Diamond Registry:Diamond Industry Stands On Its Own Two Feet Summer.2000

Since 1961

Diamond Industry Stands On Its Own Two Feet - Summer.2000

It’s official: After over a century of reliance on De Beers’ "single channel marketing," the Central Selling Organization – known as the "Syndicate" – is no more.

In its place will be the Diamond Trading Company – which will strive to become the "Supplier of Choice." De Beers says the DTC will "encourage the development of a competitive and growth-oriented 21^st century industry."

This news, carried by the financial press on July 13^th,is not so new to subscribers of the Diamond Registry Bulletin. However, it is a complete turn from the mission statement in pre-Bain days where a De Beers’ brochure states:

"The Central Selling Organization, or CSO, was established by De Beers and its associates in the 1930s to create a reliable and enduring system to balance supply and demand, and prevent wild fluctuations in the market for diamonds."

The company insisted that De Beers’ financial strength is a prerequisite to the health of the entire pipeline from miner and diamond wholesaler to consumer:

"The continuing success of the single channel marketing is dependent upon: the financial strength of De Beers CSO which enables it to hold buffer stocks of those particular sizes and qualities of diamonds not currently in demand, releasing them onto the market in an orderly flow when demand increases."

The new De Beers under the guidance of Bain & Co. wishes to avoid the monopoly label – a designation it has never fully admitted. Former chairman Harry Oppenheimer stated the official position several years ago:

"Whether this measure of control amounts to a monopoly I would not know, but if it does, it is certainly a monopoly of a most unusual kind. There is no one concerned with diamonds, whether as producer, dealer, cutter, jeweler or customer, who does not benefit from it. It protects not only the shareholders of diamond companies, but also the miners they employ and the communities that are dependent on their operations."

But that’s all in the past. De Beers thinks it can be the "supplier of choice" by supplying "value added" services, like marketing advice. In De Beers’ words, the company "wants to work more closely with clients so they can service their downstream customers in order to drive consumer demand." De Beers executives now regularly note that the diamond industry spends less on promotion than other industries, and it wants sightholders to start brands and do more advertising.

De Beers is also making its customers sign on to "sightholder operating criteria," which include "Best Practice Principles." Sightholders that agree to the best practice principles that includes agreeing not to buy diamonds from combat zones.

Actually, the most significant news this summer is not the metamorphosis of De Beers but the exceptional strength of the diamond industry and the firmness of diamond prices, even after De Beers announced that its withdrawal of its unconditional support.

Ironically, the only price weakness following the announcement was in De Beers shares. But their drop, in mid-July, does not prove that Bain’s advice to sell off its stockpile and give up "guardianship" of the diamond industry was wrong. It has more to do with the comments by Russian officials that the Russians that they may not renew their contract with De Beers after it expires next year.

In the long run, De Beers’ "strategic review" will probably benefit those who it is intended for: its shareholders. The greater benefit, however, may go to the entire diamond industry, from the producing miners and cutters to jewelers, who will learn to walk without crutches, and not rely on the guarantee of success from a single company. Maybe the industry, including the Russians, should learn to stand on its own two feetv

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