[Trade News] Colored-stone.com Report

Jewelry Discussion
1

Dealers Target Thaigem’s Tactics
Colored-stone.com Reports:

				By Marlene A. Prost

CHANTHABURI, THAILAND – A group of U.S.-based gem dealers have
accused gem e-commerce Thaigem.com of misleading the public and
violating Federal Trade Commission (FTC) regulations.

Taking their concerns to the press and, in some cases, the FTC,
the small but vocal group claims Thaigem has been wrongly
identifying valuable gems, using the term =93flawless=94 to describe
colored stones where it’s not appropriate, enhancing the
brightness of photographic images, and failing to disclose
treatments for individual gems.

Thaigem, which is owned by Thaigem Global Marketing Ltd. in
Chanthaburi, Thailand, has admitted to two identification
errors, which it blames on the huge volume of business. It also
announced in July that it would eliminate the term =93flawless=94
from its gem descriptions. But Thaigem also dismisses its
critics as small-volume dealers threatened by the competition.

The complaints came to a head last year when Thaigem posted a
batch of what it termed =93flawless=94 Paraiba tourmaline at
surprisingly low prices – for instance, $50 for just under a
carat.

The posting stunned David Sherman, owner of Treasures of the
Earth in Los Gatos, California, because his mine is one of the
major producers of this rare, brightly-colored tourmaline. He
bought $72,000 worth of the gems, only to discover after
attempting to heat them that they were not from the original
Paraiba mine.

=93It was an honest mistake,=94 Thaigem CEO Don Kogen told Colored
Stone. =93We lost a lot of money on [the Paraiba]. We didn’t care,
we just cleaned up that mess.=94

Thaigem gave Sherman a refund, and changed its product
descriptions to read =93Paraiba color=94 tourmaline.

In a second, unrelated case, Thaigem also conceded that they
mixed up a batch of green tourmaline and chrome tourmaline. Mark
Herschede of Turmali & Herschede Inc. in Sanibel, Florida,
discovered the mixup when he paid $59 for a 4.85 carat green
tourmaline advertised as a chrome tourmaline, which would be
much more valuable. The appraised value of the stone on the
accompanying certificate by the Chanthaburi Gemological Research
Institute was inflated to $825.86, he said.

When Hershede confronted Thaigem, again, they conceded the
error, offered to refund the money, and changed the product
descriptions to =93chrome-color=94 tourmaline.

Herschede, too, isn’t satisfied. =93What concerns me is what
they’re doing is just not right. You don’t go around defrauding,
or at least misleading, the public. When you issue a
certificate, you have to be right. I don’t buy that defense.=94

But the major complaint critics had was that Thaigem routinely
described colored stones as =93flawless=94 in its online catalog.

=93Colored stones aren’t supposed to be flawless. . . . The FTC
says you can’t call colored stones flawless [unless the gem
actually is flawless],=94 said Paul Dixon of PGR-Gem.com in
Harrisonburg, Virginia. He cites a recent case where he bought a
small lot of 20 rubies totaling 3.5 carats that were described
as flawless on the site, and turned out to have visible
inclusions.

Dixon, Herschede, Sherman, and others believe that these were
not simply isolated cases. They see a pattern of
misrepresentation which, intentionally or not, results in
misleading the members of the public who form about 60 percent
of Thaigem’s customer base.

Frustrated by the barrage of criticism, Thaigem executives on
July 7 and 16 issued a lengthy press release addressing the most
persistent complaints. One major change is that the company will
no longer use the word =93flawless.=94 Although Thaigem points out
that =93flawless=94 is a common trade term, and is even used by
competing sites, =93we decided to take the high ground,=94 said
Linsell.

Thaigem has developed an alternate system for describing clarity
where the highest rating is =93clean=94 – defined as free from
inclusions – and the lowest is =93translucent,=94 meaning that the
light is scattered as it passes through the gem.

Regarding treatments, Thaigem said it has always told customers
in its =93terms and conditions=94 to assume that any
internationally-traded gem has been treated. For on
particular treatments, customers are directed to either e-mail
the company or to access the =93Gemstone Discovery=94 section of the
Web site, which reviews treatments in the general description of
each gemstone. However, as of press time, customers were
required to click through several layers of links to view this
and there was no indication of how to access it
from the lists of gems for sale.

Thaigem insists that it is not obligated to disclose treatments
on individual stones in part because a =93treatment’s effect on a
stone’s value is subjective=94 – referring to an FTC clause which
states that enhancements need not be disclosed if they have no
significant effect on a gem’s value.

Finally, Thaigem fired back at its most vocal individual
critics. =93Competitors including Mr. Mark Sarosi
(Africagems.com), Mr. Mike Dixon (PGR-Gem.com), and Mr. Mark
Herschede (Gemmark.com) claim their motivation in attacking
Thaigem.com is to protect uneducated buyers,=94 stated the July 7
press release. =93Such claims . . . are not only a direct slur on
our professionalism but are also potentially insulting to the 40
percent of our customers who are undoubtedly well-informed trade
members. . . . In reality, the only conceivable motivation these
sellers have in attacking our company is their own inability to
compete on a global scale.=94

In the relatively new field of online trading, the ongoing
dispute has forced the industry to ask: Who is in charge of
trading in cyberspace? Who sets standards for Internet
promotion? And can dealers rely on the FTC and trade
associations to enforce standards for international companies
selling on the World Wide Web?

To answer these questions, some 30 gem dealers, including
Thaigem, have joined a task force launched by Richard Orbach of
CherryPicked.com in New York to agree on guidelines for online
trading.

=93The goal here is to create an association or agency whose
purpose is implementation of online standards for colored stones
by establishing an enforceable standard,=94 said Orbach. If
successful, it will represent a huge step forward in a medium
that is still new – and very much open to controversy.

Copyright: Colored-stone.com

2

All, I do not see the complaint of the US stone dealers about gemstone
descriptions of Thaigem as being the real source of their complaint.
Their complaint is about the monetary impact the success of Thaigem
is having on their sales. Thaigem is a predator on the market scene.
Using the Internet they have taken over every large venue of
gemstone sales. Thaigem stated goal is to get rid of the middleman
distributor of They do this by selling commercial
gemstones at the same price to anyone with the money. For the first
time in history the Internet has provided direct, uncontrolled access
to markets. Anyone with a computer can find out how much they can
buy the stones for in Thailand. What is next? Will the computer
chip companies built with money from US investments be nationalized
and electronics built with this technology be sold directly to the
US? How about textiles? In these industries US large distributors
would be effected. They are the middleman. I see direct marketing
by Asian companies to be a real threat. Ideas?

Gerry Galarneau

3

Hi Gerry; Welcome to the new economy. Predation is the norm now. I
agree it’s a threat, but keep your eyes open and see what the shakeout
amounts to. Some time ago I aquired an account with Art Imports, a
wholesale jewelry manufacturer, just to see what they were doing.
Their prices were amazing. Either they were getting diamonds real
cheap, or this is a case of overseas manufacturers “dumping”. The
goods appeared to be relatively high quality too. It took no more
than a little online to get it. I didn’t have to be
Jeweler’s Board of Trade certified, I didn’t have to send a tax
license number, etc. Although I am incorporated and work wholesale
to the jewelry trade, I could have been anybody off the street. I’ve
also noticed you can get diamonds at http://www.diamond.com with GIA
and other certs, at sometimes 15% below “Rap” (Martin Rappaport
publishes a newsletter to subscribers in the industry listing typical
wholesale diamond prices on the New York market). I’ve also noticed
that the number one consumer of platinum in the world now is China. 35
million dollars worth of high quality counterfit watches, Rolex, Patek
Phillipe, Cartier, etc., were recently confiscated coming into port on
the west coast. Remember H. Ross Perot’s comment “you’re going to
hear a giant sucking sound”? We’ve exported the labor, created a huge
trade deficit as a result, and the overseas investors are buying
American coorporations with the money. It’s going to start looking a
lot more like the “third world” around here. My advise? Abandon the
buy wholesale and sell retail strategy and sell what can’t be
imitated. . .yourself.

David L. Huffman

4

Dear Gerry and Friends, This whole subject of compitition from far
away places where they can produce goods for prices far lower then we
can is the new challenge for the “domestic” trade as a whole.I have
seen some of the material my customers have purchased from overseas
manufacturers.Somtimes the workmanship is somwhat poor mass produced
type stuff with somwhat poor diamond goods, but I am now seeing more
and more of these same manufacturers producing goods with better end
material and much better workmanship.I am also seeing some overseas
manufacturers who are doing some really nice stuff! My customers can
buy this product for less then I can buy the diamoinds and raw
platinum for! Forget the modelmaking , design, production,and other
costs.How could I ever compete with that?“We” can’t!and they are
getting better and better at producing better end goods.It has already
taken a huge bite out of my sales.So what to do? I’m trying to fill a
diferent niche.I think we are all in for some very difficult times
ahead with the econemy deteriating and the availability of cheaper
product its going to get harder and harder to produce a product we
can sell to the retail trade.Any thoughts or feedback would be
welcome. All be well.Karl/@rita_anita_linger

5 
I see direct marketing by Asian companies to be a real threat. 
Ideas?

Sure it is a threat. Same as the Home Shopping Network. Same as
Amazon.com. Same as Zales Inc. In other words, any new innovative
method of marketing your product that puts your competition in a
defensive posture, is a threat to them and an advantage to you. The
fact that they are able to buy in very large quantities, sell at a
very low price, and move a huge volume of product, is what the
threat really is. The fact that they use the Internet to do so is
just another part of the innovative approach.

Do I like it. Hell no. As a small colored stone dealer, I am dead
center in their marketing sights. I’m the guy that they want to put
under. Along with a couple thousand more like me.

Ok, is what they are doing illegal? I think that was the point of
the Colored Stones report. When you represent a product to be
something other than what is really is, then that could be considered
illegal. Implied warranty and all that legal stuff. Now seeing that
they are out of bounds for legal action here in the US, there doesn’t
seem to be to much we can do other than wring our hands and complain.

From the stories on Thaigems that I have read, they seem to have a
following that are pleased with what the company is providing. There
also is some who are not. As long as they can keep enough people in
the first class, they can make a profit and keep the business going.
That is their problem to deal with. If they can’t then they go the
way of other snake oil salesmen and disappear. If the do, they can
become a respected pharmaceutical company. As they said when I lived
in New York, Money Talks, BS walks. As long as they keep the money
coming in, they are King of the Hill.

Don

6

All, I wonder if the Asian companies attacking the US economy realize
that they are destroying their own ability to make profits. A few of
my acquaintances that buy $100,000+ a year from Asian stone companies
are now backing off the market. These dealers supply jewelry store
owners with one of a kind pieces like are now being sold on the
Internet from Asia. These dealers are allowing their gemstone stocks
to diminish and are not replacing them because their customers can
and do buy direct from Asia. Jewelry stores customers are also buying
direct from Asia. I would guess that jewelry stores across the US
are seeing a lot more custom orders from people walking in with their
own center stones and accents. Decreased profit and increased
liability for the jewelry store are the result. Do companies in Asia
realize that if they destroy the US ability to make a profit they
destroy their ability to sell in the US? It seems that economic
interests and governments in Asia would try to control companies like
Thaigem. Asia should control the Internet profiteering internally
before individual countries start harsh government regulations on
Internet trade.

I also am questioning the retail - wholesale relationship between
gemstone suppliers and jewelry store owners. In my business I supply
custom gemstones that I cut myself and services to my customers.
Services include gemstone repair, custom stone cutting, repolishing,
inlay, carving, etc. I jump through hoops for these stores. I expect
the same loyalty I give the jewelry store to be returned to me in
gemstone sales. I make approximately 200% less per hour doing
service work than when I sell a gemstone that I cut myself. Service
work does not generate enough profit to stay in business. I must
sell stones. I have found that most of my customers are using my
services to generate the 200% profit in their pocket and keep me at
the service level. My customers are buying stones off the Internet,
at shows, off the street and expect me to make them into custom stone
for a service charge. My stone sales to these customers dropped to
near zero. These jewelry stores have no loyalty to me. My first
step has been to track the amount of dollars of stones I have sold to
each of my accounts. I have set a $5,000 annual minimum for my
accounts and a $5,000 buy in for new accounts. At that point I can
offer services to the accounts and still make a living. Accounts
that do not generate the required sales are denied service work. I
sell more stones at shows with no service work and less liability
than I sell to individual accounts.

I ask both wholesalers and jewelry store owners - What are your
experiences?

Gerry Galarneau

7

in reply,

i am not a store, just an artist who can barely afford a tent. :wink:

my humble, humble, opinion is based on observations i have from
stores i have worked in. i am not saying that this applies to anyone
on orchid, just a different take on the problem.

i am not happy about the jewelery market being undermined by cheap
goods from asia, in the long run, i think this may hurt asia, like
Gerry says.

however, i have worked in two high-end jewelery stores. i observed
what can politely be called snobbery on the part of sales staff and
gem dealers that came in the store. a specific example stands out in
my head: a sweet middle aged woman walked into the store with her
daughter. she did not appear to be wealthy. she smiled at everybody,
and proceeded to admire the jewelery in the cases. my boss went over
to her, and she asked my boss, “is this real?” the sarcastic reply
was, “no, it’s imaginary.”

why should the general public go into a high end store if they’re
going to be made to feel stupid and worthless?

when gem dealers came into the store, my boss would invite me to look
after she was done shopping. if the dealer had said hello to me, i
would look, and sometimes i bought. one time, in anticipation of a
dealer’s visit, i’d saved $3000. when it was my turn, he looked me up
and down and said, “i don’t have time for this.” i personally will not
buy from someone who is a snob. when i do have a store, i may not have
time for him.

i think the public buying from overseas could be a backlash reaction
to the elitism that can go on in jewelery. of course, there are plenty
who want something for nothing - there will always be those; but i
feel that with proper patience, the buying public can be educated
enough to realize why certain stones and jewelery have the costs they
do. i know i’ve been able to convert my mother-in-law and my
sister-in-law. :wink:

on the other hand, if a dealer takes care of me, i am unwavering in
my loyalty to them. just ask dave and debbie at Optimagem!

just an opinion, susannah

8

Amen ---- Amen

I am only a hobbist hat lurkes on this site, but I think you have hit
on a very real situation.

Years ago, I visited so called “High end” jewelery stores. I found
that if I went into the store in anything less that a suit, I was made
to feel that I was not good enought or knowledgeable enough to take up
the clerks time.

Years ago, when I was looking for my wifes engagement ring (in the
military at the time and dressed accordianly - Vietnam era) I found
this attitude. When I did find a store owner that was pleasant and
willing to take time with me, I knew that he was who I would buy from.

I never go into an upscale jewelery store anymore. I don’t think
things are any better. I think many of these owners deserve to lose
out to the competition. If I owned a store the first thing I would do
is have clerk training. I have worked with the public all my life and
have found that you get more with a smile and an understanding
attitude. JMHO

9

Gerry, Why don’t you just charge more for your service work and make
the money there? If it takes so much time and effort it would seem to
me to be better to just charge appropriately. It’s like when
customers come into my store with their own gold and want me to repour
it into a new piece. I charge the same basic custom work price
whether I use their gold or mine because using their gold just takes
me more time. If your customers complain about the higher prices just
tell them that they can use the same markups and make even more money.

Daniel R. Spirer, G.G.
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com