How much of what you pay for diamonds stems from the value of the rock and how much for add-ons like branding premium, logistical costs, retail cuts and such? The Low brothers of Zcova say their customer-friendly, low-cost model will disrupt the market. JOY LEE reports.
DIAMONDS may be a girl’s best friend, but they are rarely, if ever, friendly on the pocket. That is what Low Ziwei, 31, learned after purchasing an engagement ring for about RM21,000 four years ago.
Two years later, through a chat with his brother, Low Ziyin, he learns that the ring could have cost less.
According to Ziyin, who was then working as a jewellery designer in Lebanon, the ring would have been more appropriately priced at about RM15,000 or so.
“There was a huge disparity. I was curious as to whether this was normal in the industry or I got cheated,” laughs Ziwei.
The knowledge may have stung, but it was also the seed that grew into Zcova, an online diamond trading company that the brothers would go on to establish.
That conversation led to some research and a discovery that diamond jewellery retailers typically mark up prices between 10% and 40%. And this premium usually is due to the value of the brand rather than the actual product.
Ziwei, who was running the family’s chemical trading business, thought here was a business worth exploring. Only, he wanted to do it differently from the regular jewellery retailer.
He decided to look at a low-cost business model where customers would pay for the value of the diamond and not the brand.
He asked his 26-year-old brother to return home to help him with his new idea, and in 2015, they started Zcova with RM30,000 in capital.
Through Zcova, customers can order their diamonds based on their own specifications. The brothers will then source for a diamond that matches the requirement. Zcova also provides jewellery design services.
“Our advantage with Zcova is our low-cost model. We don’t keep stock. We only source for diamonds based on requests. So we save on things like insurance, vaulting and logistics. And we source our diamonds directly from suppliers, not other retailers, so our cost of diamonds is lower,” explains Ziwei.
They source their diamonds through RapNet, a global diamond trading network.
But do lower prices really matter? After all, people who could afford to buy diamonds are not exactly petty buyers.
“Whether they are buying from retailers or buying from us, they are buying the same thing. The cost of these items is very big.
“We want to educate consumers that they don’t need to pay so much. Why would you pay more for the exact same thing? The big margin they are paying is for the branding and not for the value of the diamond. The mark-up doesn’t add value to the diamond. The traditional businesses make a lot of unnecessary margin,” Ziwei insists.
Ziyin notes that a one-carat diamond would typically retail at about RM68,000 while a two-carat diamond would cost around RM140,000. But Zcova’s model enables the company to price its diamonds at about RM47,500 and RM107,500 for the same diamond weight respectively. The company earns a percentage-based margin.
But selling lower-priced diamonds does not make it easier to sell these blings.
The brothers note that the Asian market generally do not trust the online marketplace, particularly for such big-ticket items.
“They want to see, touch and feel the jewellery before they buy it,” says Ziwei.
Additionally, Asians generally prefer their diamonds in jewellery form instead of as loose stones. And this is where Ziyin’s expertise and experience in jewellery design would come in handy.
Ziyin says customers will only need to pay for the jewellery depending on the materials used.
They’ve been promoting Zcova online and sponsored lifestyle events to increase awareness of its products and services. Business has picked up a little over the past six months and they hope to make a bigger impact on the local diamond industry by the end of the year.
It is about changing people’s perception, adds Ziwei.
When the company grows, Ziwei is looking at segmentising the business into three divisions: Zcova diamond trading, Zcova jewellery designing and IMZ, its own collection of men’s jewellery. While the IMZ brand would enable Ziyin to continue his passion in jewellery designing, he hopes Zcova’s jewellery designing segment will become a platform for other local designers to market their services.
“We want to help local designers. So this is where they’ll be able to put up their designs and customers can select the ones they want to customise. When we do launch this, we want to encourage people to design,” says Ziyin.
Ziwei believes there is a big market for what Zcova has to offer. He states that in the first half of 2015 alone, there were 13 million searches done online about diamonds in Malaysia alone.
The trick, is to capture that market.
He hopes to build Zcova into a semblance of Blue Nile, a US-based established online jeweller. Blue Nile has been recognised as a strong competitor to the traditional jewellery stores such as Tiffany & Co.
“These days, people are empowered with knowledge and that changes the market. With today’s e-commerce movement, I believe it will happen for Zcova. But it will take a lot of perseverance from us,” Ziwei says.
Once they get the playbook right in Malaysia, Ziwei is keen to bring in venture capitalists and other investors to scale up in the Asean region.
Although the brothers are dealing in the diamond market, Ziwei emphasises that they are not here to make crazy money. As with most startups, it is about disrupting a market. And in this case, it’s about making diamonds more friendly and affordable, he concludes.