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Feb. 2001

We are looking at a diagram of the “diamond pipeline” in a brochure prepared just two or three years ago by De Beers Canada. It starts with diamonds being mined, which then goes through the “CSO” — in charge of “sorting, valuing, and sights” — then goes through “cutting and polishing,” through the “polished market,” then to “jewelry manufacturer,” “retail” and the consumer.”

The announcement that De Beers is linking up with French luxury giant LVMH to open a chain of “De Beers” retail stores selling “De Beers” diamond jewelry is just the latest sign that those days are gone forever. Instead of single channel marketing, we are starting to see something approximating a single direct pipeline to the market. It’s ironic that, while De Beers is talking about giving up its rough diamond monopoly, it’s extending its power in the rough-to-retail distribution chain.

At the moment, De Beers promises that it will not sell either rough or polished diamonds to the chain. (De Beers has had a polished diamond division for years.) Probably, anti-trust rules won’t allow it. However, we wonder what will happen down the road — particularly if De Beers is able to settle its anti-trust problem in America. If De Beers sells to sightholders, who then sell to a retail chain co-owned by De Beers, who needs a middleman?

All this will not happen overnight — it will probably take years to open the stores and make the “De Beers” brand recognizable. “De Beers” diamond jewelry makes it seem like customers are buying diamonds direct from the mine — even though the company insists this isn’t true. And no one knows what the name will mean to consumers. There may be some consumers who have negative views of De Beers, because of shows like PBS’ “Diamond Empire,” or associate it with apartheid. Still, De Beers has spent hundreds of millions on advertising with its name on it, so there is considerable awareness.

This unusual new venture raises a lot of questions. There is currently a shortage of better goods on the market. Could De Beers be holding back those diamonds to sell them to sightholders who will sell to the LVMH stores?

This is certainly a change from Harry Oppenheimer’s famous speech that De Beers’ monopoly works for the good of “producers, dealers, cutters, jewelers and consumers.” Today‘s De Beers works for it‘s shareholders.

The Outlook for 2001

It looks like the economy will not be a disaster, nor will it be a continuation of the unbelievable good times we’ve enjoyed for the last few years. We also feel the U.S. will continue to be the leading market in the world.

Granted, the stock market is down, and is not expected by most economists to get back to last year’s levels. But the diamond industry can take comfort in the fact that the value of their inventory is holding better than the stock market — and we are not just talking about the dot-coms, but the blue chips as well.

Hopefully, De Beers’ new philosophy will be correct and all the sightholders’ increased advertising will help the market. But brand names takes a while to establish, and none of the sightholders have the same marketing budgets of, say, a dot-com. Still, “branding” will eventually be a major force — although only for a certain kind of status-conscious consumer.

Companies like Tiffany, who already have established brands, may lose in this. Suddenly, they will have new competition. But we predict some winners from “branding” fever: Town and Country magazine, and all the other upscale media that will see an onslaught of diamond ads. Perhaps we should all buy stock in them.

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