size, matching sets, single stones to investment stones and are all supplied with certificate of origin in addition to a lab certificate where available,” Price says.

This demand also means customers who can’t afford a large stone would still rather walk away with a small one than nothing at all. Therefore, even smaller stones are fetching higher prices over time.

“Fancy-colour demand and supply go in opposite directions,” Chen says. “Supply is dwindling and demand is rising sharply. As such, we see that in the last three years, clients who look for rare colours and cannot afford them anymore are willing to settle for very low clarities or very small sizes.”

The future is bright
Bolton Gems
Bolton Gems

There’s no denying that coloured diamonds are in a class of their own, and more unique than white diamonds in many ways.

Holloway also points to a lucky break the industry may gain thanks to technology: “A lot of yellow diamonds that used to be on the market were in the ‘D to Z’ scale… but those diamonds, by virtue of the cutting technology, could be turned into fancy and fancy light.”

For now though, most of the focus remains on the shrinking yield of Australian coloured diamonds, particularly pinks.

“In the past year, World Shiner has increased its inventory of Argyle pink diamonds, because demand will definitely increase. People are buying lots of coloured diamonds for reasons of culture and fashion,” Shah says.

Der Bedrossian couldn’t agree more, saying that prices have climbed so much in recent years that he wonders just how high they can go. “Every year these diamonds are getting rarer. I don’t know what’s going to happen to prices once it closes because it’s already going up all the time.”

Price sums it up elegantly: “The famous ‘diamonds are a girl’s best friend’ slogan is still very accurate; the demand for coloured diamonds is forever increasing. In recent years, the fancy-coloured diamond market has been reaching record sales.”

Chen, however, turns to numbers to make her point: “The price of smaller fancy-colour diamonds between 1.5 and 9 carats rose over 400 per cent in the past five years, and it looks like this upward trend will continue. Also, rare colours in low clarity – SI2 and lower – used to be hard sellers, but in the last three years, they have been in high demand as they are more affordable. These two phenomena will keep gaining momentum for years to come.”

In a challenging retail climate, coloured diamonds offer retailers an exceptional opportunity to make healthy sales. Salespeople who are armed with expert information will be able to woo customers with these unique beauties.

Alex Eugene

Alex Eugene is a staff journalist with Jeweller.

World Shiner

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