Perhaps De Beers’ new venture into secondhand diamond dealing is, as it claims, simply a way to learn more about the diamond trade-in market. But setting up a four-person lab in New York City, a website, and fledgling distribution network (involving 15 doors), is a pretty elaborate way to research something.

The new venture, called the International Institute for Diamond Valuation (IIDV), was seemingly telegraphed by CEO Philippe Mellier at the De Beers forum at the JCK show in Las Vegas. When asked about possible threats to consumer confidence, he—rather surprisingly—said secondhand buying. If consumers don’t receive good value for their diamond trade-ins, he explained, that will shake their confidence in the product and industry.

So this is the company’s response. De Beers has said that it simply wants to research, and possibly reform, the diamond trade-in business. But it wouldn’t likely do this if it didn’t see a business model there.

In the last few years, an estimated $1 billion in diamonds have been sold secondhand—and that number will likely grow as the population ages. (Martin Rapaport has declared that the biggest diamond mine may be in Florida.) But every recycled diamond represents one less sale from De Beers’ mines. Some have even called trade-ins a threat to its business model. Now it has come up with a way to get a piece of the action.

You could say that De Beers is thinking like a dot-com entrepreneur. It’s unearthed an industry niche that some consumers (and retailers) aren’t too happy with, and found a way to put its own spin on it. As they say in the dot-com world, De Beers is trying to “disrupt” it. And just like Blue Nile lowered the prices consumers pay to retailers, De Beers may raise the prices retailers pay to consumers. (That, in fact, is one of its stated goals.)

Of course, for every retailer that doesn’t like buying from the public, plenty swear by it; some even say it’s kept them in business, as it often offers better margins than just selling diamonds outright. So the market here may be limited. And there are already companies, like CIRCA, handling this for jewelers.

The IIDV says it will pay “highest possible price one could achieve…on the secondary, wholesale market.” That’s quite a pledge, and talking to people about this yesterday, some thought it could be seen as putting a cap on prices. (It may also entice dealers, who could see this as a way to fob off unsalable goods.) But it also might be tricky from a business standpoint. The IIDV will have a more elaborate apparatus than the typical diamond-buying operation. It’s doing some limited advertising. And it’s pledged not only to pay consumers the highest prices possible, but to give retailers a small markup on top of that. Its margins could get pretty squeezed. De Beers may soon learn firsthand the agony of being a polished dealer.

While De Beers is well connected in the diamond business, its speciality is not selling polished wholesale. It says it’s still working out where these gems would be sold—yet that’s a pretty important thing to work out. Of course, it might also use the diamonds at its retail chain or for the Forevermark—but that might make fuzzy the latter’s claim of being responsibly sourced. However, if this business takes off, it could even start its own recycled diamonds line. At this point, anything seems possible.

That might be the larger message here. Many of us were surprised by this announcement, but given that De Beers has already started a lab, a retail chain, and diamond brand, perhaps we shouldn’t be. The 2014-model company clearly wants to go where the action is, and that is close to the consumer. The new De Beers is no longer content just to color inside the lines.

Rob Bates

JCK News Director