De Beers CEO Philippe Mellier and Forevermark CEO Stephen Lussier took some time to speak with JCK following the Forevermark’s “Center of My Universe” breakfast on May 30. Here are some highlights:
De Beers is currently doing a strategic review of its downstream initiatives, particularly De Beers Diamond Jewellers and the Forevermark. What does that entail?
Mellier: The strategic review is a long-term exercise. We have done it in terms of exploration and mining with some pretty good results. The most visible sign of our strategic review is growing the auction part of our business. It used to be that we would sell 10 percent more or less of our production via auction. Now it is selling 10 percent run of mine, from the lowest quality to exceptional stones. There will be assortments that are totally dedicated to those customers.
We are working on ideas and initiatives for the downstream sector. It is really important to us to grow the Forevermark brand. We strongly believe that branded diamonds are the future of diamonds.
Lussier: What this is looking at is: If you take a 10-year horizon, how do you make sure you help the retailers stay excited about selling diamonds? That’s the challenge. We want to make sure that we have the tools to protect consumer confidence. We don’t want diamonds to reflect the colored stone business. We want there to be absolute confidence.
The thing about the strategic review is it’s trying to look a decade from now what the world is going to be like. The issue of the ethics around luxury goods is bound to grow more and more. If you talk to lot of jewelers, it is not a key motivator of purchases, but it is increasingly part of the selection or differentiator between offers. The stories about ‘diamonds for good’ resonate more than we think. If you would look 10 years ahead, and look at the behavior of millenials, we will need a different way of talking to them.
Does the Forevermark really affect the rest of the market?
SL: If you look at the Center of the Universe commercial and the generic advertising we used to do, I think the impact is the same. It creates an emotional connection to diamonds. Diamonds are becoming more scarce, it is more costly to get them out of the ground. We need jewelers who are focused on creating value, not destroying it.
Is the Forevermark currently profitable?
PM: We don’t disclose P & L by divisions. If it was not a good business, we wouldn’t be in it.
What does De Beers think of the future role for the World Diamond Council?
SL: We are stuck into that process. We believe that the WDC has played an important role historically. It’s easy to forget what it was like in the conflict diamond era and remember for a while it was the industry putting pressure on governments, not the other way around. The WDC was very important at that time. The question is: What does it need to be in the future? It’s a different era. Conflict is largely gone from the diamond industry as the Kimberley Process defined it. We need to define what that future vision is. It’s not up to De Beers, but we are involved trying to chart that vision. It has to evolve to be relevant, and to play the role that we think it could play. But we’ll see where it goes. Our position is there is an important role for the WDC.
You have talked many times about how De Beers needs to show leadership. What does that mean in practice?
PM: Being the leader doesn’t mean we need to be in control or be arrogant. We have the responsibility to set the tone and guide the industry forward. That is what we think of as leadership. We need to express our views and share our ideas and to set a little bit of a direction. The industry is very fragmented, and having a voice talking about the future is quite important.
Does De Beers have any position on the Diamond Source Warranty Protocol or similar initiatives?
PM: It is important that any initiative is practical, sustainable, and imposes minimum burden on the industry. The protocol has only just launched, it is too early to pass judgment. But we are watching with interest.
How is the DTC’s transition to Botswana coming along? There has been concern about whether Botswana will be truly ready for all the people coming its way.
PM: It is a challenge for both sides. It’s a challenge for the government of Botswana, with all the infrastructure and capacity and all the procedures that have to be implemented. It is also a challenge for De Beers to have the first sight there by the end of the year. We have to transfer people from London, we have to train people locally, we have to change the layout. It looks like the government of Botswana is very happy with the progress and the way we are doing the transformation in Botswana. A lot of work is being done. If you go to Botswana, you will see a very different place. They are building a new facility; you have a lot of 3G. There are a lot of things that are currently being worked on to make sure our sightholders will be well-received in Botswana.
What has been the reaction from sightholders to the move? Some I spoke to are wary.
PM: You have two types of sightholders. You have sightholders who know Botswana and others for whom it will be a big change. It will be a new adventure and it is very far from home, you hear all sorts of rumors. Things will be ready. The people of Botswana are very nice people and they will insure their experience is good and that the people are well-treated. I’m sure we will have small issues here and there, but it’s a nice place to work and it will work out very well. And even in London, you have things like air traffic strikes.
At the recent World Diamond Congress, speakers said diamonds were losing market share. Do you agree with that?
SL: The evidence is not quite there. If you look back over the last 20 years, up until the crisis in 2009, we were consistently losing market share. Other luxury goods had been outperforming us in the ’80s and ’90s. But since the recovery, we have seen pretty strong growth relative to luxury goods as a whole, in part because diamonds in China have been a short-term growth category. The data for this year is looking pretty good. We are outperforming watches in the Far East and China. The story is a little more mixed in the long term. The question is: Does each generation of consumers have that diamond dream? Do they have the love of diamonds the generation before them had? That is a task for the industry.
That brings us full circle back to advertising. Tiffany does a great job. Jared does good work. We struggle a little to find others. For most of them, their work is a lot less emotive.