Diamonds and Its Industry – Reaction to an Atlantic Article From 1982

I read an article today posted by the Atlantic. Even though the article was published back in 1982, it gave some important insight into the jewelry (and more specifically the diamond) industry. I certainly suggest reading it if you have time and inclination. I was struck by a few points the article details.

Here is a quick summary for those who do not have time to read it. The article begins with a summary of the first diamonds and how they were prized possessions of European royalty. It continues by explaining how in the early to mid 20th century new mines opened. With more diamond supply, the scarcity went down. A monopoly, which still operates but has different names (DeBeers, DTC, CPO, etc.), developed and controlled the amount of diamonds on the market. They began a massive marketing campaign in the United States and within a generation diamonds became associated with an engagement. Ever since, that same monopoly has welded its power to maintain control over the industry.

Here are some of my reactions in bullet points to details:

Diamonds DO have value. The authors states they are not value because they are not rare. Diamonds are definitely rare on so many scales but especially when compared to other commodities. Furthermore, they have value, which may not be from their rarity, but it is still value. That is why you or someone you know spent money to buy, and that is why I am willing to repurchase it from you. If you bought a diamond well, I will pay you about 70% of what you paid for it. That is a fairly good deal for a fashion accessory. Imagine someone paying 70% of the original price for a dress. Why do we have this illusion that diamonds are profitable investments? We do not think of other fashion accessories like that or cars or even other luxury goods. Diamonds are valuable. The article discusses retail margins on diamonds. In 1982 when the article was published, that may have been true. Now, with increased competition from the Internet sellers, the margins are slim and very slim compared to other retail industries. Most jewelers make money on the pieces of jewelry – the ring, the necklace, pendant, or earrings rather than the diamonds. The exception is a place like Tiffany’s or high-end designer boutiques. Diamond prices are remarkable stable thanks to the cartel. The story details how DeBeers maintained the cartel including buyback strategies and buying into new mines to keep that stability. There has been a remarkable marketing campaign that has set the precedent that every engagement includes a diamond. Madison Ave advertising executives orchestrated this campaign over generations and very successfully. One point I found interesting is how fascinated we are with perfection in diamonds even if we can see it. Just that knowledge makes a diamond even more appealing. I learned some new facts – like the popularity of the smaller diamonds during the 1970s as they were common from Russian mines.