Have Sightholders Hit the Panic Button?

The DTC Sight that opened Monday is $500 million, about 10 percent less than our pre-Sight estimate. Goods, we understand, were not turned down. Despite this, and reports by Sightholders that the Hong Kong show has positively surprised them; Sightholders are not in a good mood.

Saying that they are “fearful” would be a bit of an exaggeration, but they are deeply concerned. They look at the world today and see bad signs – stock markets declining, gold losing some luster, Greece teetering into insolvency and diamond prices, well, they are just heading south…all good reasons for gloom.

Box trading is reflecting this. A few weeks before the Sight, some boxes were offered for ten percent (and more) below their DTC price. We understand that pre-Sight trading ranged between six and twelve percent below.

The condition some sellers set was that they get the money in advance – a week before the Sight. That is a bad sign, if Sightholders need to collect cash before a Sight; after all, they knew in advance about this expense.

This is the heart of the matter, it seems that many companies in the diamond industry simply do not plan that far ahead. Considering that rough comes into the market in ten annual cycles, that Christmas is always in late December, it takes so many weeks to turn rough into polished, and that large retail programs are often negotiated far in advanced, you would expect a full year’s plan, not to mention a broader view on economic cycles.

The DTC probably never entertained the thought of lowering prices. "Why should we?" they would ask.

After a year of rapidly growing diamond prices – which led traders to invest their profits back in the business and not take them out – all of a sudden cash became tight. Yes, Germany may force Greece to fold and that would hurt the banks (mainly French banks, according to reports).

Here is a broader view for your consideration: 2010 was the best year ever for many companies in the industry. After nearly a year of reaping large profits, there is now a bump in the road. The hardships are not a be all and an end all in themselves. After this slump, expect improvement, which will be followed by another slump.

If we keep looking at our toes as we walk, we will see the dirt at our feet, but not the ten-foot light pole in our way. It is an unsettling thought that some of the largest firms are concerned by a short-term prospect. Good business plans must be long-term and flexible, the outlook broad and encompassing, the goals high, yet attainable. That is how the game is played. That is how the industry will chart a course for capturing market share from competing luxury goods. That is vision. The kind of vision that sets leadership by example; the vision the industry so desperately needs.

Have a great fourth quarter!