The Diamond Industry and the Future of the Second Hand Market ___ - PowerPoint PPT Presentation

The Diamond Industry and the Future of the Second Hand Market ___ Pawn Expo, July 11, 2018

Overview 1 Market Overview 2 Second Hand Market 3 Synthetics

Rapaport Ethical Values: Transparent Background: Established in 1978 ◆ Global, 230 Employees, ◆ Competitive 7 Offices, 5 Countries Over 20,000 clients in ◆ 121 Countries Added Value Services ◆ Efficient Markets

Information RapNet Services Diamond Grading Rapaport Auctions And Certification and Trading Services

1 Market Overview

The Diamond Journey Rough Polished Jewelry Mining Manufacturing Retail Wholesale Wholesale Manufacturing Secondhand Market

Mining

Mining Diamonds are a finite • resource Limited new mines • discovered in the past 15 years As mines mature, it • becomes more expensive to extract diamonds from them Source: ALROSA website

Mining Governments are seizing • more control and profits Miners moving • downstream Source: ALROSA website

Manufacturing

90% of Diamonds are Manufactured in India Today

Trends in Manufacturing India playing dominant and growing role • Large stones (30% of value) are still being manufactured • outside of India High volume, low margin business • Capture market share •

The Lion Story

Manufacturing Edge Economies of scale • Technology • – Sarine Galaxy, Waterjet diamond lasering Data • Go big, go niche or go • home Source: SARINE website

Major Wholesale Markets Belgium Dubai India Israel Hong Kong New York

Value of the Wholesale Sector Why do we need wholesalers? • Manufacturers and miners need consistent cash flow • Not all diamonds are in demand and some need to be pushed downstream • Global physical commodity and buyers need to be catered to in their own market • Retailers need consistent supply and special terms

Demand: Global Diamond Jewelry Consumption - 2016 Rest of The World, $17, 21% Gulf, $4, 5% USA, $41, Japan, $6, 51% 7% China, $10, India, $3, 4% 12% *In Billion $ Source: De Beers Report for 2017

Retail

Retail • The big have been getting bigger • Signet bought Zales and James Allen • Mom and pops are retiring or closing down • Online retailers are capturing brick and mortar sales and Source: BLUE NILE website profits

Prices 20

Diamond Market Factors Quality - 4 C ’ s Cut, Carat, Color, Clarity Polished Supply Rough Supply & Prices Recycling Social Norms Economic Forces Fashion Employment Rate Prices Social Responsibility Interest Rates Consumer Confidence Inflation Rates Diamond Dream Wealth Effect Luxury Branding Equities Demographics Globalization Population Age Foreign Demand Marriage Rate Foreign Currencies Store of Value Divorce Rate China, India Monetary Value Death Rate Emotional Value

U.S. Unemployment Rate & Retail Jewelry Sales $ Million 3,200 11% 10% 3,000 9% 2,800 8% 2,600 7% 2,400 6% 2,200 5% 2,000 4% 1,800 3% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Retail Jewelry stores Sales ($M) Unemployment Rate…

The First Rapaport Price List

2 Second Hand Market

Second Hand Market Estimated to be $1-2B annual • supply Major new source of supply and • growing US jewelers and dealers making • significant portion of their profit Source: HELZBERG website buying from consumers rather than selling to consumers

Second Hand Market We estimate there to be over $200B of diamonds on • people’s fingers in the US alone As more diamonds are imported and consumed in the US • the larger the second hand market will be in the future The second hand market will continue to gradually grow •

U.S. Population – 2018 vs. 2030 Millions 12% 100 90 0% 80 -1% 70 4% 60 54% 50 40 30 20 39% 10 0 0-14 15-29 30-49 50-69 70-84 85+ 2018 2030 27

Second Hand Market Gold and Melee Single stones Premium to melt jewelry and signed pieces Flat to slightly improving

Second Hand Market Can the pawn industry capture a larger share of this • expanding pie? – Higher price point diamonds and premium quality jewelry Enhance your expertise and expand your clientele • Position yourself long-term • – It’s not about loaning or buying, it’s about building relationships with customers and having the knowledge and capacity to help them

3 Synthetics

Synthetics Synthetics/Lab Grown • diamonds is a growing segment 4M carats of gem quality • synthetics being produced annually – vs 70M carats of gem quality natural diamonds – Estimated to grow significantly – Primarily HPHT under 10 points Source: PURE GROWN DIAMONDS website

Synthetics • De Beers moving into synthetics • Cost plus model

Synthetics – 3Ds The impact synthetics will have on the natural diamond market is contingent on the 3Ds: Detection • Disclosure • Differentiation • The melee category is the most vulnerable. Source: REUTERS / REUTERS TV

Synthetics Diamond Foundry differentiating • their lab grown diamonds as conflict-free Diamond Producers Association • (DPA) established in 2015 We are seeing lab grown diamonds • Source: DIAMOND PRODUCERS hitting the second hand market ASSOCIATION website It is important to buy technology to • protect your purchases of diamonds

Synthetic Detectors DiamondSure (IIDGR) SYNTHdetect (IIDGR) AMS (IIDGR) Phosview (IIDGR) DiamondView GIA iD100 - $5,000 (IIDGR)

Closing ▪ You’re on the front line; own the customer ▪ We believe the pawn sector can play a larger role in the second hand diamond and jewelry market

Closing ▪ How do you polish a diamond ▪ Mazal

Thank you! Wishing you all a very successful show!