Why is GIA so slow?

[Rockdiamond]

One way it hurts consumers is it sends more business to second tier labs particularly from small dealers.
I have talked about this with a local jeweler who went from all GIA to mostly egl-usa reports.
He buys his smaller diamonds in lots with factory grading then has them lab graded.
He does use AGS for larger diamonds but feels they are not competitive under .75ct.

Very good point Karl- this would be one way possible way consumers are getting hurt by GIA slowness. I could be but I don't see it as any sort of substantial reason.
The EGL misgrading issue is far more due to aggressive sales techniques.

The local jeweler you're speaking with extremely rare.
Not many one store operations can afford to buy parcels nowadays......
It usta be a lot different ( sounding old here...)

Dan- awesome info!

 

[Texas Leaguer]

How does it hurt consumers? Great question. You’re correct, nearly every stone is submitted by a dealer. So who cares? Here’s a few examples of how this hits consumers:

#1 Money. All of this costs money, and ALL money comes out of the consumer at the end. That’s Econ 101. This may seem like a contradiction to my suggestion of raising prices but a fair number of the costs are hidden. If GIA ties up your working capital for 4 months, dealers need to make as much in that 4 months as they would doing something else with it, right? Otherwise,why do it? How much does that cost? 1%/month? No, the bank won’t pay you that but that’s not the way working capital goes. We’re talking about big money and small businesses. 12% internal ROI on working capital is cheap. Heck, 15% is cheap. For a $10,000 stone, we just raised the price to the consumer by $400. Maybe more.

#2 Risk. The assumption that diamond prices will always go up is simply not correct. A stone locked up in GIA’s vault is NOT the same as money in the bank, even if the dealers talk themselves into that. Market drops or fashion changes mean money lost. That’s their problem but these things are run by accountants, and accountants want to offset risk with money. That's in Econ 102. How much money? 1%? 2%? Who knows? It’s different for each dealer but the point here is that it’s not zero. As with the above, realistically we’re talking about hundreds of dollars per stone to get the beancounters on board.

#3 Sending diamonds worth thousands of dollars to GIA to sit on for months is an activity for big players. The longer the delay, the bigger they need to be. Just 10 stones a week worth an average of $5000 each means something like $800,000 tied up just in the logistics of the system! Most jewelers are small businesses and this is simply not a reasonable scenario. They HAVE to add a middleman to the deal when they buy things from the public. That’s good for the middlemen, but not the jeweler, and not the consumer. The difficulty of private sales goes up, and prices realized in dealer sales goes down.

In terms of market prices to the consumer- and how GIA's lethargic turn around has affected them- I disagree with you Neil.
It's an interesting discussion, and if anyone would like to see GIA get their poopies together on this issue, it's me.
It's definitely costing my company money.
BUT- none of the effects you cite are actually hitting consumers.
In fact, for consumers, selection is greater than ever, and retail diamond prices are incredibly low. Probably as low or lower than they've ever been ( in inflation adjusted dollars)
The $400 increase in price you cite in your example #1 won't fly.
When the stone comes to market, it meets hundreds- if not thousands of competing stones already there.
If it's a truly desirable stone, compared to a less desirable one with exactly the same GIA grade, the difference will be far greater. So the dealer will look at the stone and price it accordingly. But the cutter or dealer offering that stone can't add $400 to cover GIA turn around time as such

#2 example is a possibility- but not a reality of the market for the past five years.
Very few people can claim losses due to the list going down while waiting for their stone over the past five years- as very few items on the list have dropped over this period.

#3- this is a cost of doing business today. The biggest players have so much skin in the game, the total numbers might be substantial seen out of context, yet the overall effect on consumer prices is nil. $800k might sound like a lot of money- but not necessarily if it's in the context of a $100 million dollar business.
You use the term " most jewelers are small businesses" and maybe this is still true- but its also true that most small jewelers can't sell diamonds nowadays- they've been hurt by far more pervasive changes in the industry than GIA slow turn around times.

This is all part and parcel of the "telescoping" that the internet has facilitated.
My feeling is that the overall collapse of the brick and mortar retail jewelry segment has hurt consumers- and all of us in the trade-at the same time it's made things better and easier for consumers.
No one needs to go to a jewelry store to buy a diamond anymore.
One way this hurts all of us is it hurts local economies.
The increased efficiency of online sales comes without some side effects. So consumers may be getting hurt by these changes- but not by higher prices due to GIA turn around times.

Rockdiamond, I have a different take on a couple points you make. First, the absurd turnaround times and higher use of SDS clearly impact the cost structure of the companies selling those stones. While there may not be a direct add-on for this piece of increased overhead on a stone by stone basis, it has to be accounted for in the overall operation of the business, eventually leading to higher consumer prices. The fact that other factors are playing in favor of the consumer (and here I am in complete agreement with you), does not refute Neil's assessment.

Secondly, I don't think it is fair to say that "most small jewelers cannot sell diamonds nowadays". Most estimates I have seen indicate that not more than 10% of diamonds are being purchased online at the consumer level. That leaves 90% being purchased at chains and independents. I think your assessment of the "general collapse of the brick and mortar retail jewelry segment" is a little overblown. While the B&M's are still adjusting to rapid evolution of the industry- as is everyone upstream as well- they will enjoy many advantages that internet sellers don't have, and will for the foreseeable future. The good ones, and there are many, will leverage these strengths and compete very nicely.

 

[denverappraiser]

David. Costs to you and others in your position DO get passed on to the consumer, as all dealer costs must. It’s a mistake confuse savings that occur elsewhere, like shrinking profit margins, as an offsetting factor. For artificial costs, they drop in retail prices would be even more, after all, and that's the same thing. I also think you’re underestimating the consumer costs from giving a competitive advantage to the giant players, especially when we include the secondary market in the discussion. I guess we’ll have to agree to disagree here. Small, nimble, and local players have their strengths and definitely bring value to the table. Not always, but sometimes. Discouraging them from participation because they don’t have the financial strength to wait it out does no one any favors except the giant diamond houses.

I second the comment about Dan's participation. Thank you sir. You rock.

 

[Rockdiamond]

I think part of this forum that's so fascinating for me is learning the way others perceive things about our business.
Especially so when the others are as well informed as those involved here.

Bryan- here's what I'm basing my statements on- and it's admittedly a limited view, yet based on relevant experience and data.
For many years I worked for some massive cutters and site-holders selling to retail jewelry stores. Till 1998.
So many colleagues that used to make great money selling diamonds to jewelers on the road have had to find other ways to support themselves. The potential clientele has been drastically reduced.
The entire wholesale landscape has changed drastically.
It looks to me as though a large percentage of independent jewelers are pretty much out of the large stone diamond business. Some completely out of business, others survive on other parts of the business to survive. From 2008-2012 and even now- there was great money to be made buying over the counter.

I don't have stats on hand to see how much jewelry is sold where- although I'm sure they exist.
Maybe someone here has them.
If you ( or Neil, or anyone) were to hazard a guess, what percentage of GIA graded diamonds is being sold at the brick an mortar level today?

Neil, from my perspective, this presents opportunity for a smaller business, as opposed to making things worse.
Unfortunately, I don't believe many jewelers know how to respond to someone walking in and mentioning the internet as a potential place to buy a diamond.
The successful ones today obviously do.

Think of the demographics- how many shoppers of an item costing $5000 or more don't at least look online?

 

[Texas Leaguer]

I think part of this forum that's so fascinating for me is learning the way others perceive things about our business.
Especially so when the others are as well informed as those involved here.

Bryan- here's what I'm basing my statements on- and it's admittedly a limited view, yet based on relevant experience and data.
For many years I worked for some massive cutters and site-holders selling to retail jewelry stores. Till 1998.
So many colleagues that used to make great money selling diamonds to jewelers on the road have had to find other ways to support themselves. The potential clientele has been drastically reduced.
The entire wholesale landscape has changed drastically.
It looks to me as though a large percentage of independent jewelers are pretty much out of the large stone diamond business. Some completely out of business, others survive on other parts of the business to survive. From 2008-2012 and even now- there was great money to be made buying over the counter.

I don't have stats on hand to see how much jewelry is sold where- although I'm sure they exist.
Maybe someone here has them.
If you ( or Neil, or anyone) were to hazard a guess, what percentage of GIA graded diamonds is being sold at the brick an mortar level today?

Neil, from my perspective, this presents opportunity for a smaller business, as opposed to making things worse.
Unfortunately, I don't believe many jewelers know how to respond to someone walking in and mentioning the internet as a potential place to buy a diamond.
The successful ones today obviously do.

Think of the demographics- how many shoppers of an item costing $5000 or more don't at least look online?

The information age has caused a sea change in our industry, as in many other industries. The fact that sellers don't go out on the road to call on jewelers as much today does not mean the jewelers are not buying (or at least selling on memo). It's part of the revolution that has made services such as rapnet and polygon very popular. The jeweler can even go directly to manufacturer sites and see a comprehensive collection of information and images about the stones and buy them online and even make offers on some sites. And they are not limited to US sources- they can go direct to some overseas manufacturers. I assure you that the sharp jewelers out there are taking advantage of these buying opportunities.

True, the large stone business is primarily memo. A small business may only have a call for a big stone here and there. So relationships and credit worthiness are essential if you hope to participate in this market.

In the end, the internet is here to stay and jewelers who want to stay relevant will not deny it. They will get on board and up to speed with the tools. The others will go the way of the traveling diamond salesman.

 

[denverappraiser]

I think part of this forum that's so fascinating for me is learning the way others perceive things about our business.
Especially so when the others are as well informed as those involved here.

Bryan- here's what I'm basing my statements on- and it's admittedly a limited view, yet based on relevant experience and data.
For many years I worked for some massive cutters and site-holders selling to retail jewelry stores. Till 1998.
So many colleagues that used to make great money selling diamonds to jewelers on the road have had to find other ways to support themselves. The potential clientele has been drastically reduced.
The entire wholesale landscape has changed drastically.
It looks to me as though a large percentage of independent jewelers are pretty much out of the large stone diamond business. Some completely out of business, others survive on other parts of the business to survive. From 2008-2012 and even now- there was great money to be made buying over the counter.

I don't have stats on hand to see how much jewelry is sold where- although I'm sure they exist.
Maybe someone here has them.
If you ( or Neil, or anyone) were to hazard a guess, what percentage of GIA graded diamonds is being sold at the brick an mortar level today?

Neil, from my perspective, this presents opportunity for a smaller business, as opposed to making things worse.
Unfortunately, I don't believe many jewelers know how to respond to someone walking in and mentioning the internet as a potential place to buy a diamond.
The successful ones today obviously do.

Think of the demographics- how many shoppers of an item costing $5000 or more don't at least look online?

B&M is not a particularly easy thing to define any more since most jewelers have at least a token online presence and a fair number of the big online dealers are actually building a physical presence where you can have an 'in person' shopping experience if you want. Pure internet players are actually fairly rare and the two business models seem to be merging together rather than spreading apart. The stats from JCK say that nearly everybody does research online but that fewer than 10% actually end up buying there. Where do they go and why? That’s the million dollar question of the industry. Walmart is the #1 diamond seller in America but they mostly do it selling cheap stuff cheaply. That’s not the market you’re talking about. Costco is doing just fine too, and they actually move some pretty expensive things but again, I don't think that's what you mean. I think the jewelry departments at places like Nieman Marcus are holding up although other departments like giftware are causing them some trouble. Chain stores like Helzburg and Jareds seem to be doing ok. They look to be expanding as fast as they can. At the top end, Tiffany, Cartier, Harry Winston and the like are apparently selling things and if their displays are any clue, diamonds still seem to be a big category for them. It’s harder to tell what the ‘Mom and Pop’ type of stores are up to. By their nature they tend to be pretty low key, but they ARE staying in business so they must be selling something. What all of this tells me is that a whole lot of people see the value proposition being offered online, and end up spending their money somewhere else. We’re talking about savvy shoppers here, not a bunch of fools (mostly). Are they seeing value where you don’t? Maybe. Are they seeing risks that you don’t? Maybe.

 

[aljdewey]

I keep coming back to food. Their problem is actually worse because the product is perishable but standardization is everything and it’s all about producing the goods on schedule. They want your experience at a McDonalds (for example) to be the same no matter where you go, and they work really really hard at this. They don’t claim to be the either the best or the cheapest burgers, but a quarter pounder in Chicago is going to be just like a quarter pounder in Arizona and both will be just like the one you got last week. That’s their power. This isn’t a coincidence and NONE of them are prepared by an actual McDonalds employee. The restaurants are separately and mostly locally owned.

It's hard for me to see how the type of standardization achieved in the food market translates to something like diamonds.

It's easier to standardize something that's precise and measurable - the burger has to be 4" diameter, 1/2" thickness, weighs 4 oz, 100% beef (or whatever - LOL). I've watched in fascination several of the "how it's made" shows, and most of the uniformity is achieved through machinery. which can be easily calibrated against a standard.

Grading is a subjective opinion by humans (although, according to Dan's post, perhaps not?), and humans can't be calibrated. There are so many variables that affect that way we perform as humans (sleep, did we drink the night before, age, etc.) that I don't know how realistic it would be to achieve "standardization" on opinions.

Even if you could - how do you reasonably audit the 'calibration standard' of an opinion. I can weigh a hamburger 10 times in under a minute to see if a piece of machinery is reliably repeatable. I can't envision how this could translate to easy check/balance for auditing results of human graders.

Anyone who has spent any time here on PS knows that even learned experts - leaders in the field - can heartily disagree. I dunno - I think it's much easier to standardize a burger and fries, myself.

 

[aljdewey]

The answer to "why is GIA so slow" is pretty simple.....

Because they can be - and without consequence.

They are the overwhelming incumbent, and it would be an enormous lift for any other organization to pose any kind of serious threat to them.

They created the very standards that have become universally accepted, to the point that successive labs adopted the same GIA nomenclatures.

GIA began issuing grading reports in 1955, and enjoyed at least 20 years of exclusivity before any other contestant entered the fray.

In those 20 years, jewelers themselves did much to promote GIA as the 'veritable source of truth' because it served their purposes in helping them overcome lack of consumer confidence. Now that Frankenstein has worked against them a bit - how do they now drive the same kind of confidence in other labs? How do they successfully persuade the buying public that an alternate labs' opinion (*opinion*, said with emphasis) is as credible as that of the *creator* of the standard? Tough lift.

 

[Karl_K]

One way it hurts consumers is it sends more business to second tier labs particularly from small dealers.
I have talked about this with a local jeweler who went from all GIA to mostly egl-usa reports.
He buys his smaller diamonds in lots with factory grading then has them lab graded.
He does use AGS for larger diamonds but feels they are not competitive under .75ct.

Very good point Karl- this would be one way possible way consumers are getting hurt by GIA slowness. I could be but I don't see it as any sort of substantial reason.
The EGL misgrading issue is far more due to aggressive sales techniques.

The local jeweler you're speaking with extremely rare.
Not many one store operations can afford to buy parcels nowadays......
It usta be a lot different ( sounding old here...)

Dan- awesome info!

In my area of 400k or so there are 10-12 independents about the same in chains + 5 walmarts/sams and 1 kmart.
There used to be something like 20 independents 10-15 years ago.
Actually another one just opened up recently and built a nice building.
It is the son and nephew and brother of the owners of 3 other independents.
Yes there are 4 stores in one family.
The average ering here is likely a third and they buy lots of lots.

No one is this day and age is going to pay a middle man to bring the diamonds to them.
The parcels are bought online or over the phone.
It used to be once a year the Uncle in the above family makes trips to Antwerp or Israel to buy diamonds for all the stores.
Last I heard he no longer does so everything is done remotely and mainly they come from India.

 

[shimmer]

I took a tour of the GIA Carlsbad lab last year--it was fascinating to see the workstations, setup and procedures of the lab. Perhaps I can add some insight to the day to day functioning?

I don't want to reveal too much, security and all.

I do remember that they only allow color graders to grade for 30 minutes at a time only due to fatigue, I think it was up to two sessions a day. The clarity graders plot every inclusion of every stone in a software system, even the inclusions/characteristics that do not make the report. I believe each stone is independently graded by at least three graders.

It is not by any means a 'quick' process as we can do when grading in retail/appraisals, there are checks and procedures that slow it down, for obvious reasons--they are known for their consistency and accuracy because of this. Security also holds up the process--wish I could elaborate!

The graders must obtain their GG, and then require three months additional of full-time training to learn just one grading category! It is very intensive training, and as far as I have heard, the pay is not well.

As an aside: I know here (independent B&M), if the diamond has an EGL or whatever lab cert, we throw it out, grade it accurately, and sell it as such. The cost of the diamond reflects the 'true' grade 100% of the time.

 

[John P]

The graders must obtain their GG, and then require three months additional of full-time training to learn just one grading category! It is very intensive training, and as far as I have heard, the pay is not well.

A question for Shimmer or Mr. Gillen:

Is the above practice consistent in foreign GIA locations such as Mumbai (postscript Gabarone and J-burg)? My understanding is that GIA Mumbai has experienced extremely erratic influxes/defluxes in volume, depending on season and economic dynamics.

I've consulted for factories in India and get the crash-course training, hiring and firing based on needs of the moment. As it relates to this thread, are there controls in place to ensure the stipulations above are met in all GIA lab locations (even against the grain of the local norms) and, if that's so, does it help in explaining the current slowness?

 

[denverappraiser]

The graders must obtain their GG, and then require three months additional of full-time training to learn just one grading category! It is very intensive training, and as far as I have heard, the pay is not well.

A GG is not a prerequisite to working in the lab. (Nor do I see any particular reason it should it be, by the way)

As it happens, they're hiring:
http://www.gia.edu/gem-job

 

[30yearsofdiamonds]

I trained graders in the early 90's when there wasn't yet a formal training program, but helped at that time to set one up. I used to train up to 10 graders at one time, but 6-8 was more ideal for one person. I worked everyday for three months 8 hrs a day teaching them everything that needed to be done other then color grading. I picked the stones from our inventory to be used that best fit what we were concentrating on at that time. One Note; I technically interviewed each candidate before hiring and not everyone had a GG and some of the best ones had never looked at a diamond under a microscope in their life.

After three months they would enter into the lab population and not every trainee made it. Since that time a formal training program was instituted and was a three month program. With the need for new graders the program was scaled down to around two months,(mistake in my opinion).

I always told the graders it takes approximately three years of grading before they have the opportunity to become an excellent grader and many more years before you can master the art of grading, and that goes along with the theory of how an apprentice becomes a master at a craft.

There are lousy, mediocre and excellent graders at GIA, the problem is and has always been, there are not enough excellent-experienced graders to guide, correct and keep young graders consistent. Picture this, the first and most time consuming step of grading is done first by the least experienced grader, setting the stage for what is to follow up. Secondly and most importantly, the lab does not have the manpower to QA all the stones that are graded, if they did they would be even further behind.

I think I'll stop here!

 

[Texas Leaguer]

Info that came my way is that on diamond dossier stones, two color grading machines are used to find an agreement on color and if there is a split then human eyes will decide with an opinion. But, maybe someone has heard differently?

Dan, I have confirmed on good authority that you are absolutely correct. Here's a little more detail:

Very few diamonds are actually color graded entirely by machine, and as your post suggested it is confined to diamonds under 1 carat.
The color grading devices that GIA uses are proprietary, developed in-house, and employ spectroscopic analysis. They output more than just a grade on the scale. They will indicate when certain "modifiers" are present such as hues other than yellow and fluorescence. Those stones are referred for human grading. So only the subset of small stones with no modifiers can be color graded entirely by machine.

It was the opinion of the person I talked to that color grading will go more in the direction of device-only grading as the machines continue to get better at taking all the subtle variables into account.

 

[Karl_K]

It was the opinion of the person I talked to that color grading will go more in the direction of device-only grading as the machines continue to get better at taking all the subtle variables into account.

I have been saying for years that its a little nuts that in this day and age machines were not being used for color grading.
However I am uncomfortable that the machines have not been peer reviewed.

 

[Texas Leaguer]

It was the opinion of the person I talked to that color grading will go more in the direction of device-only grading as the machines continue to get better at taking all the subtle variables into account.

I have been saying for years that its a little nuts that in this day and age machines were not being used for color grading.
However I am uncomfortable that the machines have not been peer reviewed.

I get that point. I guess the answer would be that the devices have been vetted against the masters to a point where GIA has a high degree of confidence that results, in the limited subset of diamonds on which they are used, will be within the +/- 1 color grade that human graders would call. Perhaps when they go all in for device color grading they will open up the technology for peer review. (That is all pure speculation on my part)

 

[Modified Brilliant]

Although I hardly use it these days, my 1980's Austron Digital Diamond Colorimeter still works pretty well and is near accurate when calibrated to my master stones. Plus it has a cool Star-Trekky look.

 

[30yearsofdiamonds]

The way I would use a machine in a lab when consistency and accuracy has been tested and proven is like this;
1. Every stone goes through the machine for an initial color.
2. The stones are then separated into groups of same initial colors, I.e. all D's together, al E's and so on.
3. A designated color grader of consistent and accurate ability, also tested and proven is given 100 stones all of the same initial color. That person can quickly identify, one at a time any stone falling too high or too low then the initial color.
A. When doing color grading of the same proposed color over and over it is easy to spot the ones that don't fit.
4. Any disagreement is put aside for another human to check, without knowing the split.
5. This method is fast, the first grade has no bias since it is a machine, human eyes are always present, and split grades are anonymous.

Back in 2000 we did this to catch up when we were behind by 20 days and it worked. The only difference was the first grade was also done by a human grader and then the stones were batched. Machine first grading would be much faster.