Editor’s Page

lfrederick@cahners.com

As anyone not living in a cave knows by now, De Beers is test-marketing diamonds branded with its logo. The experiment ? at three stores in England ? is going well, as JCK has reported. Though De Beers says it won?t reach a decision until the trial ends later this year, I believe it?s a foregone conclusion what the company will do. Like it or not, diamond branding is headed your way.

It?s going to be a tectonic shift. Until now, De Beers and its Central Selling Organisation have acted as virtual custodians of the diamond industry ? from wholesale through retail ? by adjusting supply to sustain prices, even when such a policy hurts its own profits. Just last year De Beers held so many stones off the market that it took a 28% hit in sales. The company also has poured hundreds of millions into generic-diamond marketing, letting other producers piggyback on its efforts. With branding, the Big Diamond Daddy suddenly becomes just another company looking out for itself. But who can blame it? Why should other producers get a free ride? And why shouldn?t De Beers capitalize on the brand recognition it?s spent so much to establish over the years?

There?s another reason branding looks compelling now, and that?s the decline in consumer confidence. Worried about the quality and even the authenticity of diamonds, customers are searching for something to take the fear and guesswork out of shopping. A stone with the imprimatur of a company they recognize and respect should satisfy that longing, just as a shopper for a quality watch finds reassurance in brands like Patek Philippe and Rolex.

Nevertheless, branding raises important, if not troubling, concerns ? not just for diamond dealers but for retail jewelers as well. Among them:

Will De Beers do its own polishing, in effect vertically integrating? Some diamond cutters fear this is De Beers? secret plan. Their anxiety is understandable when you consider the logistics involved. First, De Beers will pick the stones to be branded from its own rough. The stones must be shipped out for polishing, returned for branding, and then shipped back to sightholders.

Who will get the branded stones? The CSO has only 18 clients in the United States. Will all the branded diamonds sold in this country flow through them? Wouldn?t that give the sightholders too much power? Will De Beers demand that its branded stones go only to upscale stores, just as it is limiting the English trial to a high-end chain? Will there be only a few stores allowed to carry the stones in each geographic market? If so, how will distribution be policed in the United States, where De Beers has no business presence?

What happens to the unbranded stones in jewelers? counters? If the branded stones cost more, which they almost assuredly will, and if consumers believe De Beers? claim that it selects only the finest diamonds for its logo, then the price of the generics is probably going to suffer. How can unbranded diamonds compete with the branded ones?

Must every retailer carrying the diamonds buy the De Beers machine that enables consumers to see the inscription, which may not be visible with a loupe?

This is more than a minor concern. The reader De Beers says is needed for consumers to view its logo and serial number will cost well over $5,000, according to officials with the company?s Diamond Promotion Service. (The brand is not your standard inscription of letters laser-burned onto the girdle. Instead, it?s marked onto the table with what appears to be electron-beam lithography. The size of the logo, on a stone recently purchased in England, was about 100 x 300 microns.)

Understandably, these concerns have amplified the uneasiness that would normally accompany so significant a change. De Beers and the leaders of the diamond industry have a responsibility to resolve these issues before the branding earthquake hits.