Rapnet Bans EGL Reports from Trading Network

[WinkHPD]

"You are making the assumption, erroneous in my opinion, that regular retailers all know that EGL is bogus. The sad thing, is that many have no clue."

oh my god.

okay this makes sense then and I can see how this acts as an incentive.

again. oh my god.

Thank you for the chuckle! If you think you are shocked, you should listen to some of us retailers when we tell each other stories about how uneducated some jewelers are. It is definitely worth an OMG or three.

Of course, we tell these stories while we are at educational events and meetings with other like minded jewelers who share the believe that, "If you think education is expensive, TRY IGNORANCE!"

There are, as I said, many great jewelers who get their GG's and go for continuing education each and every year, and there are those who got their GG thirty years ago and have never cracked a book since, and sadly, those who call themselves jewelers and never get any professional training.

Wink

 

[proto]

One of the key things to understand is how much the business today revolves around consignment (aka "memo" in the trade). I think many people here may understand it to some extent having seen the development of "virtual inventories" online. This is essentially like getting a stone on memo. The retailer never really owns the stone. They procure it, sell it, then take the proceeds and pay for it retaining a percentage for themselves in the transaction.

With that as a backdrop, the rapaport listings offer retailers a way to find "bargains" for their customers in order to compete with other retailers. Because the cheapest stone with the highest grade looks good from that standpoint, systematically overgraded stones serve the purposes of many retailers. Even if the retailer recognizes that the grading is way off when they receive it, many will simply pass it along to the consumer, pointing to the "laboratory" report as their deferred authority.

Thank you for taking the time to respond to my query.

I understand all of your post except the quoted bit in bold.

Your post also indicates that while EGL papered stones are sold at the wholesale level, parties still do their own grading before purchasing and cherry pick the best stones (and/or negotiate the price).

I now think I may have totally misunderstood how the rapaport listing worked. I thought it split diamonds into categories by colour/size/clarity etc and gave a monthly or biweekly indicative price per carat rather than listing individual diamonds. I also thought this was only used at the wholesale level and the final consumer never gets anywhere near this price.

Thank you also to Neil, your post is exactly how I understood it to work, but I assumed the advertising was aimed at the consumer, rather than the retailer or intermediary party.

 

[Texas Leaguer]

One of the key things to understand is how much the business today revolves around consignment (aka "memo" in the trade). I think many people here may understand it to some extent having seen the development of "virtual inventories" online. This is essentially like getting a stone on memo. The retailer never really owns the stone. They procure it, sell it, then take the proceeds and pay for it retaining a percentage for themselves in the transaction.

With that as a backdrop, the rapaport listings offer retailers a way to find "bargains" for their customers in order to compete with other retailers. Because the cheapest stone with the highest grade looks good from that standpoint, systematically overgraded stones serve the purposes of many retailers. Even if the retailer recognizes that the grading is way off when they receive it, many will simply pass it along to the consumer, pointing to the "laboratory" report as their deferred authority.

Thank you for taking the time to respond to my query.

I understand all of your post except the quoted bit in bold.

Your post also indicates that while EGL papered stones are sold at the wholesale level, parties still do their own grading before purchasing and cherry pick the best stones (and/or negotiate the price).

I now think I may have totally misunderstood how the rapaport listing worked. I thought it split diamonds into categories by colour/size/clarity etc and gave a monthly or biweekly indicative price per carat rather than listing individual diamonds. I also thought this was only used at the wholesale level and the final consumer never gets anywhere near this price.

Thank you also to Neil, your post is exactly how I understood it to work, but I assumed the advertising was aimed at the consumer, rather than the retailer or intermediary party.

Re the bit in bold, the point being that (prior to delisting of EGL by rap) a retailer could easily scan the database for a particular size color clarity combo that they were targeting and could see EGLs listed at big discounts to the GIA and AGS stones. That would be attractive to a retailer who was competing on price and who thought his customer could be sold. In this way rapaport was really enabling the systematic overgrading of diamonds, and this realization along with the recent exposes prompted their move to delist all EGLs.

Your understanding of the rap list is essentially correct, but often retailers and pocket dealers use the list (improperly) to demonstrate to consumers that they are getting "wholesale" pricing. The actual trading prices are different from the list prices by variable amounts up or down depending on various factors, and are very much influenced by small but signicant characteristics such as cut grade, fluorescence, type of inclusions, etc.

 

[proto]

much obliged for your explanation sir.

love learning new things.

 

[denverappraiser]

Advertising affects everyone. Dealers want things that sell quickly, for as much as possible and that result in happy customers. To the extent that someone else pays for the advertising, that's just a bonus. Different dealers are promoting different things, and will choose to stock different things as a result. Yes, dealers will buy EGL, both New York and International. Some are fishing for correctly graded stones that are mispriced, others are looking for ones that are wildly wrong that they can get cheaply and apply a good markup. Some just don’t understand the question but I’m inclined to disagree with the above that all that many are fools. They do what they do on purpose.

 

[Texas Leaguer]

Advertising affects everyone. Dealers want things that sell quickly, for as much as possible and that result in happy customers. To the extent that someone else pays for the advertising, that's just a bonus. Different dealers are promoting different things, and will choose to stock different things as a result. Yes, dealers will buy EGL, both New York and International. Some are fishing for correctly graded stones that are mispriced, others are looking for ones that are wildly wrong that they can get cheaply and apply a good markup. Some just don’t understand the question but I’m inclined to disagree with the above that all that many are fools. They do what they do on purpose.

You make a good point about dealers also looking for accurately graded stones that are being traded at an artificially low price because of the EGL paper. However, I think that is the harder thing to find because of the evaluation and strategic decisions that are made in deciding which lab to send a stone to at the outset.

 

[Garry H (Cut Nut)]

"You are making the assumption, erroneous in my opinion, that regular retailers all know that EGL is bogus. The sad thing, is that many have no clue."

oh my god.

okay this makes sense then and I can see how this acts as an incentive.

again. oh my god.

For the record, a year to 18 months earlier, Saville Stern, the Rapaport CEO made a presentation that some of us posting attended at the Vegas JCK show that exposed the actual price differences between GIA and various EGL stones using the entire RapNet data base.
This was a clear warning to EGL and very public.
Here is one of the slides. EGL HK lab diamonds were trading at less than half of GIA graded diamonds with the same listed grades. That is clearly cheating.

 

[proto]

Garry

I remember that post and was why I assumed everyone (wholesale level) knew and understood that EGL grades were fishy.

Many thanks to all for the continued information.

 

[denverappraiser]

The market self corrects remarkably well.

The original client, probably the cutting house, decided what was the best paper, and by that I mean the paper that will result in the most money out of that particular stone. As mentioned above, this decision is made by full-time professional gemologists whose entire paycheck is based on the outcome. They do it dozens or hundreds of times a day and they get unlimited do-overs.

Every step in the distribution chain after them has the opportunity to change it. This includes various wholesalers, sorters, dealers as well as the final retailer. As with the above, the decision is done with the stone in hand and by an experienced expert.

With every one of these people, the objectives are the same. Produce a package that sells for the most money, the fastest, with the least grief or added trouble. That's THEIR definition of which stone is the 'best'. They can change the lab, they can change the distribution channel, they can even recut the stone. It's not a vast conspiracy, it's just the way modern economics work. Do errors happen? Is money left on the table? Sure. But when you play this game it's good to understand who the opponents are. Consumers are operating at a considerable disadvantage. They normally aren't themselves experts, they often don't have the stone in hand, they aren't prepared to address the alternative options and most do it decidedly infrequently.

There are several effects to this. Put yourself in the shoes of a big time diamond dealer for a moment. Imagine a stone that is undisputedly a 2.00/F/SI1/excellent. No problems. Great stone. How do you paper that? Here's some options, just for discussion. Here's what you think it'll get:

GIA/F/SI1/xxx
EGLI/D/VVS2/super ideal
AGS/F/SI1/2
EGLUSA/F/SI1/hearts and arrows

The EGLI is going to sell at a discount but it's going to discount from a higher grade. Possibly worth considering. It depends on the discount and the sales channel. That gets a maybe. GIA will sell fast and it will be popular. That'll be a hot stone. Definitely worth considering. AGS is a problem. No one wants a cut grade 2. Since we're talking about a 2.00 it's a loser to recut it so AGS is out. EGLUSA is going to sell at a discount and it'll be discounting from the F/SI1 grade. Definitely a loser. EGLUSA is out unless you're wrong about the estimated grades.
.

So you send it to GIA, pay the money and wait the time. It comes back G/SI1. Damn. Now what? It'll still be hot, maybe even more so, but your price just dropped by $8000! You fight with GIA and they stand firm. Now what? Send it to EGLI. D/VVS2, just like you hoped. Pull it out of your premium sales channel and fish for the bargain hunters. Scream discount and see how it flies. If it doesn't work you can always pull it back and try something else. Maybe EGLUSA will be higher than you'd hoped. It only costs $40 and a week or so to ask.


None of this is visible to the consumer. The stone is whatever it is but the paperwork is definitely negotiable and there's no way to tell what has gone on ahead of you. Errors happen and bargains ARE possible by playing this game but it's a whole lot tighter than people tend to assume.

 

[WinkHPD]

The market self corrects remarkably well.

The original client, probably the cutting house, decided what was the best paper, and by that I mean the paper that will result in the most money out of that particular stone. As mentioned above, this decision is made by full-time professional gemologists whose entire paycheck is based on the outcome. They do it dozens or hundreds of times a day and they get unlimited do-overs.

Every step in the distribution chain after them has the opportunity to change it. This includes various wholesalers, sorters, dealers as well as the final retailer. As with the above, the decision is done with the stone in hand and by an experienced expert.

With every one of these people, the objectives are the same. Produce a package that sells for the most money, the fastest, with the least grief or added trouble. That's THEIR definition of which stone is the 'best'. They can change the lab, they can change the distribution channel, they can even recut the stone. It's not a vast conspiracy, it's just the way modern economics work. Do errors happen? Is money left on the table? Sure. But when you play this game it's good to understand who the opponents are. Consumers are operating at a considerable disadvantage. They normally aren't themselves experts, they often don't have the stone in hand, they aren't prepared to address the alternative options and most do it decidedly infrequently.

There are several effects to this. Put yourself in the shoes of a big time diamond dealer for a moment. Imagine a stone that is undisputedly a 2.00/F/SI1/excellent. No problems. Great stone. How do you paper that? Here's some options, just for discussion. Here's what you think it'll get:

GIA/F/SI1/xxx
EGLI/D/VVS2/super ideal
AGS/F/SI1/2
EGLUSA/F/SI1/hearts and arrows

The EGLI is going to sell at a discount but it's going to discount from a higher grade. Possibly worth considering. It depends on the discount and the sales channel. That gets a maybe. GIA will sell fast and it will be popular. That'll be a hot stone. Definitely worth considering. AGS is a problem. No one wants a cut grade 2. Since we're talking about a 2.00 it's a loser to recut it so AGS is out. EGLUSA is going to sell at a discount and it'll be discounting from the F/SI1 grade. Definitely a loser. EGLUSA is out unless you're wrong about the estimated grades.
.

So you send it to GIA, pay the money and wait the time. It comes back G/SI1. Damn. Now what? It'll still be hot, maybe even more so, but your price just dropped by $8000! You fight with GIA and they stand firm. Now what? Send it to EGLI. D/VVS2, just like you hoped. Pull it out of your premium sales channel and fish for the bargain hunters. Scream discount and see how it flies. If it doesn't work you can always pull it back and try something else. Maybe EGLUSA will be higher than you'd hoped. It only costs $40 and a week or so to ask.


None of this is visible to the consumer. The stone is whatever it is but the paperwork is definitely negotiable and there's no way to tell what has gone on ahead of you. Errors happen and bargains ARE possible by playing this game but it's a whole lot tighter than people tend to assume.

And this analysis, is why so many of us in the trade are glad that DenverAppraiser is an appraiser! It is also why so many of us are NOT appraisers, can you imagine having to stand in court to defend a hastily made appraisal against a mind like this? Every time I read one of Neil's posts, I learn something valuable.

Thank you Neil.

Wink