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Grading on a curve

The following article is published courtesy of: National Jeweler

Intellectual property: National Jeweler

Author: Michelle Graff

In the past year, the jewelry industry pipeline became a house of cards, with the Main Street jeweler in Ohio, the wholesaler in Rhode Island and the gemstone grader in Manhattan sharing precariously close to download National Jeweler‘s Web-only grading lab supplement, featuring images of and details on gemological grading reports produced by dozens of gemological laboratories and other service providers.
A lower-priced jewelry niche

After retailers across the country waited in vain for the 2008 holiday rush, the dollars that never came managed to knock everyone flat–retailers, suppliers and gemological laboratories alike. In 2009, the focus was on rebuilding and survival.  

So what about 2010? The heads of the world’s grading laboratories all seem to agree that the laboratory business has improved dramatically in a year’s time. But, this is not to say that the labs are back to 100 percent, or that the gem world’s grading experts know exactly what “100 percent” looks like for the jewelry industry anymore.

Lab executives are taking a cautious approach to 2010, watching their budgets carefully and hiring back some, but not all, of the employees they were forced to lay off at the height of the downturn.

Among the wary lab chiefs is Tom Moses, senior vice president of laboratory research at the Gemological Institute of America (GIA), who says that after laying off staff and cutting back hours in 2009, the lab has managed to put its workers back on a full-time schedule and to rehire a portion of the staff it was forced to let go.

But–and here’s that tricky number again–the staffing levels are still not 100 percent what they were before the economic crisis struck the industry.

“We’re still trying to watch our expenses very carefully,” Moses says, adding that he doesn’t know when, or if, the lab will ever return to pre-recession staffing levels in a world where tightly managed budgets have become the norm.

“To some degree, it will never stop,” he says. “I think the lesson we all learned has been a very hard one, one we probably should have figured out sooner. Maybe this is going to be the ‘new normal’ for a very long time.”

Back on the job

Understanding how it all came to this requires a look back. For the jewelry industry, 2009 started off with a sense of foreboding, says David Weinstein, executive director of New York’s International Gemological Institute (IGI) USA.

“In March 2009, I think everybody was really uncertain about what was going to happen,” he says.

At that point, the industry was recovering from a 2008 holiday shopping season that was a bomb for the majority of retailers, giving way to an early 2009 that was dismal at best, with one grading lab, the American Gem Trade Association Gemological Testing Center (AGTA-GTC), going out of business entirely.

“[But] that was all last year,” Weinstein says. “It seems to be totally, totally different this year.”

After letting go of one-third of its staff in 2009 and putting the remainder on reduced hours, IGI USA gradually has been able to put its staffers back on the clock full time and it has also rehired a significant percentage of those who received pink slips.

Weinstein says, from the lab’s perspective, it seems that the recent holiday season was “good enough” for most retailers, and that stores had sold a sufficient amount of merchandise to feel comfortable reordering, thus allowing the lab to stay busy throughout the fall and continuing into the month of February.

Normally, the bulk of the lab’s work in January involves appraising merchandise for major retailers and diamond companies that are publicly traded and need to submit annual audits, Weinstein says.

This year, the volume of unexpected goods  “coming in through the windows” for grading in January and continuing into February has been very strong as well, he says.  

“It felt like we were a month and a half [before] Christmas and yet here we were, in January 2010,” Weinstein says.

Among other laboratory officials noting a market upturn is Peter Yantzer, who is executive director of the American Gem Society Laboratories (AGS Lab) in Las Vegas.

At the worst point during the recession, Yantzer says his lab was forced to cut its staff in half, from 42 employees to just 21. As the economy has improved, the lab has been able to add back a total of seven staffers, bringing the employee head count up to 28.

Still, the lab’s research budget remains frozen until next year.

“I think we’re out of the woods,” Yantzer says. “[But] I don’t think it’s going to be back to gangbuster days for a while. There’s too many things going on in the world these days. It’s very unsettled.”
American Gemological Laboratory (AGL) President Chris Smith reports that his business, too, has started to pick up after a slow 2009. The lab, which specializes in the grading of colored gemstones, is also experiencing a bit of a windfall since AGTA-GTC closed in late July.

“We were all surprised by the closure of the AGTA-GTC,” he says. “However, it closed during the slowest time of 2009, so we did not experience any immediate increase in submissions.”

Since then, though, AGL has been collaborating with the AGTA, participating in show events and offering special discounts to AGTA members, all of which has added up to extra business.

“Members of our industry still require high-quality colored stone reports for identification, enhancement and country-of origin, and I am pleased to indicate that many AGTA members are entrusting AGL to provide these services,” Smith says.

For Moses, the uptick in GIA’s diamond-grading business, which he describes as significantly improved from a year ago, is not all due to homegrown demand.

Increasing consumer desire for diamonds in the Middle East, China and India–three markets consistently pegged by analysts as representing the future of consumer diamond demand–is contributing to the uptick in GIA’s diamond-grading business, he says.

Going forward, Moses predicts demand will continue to strengthen in these markets while the U.S. economy, ideally, recovers. Like Yantzer, though, Moses couldn’t hazard a guess as to how long it will be before the recession is a distant memory.

“That timeline, I just have no idea,” he says.

While the pace of the recovery is anybody’s guess, one trend labs nationwide definitively agree on is a desire among retailers to pay labs to examine less-expensive jewelry and provide reports for such pieces.
Gemma News Service‘s note: This article will appear in the April 2010 print edition of National Jeweler.

The reason for this, lab officials agree, is that retailers want to give spending-shy, ultra-conscious consumers extra assurance about quality when they are buying fine jewelry.

Rachel Chanowitz, director of sales and marketing at EGL USA, says today’s consumer would be more likely to select a $300 diamond pendant with a lab report attached than a piece that is brought out of the showcase, sans certification.

The post-recession consumer no longer parts with money so easily, and when shoppers do decide to spend, they want to make sure they know exactly what they’re getting for the money.
“[They] don’t want to make a mistake,” Chanowitz says. “They’re buying more conscientiously.”

In addition to grading more lower-priced pieces, Chanowitz says EGL USA is also seeing an increase in demand from independent retailers for special diamond grading certificates, such as light performance documents or reports that highlight special cuts, such as the hearts and arrows cut.

Being able to hand consumers a unique report gives a diamond a bit of extra cachet and helps the independent retailer separate the gem from similar–and likely lower-priced–stones advertised on the Internet.

“That has been the perfect recipe for success right now,” Chanowitz says.

A similar trend is happening at IGI USA, where Weinstein says the lab has seen an increase in demand for its certificates of authenticity–which guarantee that a piece is crafted of precious metals and real diamonds (although the diamonds are not graded)–as well as its certificates of evaluation. The evaluation certificate certifies the authenticity of the metals and states the minimum quality of any diamond found in the piece.

“Nowadays, the major retailers have gotten to the point where they’re saying even for the low price-point items, it’s worth it to have the piece put through IGI,” Weinstein says.

That trend has stretched over to GIA, too, where Moses says over the past couple of years, the biggest growth segment for diamond certificates is for stones that weigh less than 0.75 carats.

“That trend seems to be continuing,” he says, attributing the development to both an increase in the number of customers asking to have smaller goods graded, and the increase in demand GIA is seeing from emerging markets, where smaller stones are the norm.

“I think that is a big business in the developing markets, such as China and India,” Moses says.

Rubies, gold make headlines

While the economic slowdown seems to have put a damper on new diamond treatments, the year was not without a few jewelry-fueled controversies that made headlines.

While these news stories potentially chipped away at consumer confidence, they also gave laboratories a rare chance to explain to the public the science of evaluating gemstones and precious metals.

One such opportunity came by way of lead glass-filled rubies, which were featured in exposés that appeared on at least two widely broadcasted TV news programs in the past several months.

First, in the fall 2009, ABC News’ Good Morning America aired an undercover shopping segment intended to highlight how department store chain Macy’s was selling lead glass-filled rubies without proper disclosure. The segment featured an interview with Smith of AGL, who explained what retailers should disclose, and the precautions that need to be taken with those stones.

A similar story about a handful of West Coast Macy’s stores ran on a local CBS affiliate in San Francisco in February.

Despite these two very public reports, Moses says his lab hasn’t seen an increase in the number of rubies brought in for testing and certification. He says most of the lead glass-filled product ends up in jewelry that is too low-priced to be worth paying fees for lab grading.

Still, lead glass-filled rubies are out there, and Moses advises retailers who are buying lines of inexpensive jewelry to know what they are getting. Specifically, he suggests that jewelers ask their suppliers for a written statement that identifies gemstones and any treatments they underwent. Then, retailers should have two or three pieces tested to see if the supplier’s statement matches up.

“If they don’t, I would return all of it,” he says.

Moses says products such as lead glass-filled rubies have the potential to damage a jeweler’s credibility in an already fragile marketplace.

“I think in some ways that was an unfortunate and short-sighted action by those in that business,” he says. “It’s deceptive and, in many cases, not even wearable.”

AGL’s Smith says reports on glass-filled rubies haven’t sent customers rushing to his lab to demand testing, but the lab has seen a number of stones coming through that have turned out to be lead glass-filled or composite rubies, unbeknownst to the stones’ owners.

“This is an unfortunate trend that seems to only be increasing,” he says.

Smith says a new generation of composite rubies appears to be entering the market. The lab is researching this new material and treatment and plans to present its findings to the industry when the research is complete.

Also stirring up controversy among the consumer set in 2009 was precious metal buyback company Cash4Gold.

Numerous consumers complained about the Pompano Beach, Fla.-based mail-in service, claiming the company, among other things, didn’t pay them a fair price for their gold, prompting a number of consumer-focused news shows to investigate.

The metal-refining mayhem gave the Gem Certification and Assurance Lab (GCAL), led by company president Don Palmieri, the chance to show off its expertise.

Palmieri says a number of popular TV news shows, including Good Morning America, NBC’s Today show and Inside Edition, called on the New York-based lab to perform metal analysis for their stories because of the lab’s advanced XRF equipment, which uses X-rays to assay metals.

The lab’s turn in the spotlight is helping to raise its profile nationwide, but there is a price to pay: staffers’ time. Palmieri said for Inside Edition, three staff members spent two entire workdays testing metals for the show.

“We could be doing other work that brings revenue during that time,  [but] we’re happy to do it,” he says. “To get national publicity for our lab is almost impossible.”

Social hour for labs

One can hardly have a conversation in the jewelry industry without the hot topic of social networking coming up, as jewelers swap ideas about developing a fan page on Facebook or garnering a strong following on micro-blogging site Twitter.

It is only natural that the industry’s grading labs, an integral part of the jewelry supply chain, would start thinking about getting into the social game.

In March, GemEx Systems, a Mequon, Wis.-based lab that focuses on measuring a diamond’s light performance, took a big, bold step when it introduced the GemEx Live Report App, a Facebook application that allows users to show off their diamond’s light performance on Facebook.

GIA, meanwhile, dispenses tidbits on lab happenings through Twitter. Using the name @GIANews, the institute already boasted 180 “followers,” or people subscribed to its feed, at press time.
Plans for the lab to expand into the social media space are in the works, says Kathryn Kimmel, vice president and chief marketing officer.

“We are exploring various ideas in this arena, but we have no firm plans in place at this time,” Kimmel says. “We certainly do want to move further into social networking, as resources permit.”

The AGS Lab also is preparing to step into the social networking circuit. Yantzer says the idea of the lab getting onto Facebook came up at a recent board meeting but no firm plans were hatched for how or when.

“We’re going to get on there. I know that,” he says. “To what extent or where we’re headed with that, it’s not my call. It seems you almost have to nowadays.”