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Distinctions Blur in The Pipeline - Dec.2002We are looking at a 1999 editorial in the Gemological Association of Great Britain’s "The Gem and Jewelry News," talking about De Beers’ decision to go into branding: "[Some sectors] of the trade continue to think that De Beers is moving into retail outlets. I do not see this being the case. They are established as suppliers of rough diamonds to the trade and they will do nothing to jeopardize that tradition." Today, of course, the alarmists have proven correct. The diamond pipeline used to go something like this: De Beers sells to sightholders, who sell to wholesalers, who sell to jewelry manufacturers, who sell to jewelry wholesalers and then to retailers, and then to the public. Now that’s all history (as is the category of jewelry manufacturers.) The new pipeline is no pipeline. De Beers has gone retail; its first store opens this month. Tiffany is an investor in a Canadian mine and is setting up a cutting factory in Canada. On the following pages we have stories about mines like Ekati starting brands and diamond wholesaler Rosy Blue investing in a mine. And of course more wholesalers are selling direct to the public. This is happening not just in the diamond industry, but in many industries. The airlines have gone around travel agents to sell direct to the public over the Internet. So have manufacturers like Dell Computer and Eddie Bauer. In the diamond industry, these alliances may benefit consumers, as a large distribution chain can mean larger mark-ups. But we also question whether they all make sense. Tiffany is not just a retailer but a great retailer, and De Beers is the preeminent diamond miner. Just because they have succeeded in one field doesn’t mean they will in another. The De Beers store opening was called "bumpy" and "awkward" by the New York Times. Its billboard was defaced by a human rights group protesting the eviction of Botswana’s Bushmen, although De Beers denies diamonds are involved. Its opening was delayed for ten days because of problems securing merchandise. The idea of De Beers not having goods inspired laughs among diamond dealers. The store still may be a success. Certainly partner LVMH knows what it’s doing. But like De Beers’ prodding sightholders to go into branding, it’s far from certain whether these companies can learn complicated new fields overnight. v
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