While the diamond industry in India, Belgium, and Israel was sizzling over the rising cost of rough diamonds and diamond polishers' continuously shrinking margins, in other corners of the world there was a firm decision to keep prices more or less at their current level. Some corrections will take place, but the overall price scheme will not see major changes nor significant price reductions.

 

At the center of the storm is the company most associated with the diamond industry – De Beers. The diamond miner is in the eye of the storm, not because it has the highest overall prices in the market, it does not, but rather because the industry still views the company in a role it has chosen to vacate – that of ‘the custodian’.

 

 

Given her standing, whatever Shine says about the current condition of the industry is listened to very carefully by all players throughout the market.

 

In an exclusive interview with IDEX Online, Shine outlines some of her thoughts regarding the present state of the industry; what the DTC expects from its Sightholders, and what role the company is taking and will take in the future.

 

One recent major change in DTC policy is the move away from a single, central, sorting facility. Diamonds mined and purchased by De Beers from around the globe are shipped to DTC headquarters in London, where they are sorted and sold to Sightholders and Diamdel. However, a couple of years ago, De Beers Canada agreed to supply some of its rough outtake directly to local Canadian polishers. Now De Beers has agreed to establish DTC Botswana, a 50/50 joint venture with the local government.

 

These moves have led to raised eyebrows and questions in the industry, as market players ask if this is the first step towards the end of the DTC. Other questions that need answering are what role DTC Botswana will play, and if it will supply local goods to the local market, leaving the International mix (the so-called “London mix”) with no Botswana goods. Or if the Botswana mix will become the source for all Sights?

 

“DTC Botswana will sort rough diamonds all the way down to one step away from boxes, and the goods will be aggregated with goods from other producers. Similar to the way it currently works in South Africa and Namibia. Suitable goods will be sold to local manufacturers. It is still the DTC mix,” says Shine.  

 

Regarding the ‘international mix, Shine says they are looking for efficiency. “What we ask from our clients does not skip us,” she says, adding, “We will sort any other production in London until it is of scale to warrant a local DTC”. In the same way that DTC asks its Sightholders to add value, innovate and create efficiencies, so too does this apply to the DTC.  There is no final decision on the level of production at which a local DTC will be formed, but according to Shine it will happen “when that's the economically efficient thing to do.” 

 

Edahn Golan: In retrospect, what would you have done differently in regards to Supplier of Choice (SoC) and its implementation?

Varda Shine: SoC was misunderstood by the market. We should have had longer ITOs (Intention to Offer). Not just six months as it is today. It also should have been more competitive. Mainly, we constantly find out, you can’t communicate enough. We should have explained more. Some people read inaccurately between the lines.

 

Going downstream, Sightholders don’t have to create brands. Vertical integration doesn’t suit everyone. We are saying simply think about the consumer: what are you trying to get, what does your client want? You can’t wake up in the morning and say to yourself "I really like a certain design" go out, spend money on marketing, and expect it to cash on in the market.

 

With Right Hand Rings, even though it is about self-empowerment, research has established that most U.S. women don’t buy them on their own – they will ask their husbands to buy them. They see the ring and tell him what it is they want.

 

It’s important to do research before creating something new. The Journey marketing campaign [a concept that includes at least four diamonds that are progressively larger, signifying the growing relationship, EG] aims at ‘Relationship Fulfillment’, a mental state that says "prove to me that you love me" – by buying diamond jewelry.

 

The DTC took this research, and using 20–70 pointers, which are not moving well, the Journey concept was created.

 

EG: What is the DTC planning to do in the second half of 2006, considering current market conditions – dealers are under a margin squeeze, cutting back on initiatives, some are suffering from extended credit, and so on?

 

VS: It’s a question of what came first, the chicken or the egg? When considering investments by Sightholders in downstream projects, you see that some invested wisely, some invested to impress the DTC, and some didn’t make any investments at all. We must ask ourselves, if we allow bigger margins – will they (Sightholders) actually use it for marketing, or will they keep the money?

 

Shine views the issue of margins as a reflection of marketing and downstream investments. Without them, margins would be wider. She feels that if Sightholders invest in such efforts, margins will be narrow in the short term, but the benefits will be reaped in the long run.

 

She emphasizes that businesses should differentiate. They should look into the future and ask ‘what is my unique proposition?’ “We have some fantastic examples in other industries,” she says, noting as examples bottled water and juice companies who have successfully branded themselves. She is surprised that, unlike stores that sell perfume or handbags, many jewelry stores are not happy about carrying jewelry brands. “The first thing I do when I walk into a handbag store is look for the new branded bags. The more brands a store has, the more the store benefits”.

 

She believes DTC clients should bring in a professional with experience from other fields. They should (1) create a vision; (2) use innovation; and (3) make sure you have the right people in your team. This was also the message Shine delivered to attendees at the recent World Diamond Conference, not only those who are on the DTC's client list

 

During the last Sight, De Beers Managing Director Gareth Penny told Sightholders “we are in this together” and, “we will be competitive.” When asked how this will be translated into action (cutting back on supply, reducing prices), Shine says the question is, what does this mean, being competitive?

 

She says that no ex-plan (rough diamond supplied beyond the original Intention to Offer) will be supplied to Sightholders in the second half of the year and that not all boxes have to be taken at the sights, but does not say this translates into prices being reduced, despite the common consensus that this is how Penny's statements should be understood. “We examine our prices every month,” she says, adding that “it’s all about cash flow planning. We are looking at the prices and we will reduce prices on some goods, and increase on others. But being competitive does not necessarily mean reducing prices.”

 

Another hot topic in the industry is lab-created diamonds. Shine recently tried to marginalize the product noting they are “synthetics” not “synthetic diamonds”. However, in a surprise move, the GIA has decided to grade synthetics – (or synthetic diamonds depending on your point of view), to the dismay of many in the industry who feel this will give them extra value and added legitimacy.

 

Shine counters this by saying that the DTC believes it is important that all synthetic material used in gem applications should be fully and accurately disclosed to the consumer. She expressed hope that consumers receiving the GIA’s synthetic grading report will find the certificates sufficiently clear and distinctive enough to fully inform them about their purchase.

 

“The move by the GIA to clearly label these products as synthetic should help with identification. As such, consumers should be fully aware that they are not buying the real thing.”

 

Regarding the role, and perhaps some future plans, of the DTC, during her speech at the recent World Diamond Congress in Israel, Shine said, "the DTC is evolving into a service company with an open service culture”. When asked to elaborate she said, “We have so much more to offer than just selling rough diamonds. The DTC has industry-leading capabilities in diamond sorting and valuation, market research, marketing and promotion, research and development, to name a few. Many of these capabilities have already been developed into some of the services we offer to the Sightholders.”

 

The DTC, Shine feels, should offer even more. “There's scope for us to take our new culture of service provision very much further.”