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NY Cutter Sees Sparkle in Square-Shape Diamonds

Q&A with Hertz Hasenfeld, Owner and CEO of Hasenfeld-Stein
Jul 24, 2015 9:38 AM   By Ronen Shnidman
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RAPAPORT... Hertz Hasenfeld is CEO of the family owned Hasenfeld-Stein, a New York-based polished diamond manufacturer and supplier. The company is best known for its round diamonds, as well as trademarked FireMark® and FireCushion® fancy cut diamonds, which are princess and cushion cuts designed to maximize light performance. The company, founded by Hertz’s late father Alexander, is known in particular for supplying diamonds to high-end, independent jewelers in the North American and Greater China markets.

Rapaport News: How is the U.S. market doing right now?

HH: U.S. demand is around the same level as last year, maybe even a tad below. It is not strong enough to pick up the slack for weak demand in the rest of the world. The most obvious problem we have as an industry is staying relevant to those age 30 and below. Jewelry is competing today against tech gadgets like iPhones and it’s an uphill battle. Bridal jewelry is what’s keeping the diamond business alive, but we certainly have a lot of work ahead of us in making diamonds and jewelry more relevant to all demographic groups, especially millennials.

We’ve been missing the many millions De Beers would spend on generic advertising. When I joined the business in 1976, from October through January there was not a single bus stop in New York that didn’t have a De Beers ad. You were just inundated with these very clever, witty ads promoting diamonds. Collectively, the producers, cutters, suppliers and retailers have got to step up to the plate today and try to win back consumers.

RN: How are the diamond markets in China and Hong Kong?

HH: It’s a challenge now to sell diamonds there because a lot of wealth has been sucked out of China in the last couple of months, especially with the recent plunge on the Shanghai Stock Exchange. It will turn around, we just don’t know how soon.

The anti-corruption campaign is really not helping diamonds but it’s been going on for several years and doesn’t explain the recent year-on-year declines in jewelry sales among the major jewelers there. Diamond consumers are focused on the here-and- now, and that here-and-now is that it’s difficult to sell to somebody when he doesn’t feel rich. Diamonds are only on the top of your shopping list when you feel good about yourself.

RN: What geographic markets have the potential to generate new demand for diamonds and diamond jewelry in the future?

HH: I still l think China has the most potential. We’re just scratching the surface. It’s a developing economy experiencing growing pains, which is understandable. But I also think the middle class in China is going to continue to grow and the Chinese are a society that appreciates hard assets.

They’re going to accumulate wealth and diamonds, which will certainly be a part of that. I think there is more growth potential in China than anywhere else in the world. Don’t count China out because of the current downturn. You have to travel regularly to China to understand what a powerful country and economy it is.

RN: Besides for rounds, your company specializes in square-shape, fancy-cut diamonds. Why specifically the square cuts?

HH: In 2008, when we launched our proprietary princess cut, the FireMark, princess cut diamonds constituted 28 percent of the U.S. bridal market. It was a natural choice to make.

With round diamonds, there are so many perfect rounds out there that it is very hard to do something better or different from competitors in that shape. So we decided to focus on developing a better princess cut, which was our second shape.

We had been cutting princess shapes since the 1990s with excellent makes that were selling very well, but we couldn’t make a profit on it. My clients would tell me, “I would love to buy your princess cut diamonds instead of others but I can’t pay more for them because it’s still a princess cut”. I kept on banging my head on the wall trying to figure out how do I create a premium for my princess cut because it required extra labor and extra weight loss from the rough diamonds to ensure that each of these diamonds had truly excellent makes.

We came upon the idea to make a brand called FireMark, which we submitted for a patent in 2008. The whole value proposition is to offer a princess cut with light performance unmatched by anything on the market, returning about 98 percent of the light entering the diamond. It’s more brilliant than your generic princess cut diamond. It also appears about 10 percent larger. We give every jewelry sales person a laminated pocket card, with four lines about what makes FireMark better than any other princess cut. Training that we gave to our jeweler clients helped to create demand for the cut from end-consumers and continues to sustain demand.

Since 2008 the trends have shifted. The princess cut’s share of the bridal market has trended down to about 20 percent of the market, while cushion cuts have grown from 2 percent to 10 percent. As a result, we decided to develop our own improved cushion cut, the FireCushion, with similar results.

The important thing is that our trademark cuts are products on which a jeweler can make a decent profit margin. Most jewelers are getting killed on generic products because they are competing with everyone: online jewelers, the discounter next store, etc.

RN: What about customers who care more about the size of the diamond and less about the shine?

HH: When I joined the business in the ‘70s, size was everything, but since then maximizing size has really fallen by the wayside. With advances in technology and grading, everything today is about the cut which essentially means light performance.

People, especially the youth, are much savvier on the technical details. They do research on the Internet and want to understand what they are buying. Everyone would rather have an excellent cut stone for the same money. The awareness of cut and light performance is growing across all markets and becoming very important.

RN: Is it true that your company does not use any credit from banks to buy rough diamonds?

HH: Yes, that was the policy of my father and it is still true of the company to this day. I came into the business in 1976 and saw some of the giants of the industry go under when the market crashed in the early 1980’s. They were crushed by leverage.

Diamonds are not real estate. They do not generate income unless you sell them. If you have debt and you can’t move your goods your debt keeps piling up. The best way you can be sure you will survive a downturn is if you’re debt-free.

It’s never really been a problem for us. We are De Beers sightholders and you get your allocation of goods whether you are paying for it with the bank’s money or your own. We pay immediately for all the goods we buy. If you are paying in cash you will almost always find the goods that you want.

We may not be as large as some other companies or sightholders, but we are currently manufacturing in New York and China at 100% capacity.

RN: What else did you learn from your father’s business philosophy?

HH: I don’t expect to land every customer I pitch, but I hardly ever lose a customer. The biggest legacy imparted by my father is the importance of maintaining long-term relationships with clients founded on trust.

There is more to the business than just pushing a button and ordering a diamond.

We still believe in the old school approach centered on relationships. You and I know that not every SI clarity diamond is the same. Not every round diamond looks the same even if the grading reports are identical. That’s where the relationships and trust we share with our clients come in. They know they will get what they wanted every time.

RN: Where do you see your company in the next few years?

HH: We will be sticking to the top end of the market, primarily jewelers in the U.S., Canada and China. There might be room for us to create another brand, but not for a few years. I definitely see myself as a diamond cutter, and staying in that part of the diamond industry. I don’t see myself going into retail or diamond mining.

Many diamond dealers have a terribly short memory. But anyone who has been in this business for a while knows there’s a cycle. The cycle will turn and when this down cycle ends we’ll forget it ever happened.

God willing, I certainly expect to be around when the cycle picks up. My father used to say, “You can have enough stones, but you can never have enough customers.” We will always be out there at the shows lining up more customers, signing up more people.
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Tags: cushion, FireCushion, FireMark, Hasenfeld, Hasenfeld-Stein, princess, Ronen Shnidman, sightholder
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