CHICAGO: SERVING THE HEARTLAND

Ever since William Levine started to provide Depression-bound jewelers with memo goods in the 1930s, Chicago-area diamond deal-ers have stressed their close ties to retail jewelers. Today, diamond dealers the world over woo retail jewelers in the Midwest. However, the Chicagoans say they are still masters of that game.

“Service has always been what we do best,” says David Levine, third-generation member of William Levine Inc., which remains the largest diamond house in the Midwest. “We’re doing at least as much memo as ever, possibly more because prices of large goods have gone up a great deal and because many overseas diamond manufacturers have been connecting with retailers in the region.”

Levine and other Midwesterners have been able to stay competitive, even as outsiders come in with lower prices, because they’ve built a strong base of loyal clients. Retailers who’d previously shopped only for the best price now place more importance on service in the form of availability, accurate grading and timely delivery.

Location helps also, says Alan Lipscher, head of Global Diamonds, one of the area’s largest suppliers. When it’s 6:30 p.m. on the East Coast, New York City diamond offices have closed but he’s still open. He and many of his colleagues also open early to field morning requests from the East Coast.

Chicago’s diamond dealers are clustered in several large buildings at Madison Ave. and Wabash Ave. This jewelry district has about 15 major players (led by Levine, a manufacturing sightholder with a partner in Antwerp) and about 30 smaller ones.

Lipscher says Chicago is easy to reach via O’Hare International Airport and that Chicago dealers have goods and prices comparable to those in New York City. But unlike New York City, dealers here can’t count as heavily on business from brokers sauntering back and forth between offices.“We look to retailers first because we lack the critical mass of jewelry manufacturers, diamond brokers and wholesalers who could maintain a self-sustaining diamond community,” he says.

Chicago’s dealers also have become innovative in their quest to stay competitive. Carol Gout, a partner in S.A. Gems, is finding her niche in high-tech service geared to independent jewelers. “Many still aren’t computerized so we developed a fax-back system in which our clients, with the proper password and size ranges, can download our entire inventory list by fax,” she says. “No one has to wait while a salesman checks inventory or must rely on a dealer’s memory. It’s all done instantly by computer. Everybody struggles to make money these days, so we have to be efficient and provide services no one else does,” she says.

Larry Engelhart, vice president of Charles Engelhart Inc., found a service niche in his Pedigree program, in which he mounts diamonds in Lucite cases that show the weight and color/clarity grade. The theory: retailers should display their diamonds rather than keep them in the safe.

Meanwhile, Engelhart has been backing away from Chicago’s memo atmosphere. “Memo has its place, but we’ve found that jewelers who invest in their inventories sell more because they work harder at it,” he says.

Finished jewelry lines

Chicago’s dealers, like many of their New York City counterparts, also have turned to “vertical-integration,” a fancy term for going into the finished jewelry business. The reason: finished jewelry is much more profitable than loose diamonds these days.

William Levine has launched an ultra-high-end line of jewelry designed by Patrick Schwarz of Belgium. This decision followed several years of test-marketing high-end pieces Levine made for Christie’s auction sales. “We’ve seen the market growing for this type of jewelry,” says David Levine. “Overseas diamond manufacturers are connecting directly with U.S. retailers, so this seemed like the best way to defend ourselves. I don’t think the profits on loose diamonds will ever be what they were years ago, but there’s still some mystique left in world-class jewelry. You won’t find diamond necklaces listed in the Rapaport Report.”

National Diamond, another leading Chicago diamond supplier, commissioned its own line of jewelry featuring Flanders brilliants, a specialized cut the company started to market about four years ago.

With its focus on Flanders brilliants, National is among the companies that are giving Chicago a reputation for specialized or unusual diamond cuts. Others include 144 International, which deals exclusively in 144-facet round brilliants; I. Starck, which specializes in Radiant Cuts; and Global Diamonds, which until recently marketed Sculptaires – diamonds cut in quarter-moon, star, horse head and other shapes.

Unusual cuts may not comprise the bulk of a company’s business (Flanders brilliants account for 5% of National’s), but they create an identity. “We’ve attracted a growing group of jewelers who are looking for a unique product that can’t be price-shopped so easily,” says Keith Zimmerman, vice president of National Diamond.

David Perelman, who heads 144 International in suburban Elgin, Ill., believes there’s a growing market for distinctive diamond cuts, particularly if they are quality-oriented. “Our typical customer is an independent jeweler or small chain with staff trained by the Gemological Institute of America,” says Perelman. “They want quality makes without naturals, extra facets or laser drilling.” His 144-facet diamonds are rounds of “nearly Ideal” proportions (tables can go up to 60%) cut at the company’s factory in Puerto Rico. More recently, the company has produced 144-facet pears, marquise, cushions and ovals.

The Radiant Cut has been I. Starck’s niche for some 15 years. Isi Starck has worked closely with Henry Grossbard in New York City to make the Radiant an accepted cut. The key to the Radiant (a modified emerald cut with additional faceting in the belly to add brilliance) is excellent make. “Many imitate the Radiant, but few have really mastered the art of getting the full brilliance from it,” says Starck.

Starck offers this observation about the Chicago diamond trade: “We don’t have the ups and downs that other centers have. We generally buy what we need and what we can handle. We’re not trying to conquer the world.”

LOS ANGELES: A CENTER IN TRANSITION

For more than 15 years, members of Los Angeles’ diamond community pushed hard to become a world-class diamond center. They formed the Diamond Dealers Club  West Coast, which at one time boasted two sightholders and several manufacturers. But bad timing and several well-publicized bad-debt scandals interfered, and only now is the industry reemerging with a new plan.

A major component of that plan is the city’s growing jewelry manufacturing industry, which now employs 50,000 to 70,000. This gives the diamond industry a solid base to work from, says Jim Vernon of Frank Vernon Inc., a DDC West board member.

However, the industry can no long-er depend on heavy sales to Japan, which is mired in recession, or on sales of bigger stones, which aren’t as readily available as in the past. As a result, manufacturers generally work the lower and middle ends of the market. “These manufacturers use a lot of small goods, tapered baguettes and similar material,” says Walter Feinblum of Dynasty Diamonds, president of the DDC West.

Feinblum remembers the bad days. “A long time ago, the community didn’t have the best name creditwise, then crime became a big problem,” he says. But credit problems have been ironed out, he says, and city officials are helping to secure the downtown in recognition of the industry’s economic impact.

Jewelry manufacturing

The growth of Los Angeles’ jewelry manufacturing industry has been fueled by waves of immigrants from Armenia, Lebanon, Iran and Russia. “Many of these people already had jewelry skills,” says Feinblum. The chief beneficiaries, he says, are the Indian dealers who specialize in small, lower-quality diamonds. As these manufacturers make their names known and move upscale, other dealers have benefited also.

In addition, demand for larger stones is growing because the Southern California economy is picking up after years of drifting. Demand for big diamonds is so strong, in fact, that supply shortages have kept even long-established dealers from taking advantage of the upturn.

Barry Kagasoff has been dealing large diamonds on the West Coast for 22 years and believes these times are more threatening than the days when the bottom fell out of the investment market. He says De Beers’ Central Selling Organisation has tightened supplies of larger goods to the point where sightholders can’t sell outside of their own client base. Many goods are presold to large chains, and diminished profits are forcing sightholders to bypass the regional trade and go directly to their retail clients. “Sightholders have to go to our customers to survive,” says Kagasoff. “There’s not enough profit if they have to split it with local dealers.”

Such problems have forced Irving Zimmelman, one of Los Angeles’ premier large-stone dealers, to move into estate jewelry. Zimmelman and others fear the situation will concentrate the business into too few hands, leaving no safety net during bad times. “Even the sightholders have to watch out,” he says. “If prices drop, there may not be enough local dealers to take the goods they can’t sell.”

The trade also expects a negative effect stemming from GIA’s move from the Los Angeles area to Carlsbad, Cal. GIA attracted dealers and gemology students from around the world, many of whom did business with Los Angeles dealers.

The more optimistic say the West Coast trade is merely going through a transition from a big-stone center to a full-service jewelry industry supply center and will emerge stronger. To Feinblum, vertical integration is one way to survive. He bought Carl K. Gumpert Inc., an upper-market jewelry manufacturing operation, and Pacific Gem Cutters, a major colored stone house. “This is the way we have to survive if you want to see decent profits and be assured of having goods to sell.”

MIAMI: LOOKING SOUTHWARD

Dwindling supplies of better goods are a major problem for Miami’s diamond trade. “We can’t supply 10% of our calls for larger, better-quality stones, particularly during the winter and spring when the tourist season peaks,” says Tibor Stern, who heads Gem World Inc. and is past president of the Diamond Dealers Club of Florida.

Stern says Miami’s tight-knit diamond community is disappointed to find that the way out of the region’s economic trough has been thwarted by a lack of salable goods. Nonetheless, there’s a great deal of confidence about Miami’s future as a local market and trading hub for Latin America. The renovation of the DuPont Building at Flagler St. and Northeast Second Ave. into a new jewelry center is a symbol of commitment by local diamond dealers and the jewelry community. It joins the nearby Seybold Building as the core of Miami’s jewelry district.

One floor of the newly renovated building is occupied by diamond dealers and the DDC. Richard Schechter, spokesman for the developer, says another floor for dealers is being started to meet demand and that construction is in progress on two other floors for manufacturers. As existing retail leases on the first floor end, that area is converted to jewelry retailing and wholesaling also.

Joseph Tenhagen, the new DDC president, is optimistic the relocated club will be a confidence-builder for members and a resource for area retailers. To generate more sales, the club invited 1,100 area retail jewelers to send their requests for goods to the club. The club then faxed the requests to members.

Tenhagen also is organizing sales of estate jewelry on the club’s trading floor, but says progress has been slow. “Many retailers are still reluctant to come downtown and setting convenient trading times is very difficult. Many retailers can’t leave their stores during the week, so we have to find a way to accommodate their needs.”

Still, Tenhagen believes that with the right mix of goods, the retailer outreach effort will succeed.

Like their counterparts in the rest of the country, Miami’s dealers find cash almost as scarce as top goods. Jewelers hesitate to commit funds to high-priced diamonds, so memo requests have grown dramatically. Also jewelers are taking longer to pay and profits are small, say dealers. “Eight years ago, you could get $1,000 profit on a good 1-ct. stone,” says Tenhagen. “Today, you’re lucky to get $300.”

Meanwhile, the Miami trade looks to Latin America for growth. Despite political and economic uncertainties in that region, Miami dealers foresee prosperity. They say trade with Mexico, the Caribbean, Colombia, Venezuela and Brazil already accounts for a third of their business.

One reason is geography. Miami is the closest major U.S. port to the majority of South American countries and has the strongest connections with South American banks and multinational companies. Another reason: the diamond community has adapted well to Latin American culture and knows the big players in each country.

“There’s enormous potential,” says Florence Novikov Grajwer of Brazilian Diamonds, Coral Springs, Fla. Grajwer, who deals Brazilian-mined and cut diamonds, says there’s great diversity in Latin America offering opportunities for dealers of all types of goods.

(Additional reporting by George Holmes)

THE SOUTH: ‘BIG FLASH, LITTLE CASH’

Atlanta dealers are the first to admit they’re behind the times. The rest of the country wants white diamonds of good make. In the South, “big flash for no cash” still sells except in the major cities.

Udi Sandalon of Sandalon Diamonds, near Roswell, Ga., says the South was a quality market until the early 1980s, when discount and closeout operators moved into diamonds and persuaded consumers price was all that mattered. “A lot of people decided they’d rather spend less than get higher quality,” says Sandalon.

What’s moving now: top light browns (M-O colors) and off makes, especially spread tables. But some dealers expect the South will join the quality bandwagon eventually. And they’re optimistic about the future. “It’s good diamond country and that won’t change,” says Paul Frysh of Georgia Diamond Co.

Unlike other centers, Atlanta doesn’t have an organization of diamond dealers. The 20 or so loose diamond dealers – about a third of them Israeli expatriates – are scattered through a number of buildings in the city’s Buckhead section and as far as Roswell, some 30 miles to the north. “Some of us are in the same buildings and we have varying degrees of respect for one another,” says Frysh. “But we basically function independently of one another.”

There is no supporting industry, such as gem setting, equipment supply or jewelry manufacturing to help sustain the trade. And there’s little hometown support: Atlanta’s jewelers almost never buy from Atlanta’s diamond dealers. “It’s like some unwritten rule,” says one dealer who doesn’t want to be identified. “I went calling on one of the city’s top jewelers and was told flatly the company doesn’t buy diamonds from Atlanta dealers.”

This means Atlanta’s dealers go as far west as Mississippi and as far north as North Carolina for business. Their diverse clients range from fourth-generation jewelers to pawnbrokers. But there are sales to be made. “The independent jeweler is still alive and well in the South,” says Ron Hahamy president of U.S. Diamonds in Buckhead. “So we have to be very service-oriented.”

Atlanta’s dealers also tend to be a little more generous about collections. “There’s always been a larger percentage of lower-rated jewelers here. They’ve operated for years and are still here so we supply them,” says Hahamy.

Relationships are important here. It’s not rare for retailers to call their supplier just to chat during down time. “We get to know their families, their kids, go out to dinner – all this is important here,” says Hahamy. This gives local dealers a big advantage: overseas dealers wooing their clients with deals to undercut prices face a lot of resistance. “A lot of these people don’t know how to deal with third-generation Southern retailers,” he says.