This issue has been debated for a while now.

I don't think it is really a question of ethics, it's more a business decision.

If a wholesaler all of a sudden starts retailing at a wholesale price, or even favours one client over another, they will most likely lose most of their trade clients (if they find out). This of course isn't usually an issue if the wholesaler retails at a reasonable markup above the wholesale price.

However, I can't help but think why wholesalers are being brought to sell retail. Is it because retailers are taking too long to settle their debts? Keeping stones on memo too long? Returning their stones after purchase?

Let's face it diamond wholesaling isn't the best business to be in nowadays.

Dear Judah,

I agree with you that this is completely unethical, however this issue is not new to the trade and the people in it.

We have been having for years manufacturers going to wholesale and to retail, today we even have Minning Corps (or people with minning rights) doing everything from A to Z.

A few years back was done behind the scenes (from father to son or another FAMILY member).

Today every market study suggest that if you are not online in a few years you'll dissapear, and it does not matter what you do: wholesale,retail or a small booth in a mall.

In a global world where all the decisions are based on cashflow, revenue, profits and less by heart, reason and "menchkint" it might be not ethical but a good business decision.

Though it might sound that I am generalizing, (which it is not my intention)ethics is not one of the strengths for a lot of companies in this business.

The truth is that people are still being exploted in mines in Africa, Kimberley is a joke that does not worth the paper written on, the environment is being destroyed in Canada and Russia artic circles or for example here in Israel, paying the minimum law permits and not allowed to work a full week in order not to pay you all your social rights...

These are few of many...many examples I can bring of unethical behaviour.

It was this kind unethical behaviour WHO LEAD consumers to start QUESTION if by purchasing a diamond they are not contributing to explotation, arms traffic, drug dealing, global warmth, etc, and by that CONSUMING less diamonds.

Let's be honest, who eally needs a diamond?
NO ONE does, we just made believe by the brightest campaign in the last 100 years:

"A diamond is forever" yeah right...(try to re-sell it and you'll undesrtand why, I'll add inbetween the lines!).

At the end every one needs to live and from how the indsutry and sales have been in the last few years, a lot of people are just trying to survive.

This article makes no sense. It is simply a business decision to work in two seperate markets. There is clearly a distinction between consumers who buy over the interenet versus B&M. How can you claim this is unethical? Is it unethical to sell natural pearls, natural diamonds and also sell culutured pearls & cultured diamonds? Natural versus cultured are the exact same product but since some people do not want cultured they buy natural. To sell both does not make a seller unethical.

Guys,

I appreciate both of you're perspectives.

Allow me to clarify something here.

It is understood that in today's market climate, many wholesalers to the trade will also dabble in retail, or vis versa.

This does not have to be unethical and may not present a conflict of interest, so long as the wholesaler is not engaged in undercutting and undermining his retailers ON THE VERY SAME MERCHANDISE HE WOULD LIKE FOR THEM TO SELL.

For example; a wholesaler who offers certain goods on memo to his retailers, should not try and sell those very same goods to the very same target market (end consumer) at a considerable discount.

Should a wholesaler refuse to sell a diamond to a private client(s) simply because he is not a "retailer"?

Of course not.

However, when a wholesaler tries to grab market share on BOTH ENDS by stocking retailers with diamond inventory on memo and then compromises their ability to sell by offering the very same merchandise to the same consumers for a fraction of the price....there is something wrong with this.

Nikhil,

If it is (as you say) a "business decision", then why can't that decision be to either continue with the wholesale business model or change to a retail business model? Indeed, many companies have made this decision/transition in recent years.

There is an issue even when wholesaler sells his merchandise at a markup to the end consumer, simply because those markups are still nowhere near the minimum markups the jewelry stores are forced to apply (in order to see a profit) as a result of their own costs from the same wholesalers.

In effect, the retailer CANNOT POSSIBLY COMPETE with his wholesaler on the wholsalers own merchandise and still make a profit.

Certainly, the wholesale end of the diamond industry is not going to be forced "into extinction" anytime soon.

Many wholesalers do not wish to deal directly with consumers for any number of reasons. They are perfectly happy moving inventory through the retail jewelers.

As to "why" wholesalers are increasingly "going retail"; There are a few possible explanations:

1. For some, it is the fact that they can no longer continue to be a "bank" for their retailers who sell inventory and play with the money instead of making timely payments. Wholesalers have expenses and suffer terribly when "net 30" becomes "net 90".

2. For others, it is the fact that they could do a better job of promoting and selling their own inventory to which they have an exclusive allegiance, rather than the retailers who will sell anything.

3. For others, it is the dwindling sales by the retailers and the idea that they must change their business model by cutting out the middleman in order to survive.

4. Finally, for some wholesalers who maintain a successful wholesale business while branching out to the retail consumer via the Internet or B&M's (these guys would best fit the profile of the "unethical wholesalers"), the motivation is "the A-mighty dollar" at all costs; plain and simple.

These guys are not FORCED to go retail as a result of the 3 aforementioned variables.

Rather, they have noted the direction of the industry and witnessed the Internet revolution. They understand that the "train is leaving the station" and they wish to get on board and grab some of this market share for themselves.

At the same time, they are unwilling to transition at the expense of their wholesale business model. Instead, they do both and wind of scr-wing their retailers in the process.

The proof that this is unethical behavior is the very fact that these wholesalers will often hide behind the disguise of a completely separate retail entity with no apparent transparency or connection to their wholesale business.

They do it this way, simply because they are scared of their many retail accounts learning about the connection to their own retail business and realizing that they are being completely undermined by the wholesaler ON THE VERY SAME INVENTORY.

Ephraim,

In the final analysis; can it be said that this is simply a "good business decision"?

Possibly.

Does that mean it is ethical (the purpose of this entry was to focus on the ethical side of this issue)?

Hardly.

Regards,

Anonymous,

You said, "There is clearly a distinction between consumers who buy over the internet versus B&M. How can you claim this is unethical?"

Your implication here is that these are two different consumer segments with no inherent risk to the B&M's.

So let me ask you; what about consumers who would readily buy a diamond (they may have even seen) from a local B&M, only to find THE VERY SAME DIAMOND listed on an Internet "retail" website at a fraction of the cost...

Certainly, this happens all of the time.

...but wait...

Now what if I told you that this "retail" Internet diamond and jewelry website was actually the wholesale supplier of this EXACT DIAMOND to that B&M jeweler???

If that retail B&M jeweler found out that he lost the sale of this diamond TO HIS OWN SUPPLIER MASQUERADING AS A DIAMOND RETAILER ON THE INTERNET (and who offered the stone at a low price which would have been impossible for the B&M to match, given his own costs by same supplier), do you agree that this local B&M jeweler would have a legitimate reason to be upset??

Be honest for a second and put yourself in that B&M's position....

Would you simply shrug and say.."hey, it's just good business", or would you be upset and possibly terminate your relationship with that wholesaler?

Again, the purpose of this article was to approach this issue from a purely Ethical standpoint (read the title) and not from a "good business" perspective.

Thanks for your viewpoint!

Regards,

I sympathize with the sentiment Judah and agree with what you say from a standpoint of history and integrity. Nevertheless, the bottom line is the the bottom line. If you look around there is vertical integration everywhere: The Wal-Mart model is putting small business out of business in many sectors. It's inevitable that diamond trading houses are dipping their toe in those same waters... Consider that in some India factories rough is being polished, grading reports are being issued onsite and the same factory that cut the diamond is listing it for sale (not to consumers yet, but it's a logical next step). In the USA DeBeers recently bent over backwards to settle lawsuits so they could enter the country and establish retail outlets. That is an ominous sign. How long until the mechanics are in place for DeBeers (or RT or BHPB) to mine, polish, transport, have-graded and list/sell the diamonds completely within their own channels? I applaud the sentiment of your article and hope never to see premium quality and service to customers that long-standing jewelers of integrity bring to the table fade...but as the behemoths take over it becomes less and less personal and more about business I'm afraid.

Judah,

I find your article very interesting, but am unclear as to what exactly it is that you find unethical about the practice. You simply stake the claim that it is unethical, but do not really elaborate on WHY you find it so. The closest you come to an explanation is in your response above where you say "there is something wrong with this".

Please help me understand what you think this "something" is.

Is it simply that the wholesaler can undercut the price? As Nikhil points out, that is just business. That is a competitive advantage the manufacturer has. Traditionally, manufacturers did not prefer to engage in retail, because retail operations are expensive and difficult to manage. However, if a manufacturer is willing to take on the costs of a retail operation (including returns, customer service, sales tax), then they are playing fair and square.

You bold the words "simply unethical and in direct competition with your own retail customers", so perhaps you think its competition that's unethical? Last I checked, economists believed that competition was healthy and necessary for the economy.

Or, maybe you don't like the fact that they aren't telling their retailer customers that they are running retail operations themselves? I'll grant you that not making a full disclosure is unethical. However, please do not make the logical fallacy that this makes the manufacturer's retailer operations unethical. Hiding your activities may be unethical, but that does not make the activity itself unethical.

Which leads me to my next concern. I don't follow your argument that manufacturers who jump to the direct-to-retail model are not doing "something wrong" while manufacturers who "straddle both worlds" are. If you believe that undercutting a retail customer is unethical, what difference does it make whether the manufacturer continues selling to previous clients or not? You worry about the fact that a manufacturer who does both is "screwing" his clients. But isn't a manufacturer who drops his retailer clients completely, to go sell to end consumers, screwing his retailer customers over more? At least a manufacturer who does both doesn't drop his retailer customer completely. The retailer can continue selling to consumers who prefer buying locally, and receiving the personalized service of their retailer.

This last point is also crucial. You use scary caps to say "retailer CANNOT POSSIBLY COMPETE with his wholesaler". But you ignore the fact that many consumers are willing to pay extra for the personal attention and service that a retailer can offer. In our industry, we sometimes think that we are operating in a vacuum. But there are many examples of other industries where this is also happening: take Coach or Gucci, or LVMH. They all sell their products directly to consumers over the internet, or through their own flagship stores. However, many consumers are willing and ready to purchase their products at boutiques and independent stores. They are willing to pay a premium to buy these at Nordstrom, simply because Nordstrom will offer them personalized service and attention.

In conclusion: I agree that this is something that makes a lot of people uneasy, because certainly we feel bad for retailers who aren't able to adapt and offer a unique selling proposition in their service that would keep their consumers coming. However, that in and of itself does not make the practice unethical. Manufacturers, like every business, have a right to ensure their survival, and retailers will also have to adapt to the changing economy.

Lastly, I just want to note that I have no stake in either side of this. I work for a manufacturer, but my employer does not have a retail operation. I'm merely playing devil's advocate here, so please take my arguments at face value only.

Respectfully,
-Kev

John,

Thanks for your input and excellent perspective.

I disagree.

This issue eclipses the simple approach of a "historical perspective of (history and) integrity.

Many years ago Sen. Patrick Moynihan coined an excellent phrase called "Defining Deviancy Down"

The assertion that "business is business" within this context, does just that.

Yes, "business is business".
However, there is no ambiguity when it comes to Ethics and Morals.

Something is either correct or it isn't.

Calling yourself a wholesaler while SECRETLY competing with and undermining your own retailers, is "bad business" from an Ethical standpoint WHICH SUPERSEDES A SIMPLE STUDY OF HISTORY AND INTEGRITY.

In addition and with all due respect, some of your analogies are not entirely accurate or appropriate.

For example, Wal-Mart may be a monster and a behemoth, where some may argue (certainly the local mom-pop stores) that they do more harm than good.

However, they DO NOT BLUR THE LINES AND DIRECTLY COMPETE WITH THEIR SUPPLIERS ON THE SAME MERCHANDISE. There is a clear distiction between their "in-house brands" and everything else.

I agree, there will always be a market for upstanding and upscale jewelers who are committed to providing the ultimate customer service experience.

Kev,

Excellent points and duly noted.

However, consider:

1. If is is perfectly o.k. to "straddle both fences" why do it in private?

Sure, there are some companies doing this openly and honestly. In these instances where there is complete transparency on the part of a wholesaler who has gone retail, his existing accounts are allowed the courtesy of making a decision to either maintain or cut off their relationship.

Clearly, the wholesaler maintains this veil of obscurity in an effort to decieve his existing retailers, effectively taking away their ability to make their own decisions with respect to selling his merchandise.

This is unethical.

When a company previously on the wholesale end, makes a declarative, public and exclusive transition to the retail world, they are executing their right to decide the fate and direction of their company (from a "business perspective"), while maintaining their ethical integrity.

Whereas in the aforementioned scenario, the wholesaler makes a similar "business decision" with the same execution of inividual rights and privileges, at the cost of their ethics and integrity (IMO).

Thanks for your input!

If it's out in the open and the B&M Jeweler doesn't mind that his wholesaler/manufacturer supplier is selling the same diamonds directly to the end-use consumer through a "front" Internet website, that is the B&M's business decision, having these facts in front of him.

It is an entirely different matter when this is being done clandestinely and the B&M Jeweler is competing for the Customer's business against his own supplier.

Quote: "If it's out in the open and the B&M Jeweler doesn't mind that his wholesaler/manufacturer supplier is selling the same diamonds directly to the end-use consumer through a "front" Internet website, that is the B&M's business decision, having these facts in front of him. It is an entirely different matter when this is being done clandestinely and the B&M Jeweler is competing for the Customer's business against his own supplier."

With this I agree completely. Judah, the point of my prior post was not to sanction misrepresentation. I am with you on that. It was to illustrate the larger picture (vertical integration) which is likely to continue in many sectors.

John;

There is an important and critical difference between Vertical Integration and secretly working both sides of the fence.

The former is out in the open, transparent, and is a known entity whereas the latter is done with
deception.

Brick and mortar stores can not compete with internet discounters. The web based companies have very little expense. While majority of the retail stores have an unbelievable burden called “rent”. We believe that internet based companies should not be competition to brick and mortar stores. The retail jeweler gives the buyer an added value which can not be measured in dollar and cents. Jewellers should ask their supplier if they supply internet only companies, if they do maybe they should think twice about supporting them. These suppliers who sell to both B&M stores as well as the internet only companies can not have the best of both worlds. They should be exposed!!!!