The Future is Integration
January 16, 25
Guest Memo by Erez Rivlin
diamond market analyst and consultant. Served as an advisor to the Russian Government (Minister Bychkov), and to the late Angolan President dos Santos. Managing editor of www.diamondherald.com Contact erez@diamondherald.com
There is quite a wide consensus regarding the three fundamental solutions for the current crisis in the diamond industry. Advertising, advertising, and then some more advertising. So far, it seems nobody has come up with even a small share of the money necessary to cure the industry of its lab grown "influenza fever". But maybe I am wrong. There is a business model that has developed in the past 20 years, that may actually hold the key to the problem.
Diamond marketing can be divided into two distinct periods - the De Beers' monopoly era, till about the end of the 90s, and the current competitive market era. At the time De Beers had control of over 80 per cent of the diamond rough market, and it invested heavily in promoting a generic 'brand', one that nobody could really own.
It didn't promote its own brand, like 'De Beers Diamonds' or 'Oppenheimers Diamonds'. Instead, in the mistaken belief that its monopoly would last forever, it invested billions in simply advertising the 'Diamond' brand.
During the economic Depression of the 1930s, De Beers went through a crisis, which was at least as challenging as today's and was forced to cut production by 90 per cent. Harry Oppenheimer, who was already a De Beers director at the time, had to convince his father Ernest, and the entire board, that mass publicity would be the best road for the diamond industry.
And indeed the 'Diamond' brand was an historic success for almost a century - or so it seemed until 2023, when the current crisis started to crack the foundations of the industry. Diamantaires found themselves starved of the oxygen they desperately needed, by a flood of lab grown diamonds. It became clear the remedy was either a monopoly or multiple strong brands.
So let's get back to the Oppenheimers' adventure. Nicky faced endless challenges when he became De Beers chairman in 1997. But 'blood diamonds' and aggressive anti-trust courts in the US were nothing compared to the challenge of redefining his family business model.
Independent diamond sales by the Russians, Canadians and Australian meant the end of the monopoly and, critically, the end of the diamond global marketing budget. De Beers was no longer the diamond sector's 'chief-advertiser'.
So the desperate search for a new diamond business model began. The brains at Bain & Co. consultants came up with ideas like branding and the Supplier of Choice - ideas that were 'good' but almost impossible to realize. The bottom line was that they needed to change direction or find new ways to generate the income that would finance the critical diamond marketing global budget. That's the money that maintains demand for diamonds, and it's a lifeline in times of crisis like today.
For the vast majority of Sightholders and diamond dealers, the idea of branding diamonds and of venturing into jewelry was all just too much. Long-term survival is a challenge for any single-sector business and operating in multiple business sectors, i.e. polishing diamonds and manufacturing jewelry, would prove fatal to most businesses.
But here lies the catch. The key for the survival of the diamond industry does actually lie in both polishing diamonds AND manufacturing jewelry. An integrated business model that uses diamond jewelry as the major channel for the sale of the production of polished diamonds is not only the key solution for the current diamond sector crisis. It is the healthiest long-term business model, generating natural marketing budgets and creating a natural 'sales push' at the retail shop.
Jewelry operations must keep a minimum level of independence and respond to market demand. On the other hand, the product mix of a jewelry store cannot turn into a supermarket-like outlet, offering an endless choice of similar and competing food and drink brands. Fine and even entry-level jewelry are capital-demanding products. This, together with a slow sales cycle, limits the efficient investment in the range of jewelry stock on the shelves.
Therefore, the impact of the jeweler on their customers' choice of product is much higher than in most other sectors. The bottom line is that it is relatively easy for a jewelry retailer to increase diamond jewelry sales, compared to just gold and other non-diamond jewelry.
Therefore, the ideal business model that directly answers the diamond industry's urgent marketing needs is the integrated business model. It happens when a diamond polishing company that enjoys profit margins from its polishing operations, decides to integrate its polished diamonds in a profitable jewelry retail operation. As a side product, such an operation generates a natural drive to market and promotes natural diamond sales.
The HK Kisna jewelry brand is available today in over 6,000 stores. It was created in 2005, as a natural outcome of De Beers' efforts to push their clients to get involved with the jewelry industry. KGK's Entice and Martin Flyer jewelry brands are also strong examples of successful integrations down the supply chain. Strengthening such companies that have adopted this business model, will benefit the entire diamond industry. It does, however, risk consolidating the industry and drastically reducing the number of players.
Rosy Blue, KGK, Kiran, and HK, are some of the notable companies that have managed to integrate their businesses down the supply chain. They took on the role of natural diamond global marketers, not through a monopolistic cashflow, but through strong business practices. They, and companies like them, will most probably grow and become the future and foundations of the global diamond industry.