The diamond industry is changing as the demand for lab-grown alternatives increases. Photo / File
• Note from author: This is my last small business Q&A article. It has been a privilege shining a spotlight on inspiring up-and-coming businesses each Monday for the past five years. To the business owners I have interviewed, thank you for sharing your stories.
Diamond merchant Paul Bunker, founder and owner of online business Diamonds.co.nz, explains how the diamond industry has changed over the past 30 years and the issues facing the increasingly ageing sector.
What does your business do?
We import and sell loose diamonds and diamond jewellery direct to the consumer on a B2C model through the website diamonds.co.nz. I've been in the diamond business since 1984 in my own business from where I started wholesaling to the jewellery trade in New Zealand, and I still do today. We bought the domain name diamonds.co.nz in 1999 and ran a few models including jewellery retailers on the website, that didn't work out so we decided to go straight B2C in about 2015.
What was the motivation for starting it?
It was a logical progression with the way wholesale was going with the internet. It is a global market, and I wanted to give consumers access to a lot of diamonds at good pricing. There was a lot of discounting going on historically in the jewellery trade and I could see that the new generation was over that and could see through that so I wanted to give true pricing and value through the website. We have two offices, one in Auckland and one in Pukekohe, and we are now a family business. We keep our overheads low and that is reflected in our pricing structure.
I have always had an interest in geology and gemology. I started off doing metallurgy at New Zealand Steel but have always wanted to get into the jewellery trade. I thought 'I'm going to work for another 40 years, I need to enjoy what I'm doing' and I really enjoyed the diamond business and the history of it so that's when I decided, because I'm not a jeweller, that I would do gemology through the Gemological Institute of America (GIA), and so I did a course on coloured stones and gem identification by correspondence and then went to GIA in Santa Monica to do the diamond course in residence there.
I was the first New Zealander to do that course in residence and while I was there I met a guy from India and we became friends. He said to me 'If you ever come to India and want to get into the diamond business come and see me', so I did and it started a lifetime friendship with the family. They supported me in the early days and I started wholesaling and then I went into a partnership in 1990 and sold out of that in 2003, and went out on my own. I think I must be the oldest diamond merchant in NZ still operating, because my partner retired. I have been doing this 38 years.
My passion is coloured diamonds - and it is another area of expertise and a totally different market to white diamonds. It's been a great journey and I've met a lot of interesting people and travelled a lot; I've been to India over 120 times. Sometimes I was going to India six times a year to buy from my supplier in Mumbai. In the early days you went to the office, had a look and you bought stock in person. I haven't been to India since 2018 because of the market and Covid-19.
How big is the team?
There are five of us. It's Monique, Claudia, and Rory, my children, and my wife Lyn is our accountant. My son is not full-time, he is part-time doing our data analytics and looking after the website. My daughter Claudia has an eye for diamonds and does sales, and Monique is more on the admin side.
How much did you invest to start the business?
I started selling small diamonds to jewellery manufacturers, chain stores and independent jewellers and I started with a small overdraft facility, but my suppliers in India they supported me by giving me terms and I would go to the market and collect payment before I had to pay them.
What trends are emerging in the market?
Pink diamonds, with the Argyle mine closing down which used to produce 95 per cent of pink diamonds globally, prices have appreciated a lot. Argyle used to have the tender stones and they have increased a lot.
I'm keeping an eye on the lab-grown diamond market. We had made the decision initially not to be involved, but we're re-looking at that because globally it is now between 7 and 9 per cent of sales. From a gemologist point of view, I love natural, mined diamonds because of the geology and the 1-3 billion years old story whereas lab-grown are manufactured in six weeks. Chemically they are not different but their story is different. The prices of lab-grown diamonds have really reduced and demand for them is there. I think the rise of lab-grown will help the natural-mined diamond market.
Synthetic emeralds, rubies and sapphires have been around for years and the money in natural emeralds today is huge, they are really expensive. The synthetic market didn't really affect it but diamonds are another animal so to what extent we don't know.
To set up a diamond mine is 10 years and approximately US$10 billion - they are a huge expense to set up - and going forward there is talk that there is going to be a reduction of natural diamonds on to the market. We've found that most people still want a natural diamond. My concern though is there will be no value there in the event an owner wants to sell on that diamond.
What's the biggest challenge facing your industry at the moment?
I don't see lab-grown diamonds as a problem. I do see a problem in the industry in New Zealand with training with jewellers and diamond setters - getting the people. There are a lot of older jewellery trade members that are leaving, and with Covid we weren't able to bring in jewellers or diamond setters so that has made worse a real shortage of trained staff in New Zealand. This is an industry where you have got to have the knowledge and got to have training; you can't bring on anyone to do it.
It has been a long-term issue because of mass jewellery manufacturing and big chains bringing in jewellery from offshore, which has led to the demise of local jewellery manufacturers on a bigger scale that were once able to employ apprentices to train up. It has been happening for a while, made much worse by Covid. There is demand for these people - companies are advertising for jewellers, but can't get them. The opportunities there are for young Kiwis to do an apprenticeship or go offshore to attend a jewellery school.
Would you recommend young people get involved in diamond wholesaling?
I would say with caution actually because it is very capital intensive and the margins are very low, and that's because of the technology that is available and with wholesaling you've got the risk of bad debts; it is a difficult business, and you've got offshore players now and they are pushing into all markets. I think going forward it would be a tough.
What are you focused on right now?
We have been working on traceability on blockchain. Some of the diamonds we buy are on the blockchain so their prominence can be traced back - when I buy one of those diamonds I'm sent basically a twin asset that outlines the history of the diamond; its country of origin, the original rough weight and how it was manufactured, and then when I sell the diamond I transfer that asset on to the new owner so they can set up a vault and the asset is transferred into it. It is like an NFT and is a mutable record of the diamond's history so that is a project I have been working on with Everledger. It is an emerging field and I've been working on this for about two years. It is big overseas because De Beers have their own development and they are using the platform Tracr. I wanted to get involved as we get asked a lot about our diamonds' countries of origin.
What are your long-term plans for the business?
We're hoping to keep it in the family. Monique and Claudia are looking to carry it on. I turned 64 a couple of weeks ago so I'm looking for a bit more free time but still will be involved in the business. There are a lot of areas where we can expand and get into different offerings; tennis bracelets, pendants, earrings, we really haven't touched on any of that yet, but we're looking at that and also at the option of expanding into Australia. At the moment we are mostly only doing engagement rings.
What advice do you give to others thinking about starting their own business?
My advice would be go in with a partner because you can share the load and share the burden, and you can take your time off if you need to. When you set up in business you are never thinking of exit, so my advice is to talk about that and have it set when you set the business up; how a partner is going to exit and how that is going to be worked out money and shareholding wise. When you go into business everyone is happy but if someone wants to get out that can be when problems start. I'd also suggest that you find a mentor, someone outside the business.
They've been friends for 20 years. Their shared passion shows no signs of slowing down.