Majors
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'Disappointing' results for first Rap diamond auction
September 21, 2007
New York—Only 27 of the 210 lots included in the first Rapaport Certified Diamond Auction were sold for a total of $223,840, a disappointing result according to Rapaport Chairman Martin Rapaport, who cited failure to disclose reserve prices and price expectations among the reasons for the outcome.
The auction was the first step in creating the type of price index that would be necessary for Rapaport to create a diamond futures market in which buyers and investors would be able to buy stones at fixed prices in the future, speculating on future price movements, as investors do in the gold market. Both the Rapaport Group and Polishedprices.com recently unveiled plans to set up such diamond derivative contracts as a means to pump some much-needed investment into the diamond industry.
The plans have stirred doubts from diamond industry observers who cite the failure of past attempts to create a diamonds future market. But Rapaport said he remained hopeful that tweaks to the process in the future would help.
"I think, overall, it's quite disappointing to sell 27 lots out of 210," Rapaport said via a media teleconference at the close of the auction on Thursday. "In general, I would say we would have liked to see more parcels sold, greater pricing and people willing to pay more for the goods."
Those who participated in the auction were all members of the trade. There were 99 active bidders, and 1,999 bids were made. Bidders came from 18 different countries, with 10 successful bidders from eight countries.
Rapaport noted that one of the reasons for the subpar showing was the auction didn't disclose reserve prices. The bids started at $2,000 and increased from there. He expects to change this policy for future auctions.
"A lot of bids came in within a relatively close margin to the reserve price. But we did this very, very strictly. It was very important for us to run this first auction with absolutely no controls and no limitations," he said. "I think we'll probably be disclosing the reserve prices because the idea was for people to be able to build momentum in the bidding like they do at Christies, Sotheby's and other large auction houses. But I think on the Internet it was pretty frustrating for people because they didn't know what the reserve price was."
Another reason Rapaport cited for the disappointing results was price expectations.
"I think the main reason this auction did not sell as much as we all would have liked was because we put in goods that were really great goods, very select goods—I daresay investment-quality diamonds," he said. "What you're looking at now is an environment where you're introducing a stone that is a little bit more than people expect. They're not used to paying 10, 12 or 15 percent below [Rapaport]. There were bids from 9 percent below that didn't make it [to the reserve price]—that's how good the stones were. They're used to buying goods cheaply, so when they see these goods at these prices they have sticker shock."
Rapaport said he chose quality goods because he wants both the stones to have total liquidity and for consumers to be confident in the diamonds they're buying over the Internet.
"To make these auctions successful—and we're certainly going to do so—we're going to further explain the advantages of these goods. We believe there will be more bidders coming in as people look at the goods and feel this is really great stuff."
It will take time to develop a successful market, Rapaport said, but the monthly auctions will lead to that and eventually to a futures market. It could take eventually introducing more commercial goods, but he said he doesn't expect that to happen.
"An index is only going to come once we've created a vibrant market," he said.
Rapaport said a number of people told him they were watching how the process worked this time, but he stressed that even though the numbers are disappointing, he believes this is the process and what it takes to succeed.
"You try to do something new like this and it's difficult; it's a process. The numbers are disappointing, but I'm not disappointed," he said. "The environment was tricky because we were doing this for the first time. I think we learned quite a few lessons for the next time."
The next Rapaport Certified Diamond Auction will be held on Oct. 25. For more information, visit the auction's Web site, Diamonds.net/auction.
Editor's Note: For earlier developments in this story, visit Rapaport launches certified-diamond auction.
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