|Understanding the Colored Gemstone Business
Most retail jewelers sell both diamonds and colored gemstones. It looks more or less like the same business -- small valuable minerals mounted in expensive metal. But if you understand the supply side of the business, you see that these businesses are very different indeed.
The diamond business is essentially controlled by the De Beers cartel, who manages everything from supply to pricing to public perception of diamonds. Though the public is led to believe the diamonds are rare and precious, in fact diamonds are plentiful and are as commoditized as oil, gold or pork bellies. Diamonds of similar grade are sold at the same prices nearly everywhere in the world, and prices are kept high by controlling the supply.
From the consumer point of view, that makes it difficult to find a good bargain on a diamond. From the retailer's point of view, it makes it difficult to achieve differentiation in the market and find a profitable business model.
The colored gemstone business is completely different. Colored stones, unlike diamonds, are mostly mined by independent, small-scale miners, working in remote locations in far away places such as Sri Lanka, Madagascar, Tanzania, Kenya, Pakistan, Burma, Afghanistan, Columbia and Bolivia. Mining is carried out with pick and shovel, and only rarely with heavy equipment. Loose colored gems reach the market in various ways, many of them involving relatively small deals between independent businessmen.
Even in our home of Chanthaburi, Thailand, one of the world centers for trading and processing colored gems, most gems are cut by small businesses who tend to specialize in certain types of gems. The supply of gems here is constantly in flux according to the output from the mines around the world. For example, we may see a lot of high grade spessartite garnet in large sizes for a few months, and then not see it again for many months. Prices are constantly changing as well according to the supply and demand.
Because there is a free market in colored gemstones, there are many opportunities for smart buyers who know the market. We buy gemstones literally every day to stay abreast of the ever changing market. We are value buyers, always looking for the best quality at an attractive price. Because the colored gemstone market is vast, encompassing a huge range of gem types and grades, we have had to learn about virtually every variety of colored stone.
Working in a major trading center like Chanthaburi makes us vividly aware of the opportunities in colored gemstones. Extending these opportunities to the jewelry designer and retail jeweler is the next challenge. The Internet makes it possible to reach the market without expensive distribution or marketing. Reducing cost by eliminating middleman in the supply chain is essential. That alone can enable a new business model at the retail end. But providing vast selection to jewelers is equally important. Colored gemstones present tremendous opportunities for product innovation and creativity.
- First Published: December-04-2007
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