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This is Why You Can't Buy Loose Wholesale Diamonds

This is Why You Can't Buy Loose Wholesale Diamonds

This is Why You Can't Buy Loose Wholesale Diamonds

Posted by Sharif Khan on 9th Nov 2022

Buying Wholesale Diamonds

Can you buy loose wholesale diamonds as a first-time buyer? The answer is no unless you know a wholesaler.

If you are shopping for a diamond and want to maximize your budget, read this article carefully. I will share the best insights about the diamond industry and how it works based on my two decades of experience.

Diamonds Online

Buy Loose Diamonds at James Allen

This article will cover the following topics:

  • How does the diamond industry work, especially in the e-commerce world?
  • Who are the miners, wholesalers, and retailers?
  • Why does everything work on a markup basis?
  • How can you, as a consumer, maximize your budget?
  • Bonus: The Seven Factors that influence the price of a diamond.

Diamond prices

Check Lab Diamonds at Brilliant Earth

The purpose of this article is not to sell you anything or to advertise to you but to educate you. As a company, Petra Gems is dedicated to the transparent trade of diamonds and precious gemstones. The more transparent the industry, the healthier it is for its credibility in the long term.

Before I attempt to answer your question and provide some insights, the best question is: Can you buy wholesale diamonds online, or is it possible as a consumer to buy wholesale loose diamonds at all?

The quick and simple answer is "No." Why? The diamond business structurally encourages collaboration between the miners, wholesalers, jewelry designers, and retailers for its own sustainability.

Below is a detailed explanation and some tips for getting a deal that would be just 10-20% more than the actual wholesale price of a diamond.

Attend carefully to the next paragraph because it contains the most relevant information to your question.

Setup of the Wholesale Diamond Industry

For the diamond industry to function as a machine, there are four broad categories of players that are highly interdependent on the input of each other. These include the miners, the dealers (often the buyers of the rough diamonds, which are cut into final products), the designers of jewelry, and the retailers. Let me explain how each one depends on the other so that you understand why it is unlikely for you to buy a diamond wholesale as a consumer.

Let me begin with the Miners. In the formal diamond industry that only deals in conflict-free diamonds and ones verified by the Kimberly process, only sizeable multinational diamond corporations, such as De Beers or Al Rosa, can be successful miners. Running a mine and managing its risks require a massive upfront cost (many mines fail after huge investments in them). Once these miners mine the stones, they often sell them as rough uncut diamonds in large quantities to established diamond dealers. For example, to buy from De Beers, you need to be a sightholder ( Global Sightholder Sales), which alone could cost millions. A prominent sightholder is Kiran Gems in India, one of the leaders in polished diamonds, but they do not sell to consumers. I explain below why.

In the next phase of this supply chain, dealers cut/polish diamonds for resale to retailers. Kiran Gems would be an example of a dealer. Around 90%+ of all diamonds are cut and polished in Surat, a small city in Gujarat, India. Once the stones are cut, they are often taken to one of the regional trading hubs, Mumbai, Honk Kong, Antwerp, Tel Aviv, and New York City.

For the diamonds to be sold, a comprehensive marketing and sales funnel need to be set up to sell diamonds in volume to sustain the dealers' costs. Advertising needs to happen, shops need to be open, and customer support needs to be provided, but dealers need the means or expertise. Therefore, dealers depend on the expertise of three sets of retailers: designers of jewelry, brick and mother store retailers, and online retailers.

There are two types of jewelry designers, including those who only design for other retailers, considered dealers/wholesalers (a vast majority of designers fall under this category), and others who create customized jewelry for consumers/end users. The designers who work directly with end-users often have sophisticated fine jewelry and high product markups. Stuller, for example, is a designer who only works with retailers and does not sell to end users. At the same time, Tiffany & Co would be considered a designer is dealing directly (but with unreasonable markups). With designers, the industry would have a diversity of products to sell diamonds in large quantities in rings, bracelets, necklaces, etc.

In this play of interdependence, I hope you understand that your chances of buying a diamond from anyone but a retailer are slim (they might call themselves wholesalers, but it is never confirmed). Hence, the question is; how do you find a trusted retailer to give you the best possible price? Between retailers with physical stores and online retailers, your best bet is to focus on the latter to maximize your budget because they have lower overhead costs for running their businesses and can provide you with a more competitive price.

The most critical catch – why you might find the same diamond on many websites:

Almost all online and local retailers have access to all diamonds available in the diamond market through RapNet – an online marketplace for all dealers to list their diamonds for retailers to sell. A consumer cannot access it; you must be an established business with a track record to qualify for membership. In other words, the stones that the retailers show you or display on their websites are not owned by them; instead, they are provided by the dealers through a central mechanism (RapNet) to be shown to you. Here is how it works:

Online: The retailer will publish all stones available on RapNet on their websites. Once you buy a particular stone, the retailer will contact the dealer to send them the stone, which will then be sent to you. The retailer will, in the process, take their cut.

In local stores: Once you visit them and tell them what you are looking for, they will make a shortlist of 3-5 options and request the owners of the diamonds (dealers) to "memo" the stone to them – the memo is temporary borrowing of the stone. If the diamond is sold, the retailer will pay the dealer; if it is not, they will return the stone to the dealer.

Since retailers have access to dealers' stones, it is common for a stone listed on one website to be listed on the other. It might not be the case only on prominent websites like James Allen and the Blue Nile. They are big companies with many volumes and use that power to their advantage. They demand that the dealers they work with not allow other retailers to list the stones publicly on other websites if they want them listed on theirs (all retailers can still buy or access them on RapNet but cannot display them on their websites).

For example, we can get any stone listed on Blue Nile and James Allen and sell it to you for 10% or less. However, we cannot display it on our website publicly. Therefore, you will have to provide us with the GIA report number of the stone, and we will get it for you for much less.

Now it all comes down to this: who will sell the diamond to you with the lowest markup on wholesale price?

Based on our experience, here is what we think the markup range is now:

  • Online Regular Retailers – 6-30% markup (see the examples below)
  • Online Established Luxury Brands, such as Tiffany/Cartier– 100-200% markup, are ridiculous because they sell identical diamonds as we do or anyone else with the same certification ( GIA) and cut. You will pay more for the name's sake; quality-wise, their diamonds are the same as anyone else's).
  • Local brick-and-mortar stores: 20-100% markup. More often than not, they will first assess your knowledge of diamonds and the market, in general, to determine whether to sell you a high-quality diamond or junk and with how much markup. They like to sell junk diamonds because they can get a much higher cut in them than in a proper GIA graded high-quality one—they cannot mislead you in terms of grading in a GIA grading diamond. All sorts of unethical practices happen in the local stores.

Example of markups among most competitive online retailers (this is our best guess):

  • James Allen – 10-20% markup
  • Blue Nile – 15-30% markup
  • Brilliant Earth – 20-30% markup

Now that you are familiar with the operating structure of the diamond industry, how can you buy a diamond with the least markup possible?

Our strong recommendation would be to buy your diamond online because they naturally have lower overhead costs and can afford to sell you a diamond for a much lower markup. Companies like  Blue Nile are especially competitive because we have incredibly lean operations and high purchasing power.

Therefore, you should compare the prices of at least 4-6 competitive online vendors, which will give you a clear sense of how low you can get a particular diamond. But before you do so, it is imperative to know about the 4Cs of a diamond and other essential factors that affect the price. They are explained below

Round Cut Diamond

The seven most important factors that influence the price of a diamond and that you should be familiar with include:

  1. Shape: For example, you need a bigger rough diamond to cut a 1ct. round diamond than you do to cut a 1ct. princess-cut diamond. The diameter of the round is roughly 6.4mm, whereas that of a 1ct princess cut is 5.5mm on average.
  2. Carat: The larger the diamond, the higher the price. For example, a 2-carat diamond would be three times the price of a 1-carat because bigger diamonds are scarcer than smaller ones and are much more expensive.
  3. Cut: A well-cut diamond will have the best brilliance and fire, it is the most important C to prioirtize.
  4. Color: The less color a diamond has, the more expensive it will be. Color ranges from D-Z, and D-F are considered colorless. G-J are near colorless and are excellent options for people with budget constraints.
  5. Clarity: The fewer the inclusions or impurities in a diamond, the more expensive its price. Flawless to Very Slightly Included (VVS and VS) range diamonds are highly demanded, though Slightly Included (SI1/SI1) can be great options for budget-conscious people.
  6. Fluorescence is an invisible glow that diamonds might emit under ultraviolet rays, such as the sun and certain UV lights. They range from no blue to very strong blue.
  7. Certification: The seventh important factor in a diamond that affects its price is certification/grading. Labs like the Gemological Institute of America are reliable and consistent in their grading; therefore, their graded stones will reflect that factor in their prices. On the other, there are many shady labs that you should avoid. Our advice would always be to buy a stone that comes with a high-quality grading report from GIA or AGSL (the American Gem Society Laboratories).

Please do not hesitate to contact us if you have questions and compare our diamond prices