NICK HOUGHTON AND SALES
Here is the latest in my series of fact-finding discussions with True North management. Last Friday I had the pleasure of talking to Nick Houghton ( see truenorthgems.com ) about what is going on in the areas of gem cutting, jewellery manufacturing, and marketing. Nick is very careful about what he says, but nevertheless I got some good insights into the direction the company is taking. I’ve summarized, in my own words, not his, what I learned, as simplified in a Q and A format. The conversation was really not so structured, and my apologies to Nick if I fail to accurately convey anything that he told me. Note that TGX never asked me to write anything, nor have they reviewed what I am writing.
Q: Are you positive about what is going on at TGX?
A: Nick has been in the diamond and gemstone marketing business for 30 years, and rarely has he been as excited about anything as he is about how things are progressing for TGX. In his words, the company has "lots of challenges, but they are good challenges", which is to say that there are a lot of possibilities and opportunities if they can capitalize on them. He is enthusiastic for several reasons. First of all, TGX has an exceptional team – four gemologists on staff, top geological talent, and a wealth of experience and gemstone industry contacts. Secondly, they are in a position to have complete control of their supply of gemstones. What other companies marketing gemstone and jewelry products can make that claim, he asks; control of supply is perhaps more important for coloured gemstones than diamonds since coloured stones are in fact rarer, harder to match stones to produce jewelry, and tend to come from problematic locations. Finally, what other junior companies exist that are in a position to potentially realize cash flow from producing fine finished products, even when they are only small and growing explorers?
Q: What are the recent trends in the jewelry industry, and how do they affect TGX?
A: The global jewelry industry is very interesting in that it has a kind of dichotomy. What has been going on in Europe is quite different from the North American market. For the last five years, colour in jewellery has been very popular in Europe, whereas only recently is this starting to catch on in North America, where white diamonds have been the mainstay. Gemstones tend to rotate in popularity. One year most demand is for one kind of stone, say perhaps emeralds, and the next it is perhaps sapphires, and sometimes the popularity is different between North America and Europe; fortunately TGX has the contacts to key into the trends.
A major trend in jewelry in general is that people are asking where the gemstones came from and how they were produced – “Were they from a repressive regime?”, “Was the environment affected?”… There is also the US Patriot Act to consider, which requires businesses operating in the US to take precautions to avoid the possibility of aiding money launderers when buying goods (see colored-stone.com ). For coloured gemstones, it is a big problem for most companies to track where the stones came from and give any sort of answers. For TGX, all the information will be available and tracked from the deposit to final jewelry, because the company will control the entire process completely and they know of software that they can aquire to track things. Nick has been intimately involved with the Canadian Diamond Code of Conduct in certifying Canadian conflict-free diamonds, ( canadiandiamondcodeofconduct.ca ), and in a similar sense TGX will be able to certify the origins and authenticity of their stones.
Q: What can you tell us about how TGX cuts their stones?
A: TGX has been employing seven cutting houses distributed across the world. Different grade and size stones with different polished products have different cutting imperatives, and they are sent to appropriate places that specialize and provide the best service. For example, cutting can be done in centres in India, Sri Lanka, China, Canada, the US, or Germany. Nick strongly emphasized that the company is looking for fine goods, carefully calibrated, and they are very picky on getting the best cut. It is the best approach to sacrifice yield in order to maximize value – a small high quality stone is better than a large one that is of compromised quality. This addresses issues on the emerald cutting yield; smaller stones tend to be machine cut to calibrated sizes realizing a lower yield, as opposed to the larger stones which are custom cut to maximize yield. Having finely calibrated sizes is important because it greatly cuts down on labor later required to set or match the stones in jewelry and to sell them.
Nick tells me that Tom McPhee is doing a great deal of planning, practicing with test material and trying to anticipate all possible issues before cutting the 200 carat ruby that he has been commissioned for. He is an artist, and TGX is not going to rush him. There are no guarantees that Tom will not run into unexpected problems with the gem, but he is doing a great deal to make sure that it is used to the utmost and Nick has high expectations. (By the way, I found Tom mentioned in this article -- colored-stone.com ).
Q: What issues does TGX face with jewelry manufacturing.
A: Nick pointed out that because there is jewelry pictured on the website, some people have asked him if the company is already selling what they see, but this is not the case. TGX does have the capability to get jewelery manufactured, and are getting stones cut that will be very useful for using in jewelery test marketing or demonstrating what the company has to offer, but are not currently selling goods.
Nick has produced several jewelry designs and is working on more. With jewelry, when a design is produced, computer software can take that design and easily modify it to any size, scale or combination of stone settings to be set en mass and from this rubber molds can be remade to send to manufacturers. Manufacturing can be done right in Vancouver, and as with any manufacturing process, economies of scale in quantity produced drive down the costs per unit.
Note that TGX is sponsoring the coloured gem section of the Canadian Jeweler Magazine’s "Excellence in Design" awards. Canadian Jeweler Magazine is the main trade publication for Canadian jewelers, and will have a couple of articles on TGX coming out which TGX may be able to get copies for investors. (See canadianjeweller.com and click on “Excellence in Design Awards”).
Q: What options is TGX investigating for potential sales?
A: TGX is fortunate in that it has contacts in the gemstone and jewelry business all over the world, and these contacts provide marketing insights to Nick, who himself has 30 years of experience with gems and jewelry sales. Generally, Nick brings ideas to the board of directors and they jointly decide on strategies. So far, TGX has cast a wide net, investigating several broad strategies and gradually refining details. For the last six-nine months they have been in touch with potential suppliers and distributors and definitely have their attention.
Here are a few potential marketing avenues, any combination of which the company might employ:
1) Galantas Gold ( galantas.com ) model of selling – put branded jewelry on the website to demonstrate what is available; sell it directly to consumers and make it available to retailers to sell at a markup at the same final price as on the website.
2) Wholesaling of gems or jewelry through joint ventures with major international jewelry retailers.
3) Wholesaling of gems or jewelry through national retailers (for example Canadian or Danish branded jewelry to Canadian and Danish jewelers).
4) Specialty production of jewelry (use their gems and manufacturing contacts to provide what someone wants).
5) Exclusive online selling
6) Becoming a coloured gemstone supply centre. The company has looked carefully at De Beers’ “supplier of choice program”. De Beers guarantees a supply to buyers known as “sightholders”, say 1000 1/4 carat stones a month, in exchange for those “sightholders” working with them to steadily boost demand and prices for their product to effectively compete for market share with other luxury goods. De Beers uses this strategy to “control the tap” of their stones, making sure that the gems are being put to best use generating top price and highest demand through branding, marketing programs, etc. ( debeersgroup.com ) *Note that coloured gemstones have never benefited from the type of marketing that De Beers has done for diamonds. Rubies and emeralds are rarer than diamonds, but have no organization behind them to generate higher prices and demand, in spite of their already high value.
Needless to say, Nick is very busy, and very excited. The company is moving forward and has projects and schedules in place. They may run into problems at times, but TGX has unique opportunities as a junior company and the industry is moving in ways that are to their benefit. |
