Building A New Image For Australian Pearls

Nick Paspaley likes to show off a 20mm white pearl found on one of his pearl farms two years ago.

“I’ve been offered almost a million dollars for this, but I’m keeping it for now,” he says, rolling the gem between his fingers. “Look at the luster; the color; this is what makes a magnificent pearl.”

Paspaley, Australia’s largest pearl farmer, says this gem symbolizes how far the country’s pearlers have come in a very short time. Virtual contract farmers for large Japanese companies just a decade ago, they now produce what they call the most beautiful, valuable pearls in the world.

The Australians believe the time has come to tell the world about their pearls. So they’re developing a two-pronged marketing strategy to do just that:

  • They’ve taken greater control over prices and distribution of their pearls to ensure the trade and consumers won’t confuse them with less costly types.

  • They’ve formed a consortium to fund an advertising and education campaign stressing the beauty and value of their pearls.

The pearls: Australia’s 16 pearl farmers produce about $175 million to $200 million worth of white and a limited number of gold South Seas pearls yearly. The majority range from 10mm to 19mm, with the average 13mm. Top-quality pearls often bring more than $10,000 each wholesale; the average price is $692 per momme (a Japanese weight measurement for pearls; one momme equals 3.75 grams). That’s about 15 times the average price of the more familiar and generally uniform Japanese akoya pearls.

The Australians know their product isn’t for everybody. Necklaces of Australian pearls have sold at Christie’s and Sotheby’s auctions for a half-million dollars in recent years; a starter strand costs more than $25,000.

It’s no wonder the Australians are eager to stress that theirs is a vastly different pearl from the mass-produced Japanese akoyas and Chinese freshwaters. Theirs come from Pinctada maxima, a type of giant South Seas oyster about three times the size of the Japanese oyster. At peak form, the oyster produces a creamy white, highly lustrous sphere with nacre about 10 times thicker than the standard akoya (a 15mm Australian pearl averages 4mm nacre, or 8mm when measured through the diameter).

“Ours are truly natural,” says Paspaley. “They’re nearly ready for the jeweler as soon as they come out of the shell. There’s no bleaching or tumbling to improve their color and shape as there is with others.”

The Australians also stress their pearls aren’t threatened by overproduction. The Australian government imposes strict limits on the numbers of farms and the quantity of oysters selected for pearling. Last year’s production from all areas of the country was about 350,000 momme, compared with akoya production of 20 million momme (official) to 40 million momme (unofficial estimate).

Breaking free: Australian pearl producers have set three major goals in their campaign for independence:

  • Make more money by selling to distributors worldwide instead of to a small clique of Japanese dealers.

  • Sell pearls in currencies other than the hypervalued Japanese yen.

  • Create a separate identity for their pearls as a high-value prestige gem. Australian producers want to separate themselves with this image because they fear overproduction of Chinese freshwater rounds and the low quality of some Japanese akoyas will discourage consumers from buying pearls. Farther down the road, they fear that a revived Indonesian South Seas pearl industry could undermine prices in the smaller, lower-quality side of this market.

But the cost of putting their message across will be high. The Australians have formed the South Seas Pearl Consortium, funded by a tax ($2 in Australian currency) on each oyster that consortium members have in the water. This money and contributions from the Australian government and several importers will pay for marketing and advertising campaigns in the U.S., Japan and East Asia. The effort will be coordinated by Evins Communications Ltd of New York City for public relations and Ziccardi & Partners of New York City for advertising.

The focus will be to equate Australian South Seas pearls with top gemstones, says Christine Gotz, account executive for Evins. As part of the campaign, Evins is developing a brand name logo for the Australian South Seas Pearl Consortium that will be used in a series of videos, displays and brochures designed to educate high-income consumers.

How effective can a joint marketing effort be when it involves competitors? Australia’s pearl producers battled one another in competitive rancor for years. But today, they are more cooperative. While smaller producers have occasional flare-ups of resentment toward Paspaley Pearls, they acknowledge the industry would still be semiamateur without Paspaley innovations. “Paspaley showed us the growth potential of this industry,” says John Kelly, manager of pearl operations for Broome Pearls, part of the Kalis Group of companies and Australia’s second-largest pearl producer. “Before then, we were sort of a hobby operation, doing mainly half pearls [mabes] for quick cash.”

The history: Australia’s pearling history goes back more than a century. The country’s northwestern coast is perhaps the richest oyster ground in the world. During the last century, thousands of divers plyed the 400-mile stretch between Broome and Exmouth harvesting shells for mother of pearl to make buttons and ornaments.

The divers braved some of the world’s most hazardous conditions – as divers’ cemeteries around Broome attest. Many were killed by the “bends,” caused by diving too deep and ascending too quickly. Others found they were no longer at the top of the food chain the minute they plunged into the waters with the native sharks, crocodiles, string rays and poisonous fish.

But the divers’ bravery couldn’t withstand progress and the advent of plastics, which destroyed the need for mother-of-pearl shell. By the early 1950s, there was almost no industry left.

A few years later, some Australian and Japanese firms decided that culturing South Seas pearls could help to revive Northern Australia, just as the cultured pearl industry helped to revive Japan after World War II. In 1956, Nippo Pearls of Japan joined with some Australian partners to form Pearls Pty. Ltd. in Kuri Bay, named for Nippo’s founder, Tokuichi Kuribayashi.

Cultured pearl farming grew steadily, but it remained relatively small until the late 1970s. That’s when Paspaley revolutionized the entire culturing process. “The beginning of the revolution was moving all of the operations, from seeding to harvesting, onto boats,” says Chris Cleveland, skipper of the Paspaley flagship, the Paspaley III. “Under the old Japanese meth ods, the oysters were collected by divers, brought on land for seeding, then moved hundreds of miles to the farms. This caused the animals a great deal of stress, so mortality rates were high.

“When we realized these oysters were undergoing what is basically major surgery, we believed that reducing their time out of the water and giving them time to recover before taking them to the farms would help them survive.”

And so it has.

Mortality on the top farms is now below 5% through the two-year culturing period. A full 60% survive the culturing process and are fit enough to be seeded a second time. The second seeding is with a nucelii as big as the first pearl, which results in a larger pearl when the nacre is added. Forty percent are fit for a third seeding, which brings even bigger pearls of 17mm to 19mm and the occasional 20mm.

In addition, quality has improved dramatically with the introduction of hospital-like sanitation procedures. “Every one of the ships in the Paspaley operation is cleaned totally as new after each season,” says Cleveland. “This is very, very costly, but it reduces the black spots and irregularities that come from infection. We must remember always that the oyster is a living organism, not a piece of shell, and it has to be treat ed like one to do its job properly.”

Even the way the farms are designed has moved away from the Japanese model. Instead of clustering oyster racks together on a raft or pier in shallow water, most Australian pearl farmers have moved their racks into deeper waters, strung out on a series of 99-ft. lines with at least 16.5 feet between them. Federal law also requires at least 3.1 miles between farms. This has greatly reduced the spread of diseases that have killed crops in other countries.

(One area where the Japa nese still dominate in Australia is seeding and harvesting the pearls. “The Japanese have a long tradition operating on pearl oysters,” says Richard McLean, operations manager for Paspaley Pearls. “It’s delicate surgery which they still do better than anyone else … the mortality rate is much lower.”)

Surpassing the masters: The Australians say their innovations have allowed them to far surpass the Japanese and other producers in quality and yield – so much so that their average per-momme price has risen tenfold in the past 20 years.

But the innovations were expensive, and the Austra lians began to question whether the Japanese with whom they contracted were reaping too much of the benefit. “After we spent all this money on technology that was way ahead of the Jap anese,” says John Kelly of Broome Pearls, “why should we allow them to control our prices and distribution?”

Paspaley was the first to go independent, setting up tender offer sales open to all buyers in Japan and Hong Kong in 1989. Broome Pearls then began to forge ties with distributors around the world, and the smaller producers formed a group to sell their goods through Sydney dealer Rosario Autore.

Japan’s strong economy through the 1980s gave the Australians little reasons to look elsewhere. The Japa nese outbid nearly everyone in acquiring pearls and would have taken even more if there had been more to take. But recession popped Japan’s bubble in the early 1990s, followed by a major earthquake in Kobe early this year and a record-high currency. Japa nese demand for large pearls has fallen steadily, and so has the ability of Japanese distributors to control them. Their share of Australia’s pearl product has fallen from 85%-90% in 1993 to about 58% now – and much of that is reexported to other Asian countries and the U.S. Prices are off from their 1990 peak as much as 20% in the lower qualities.

Targeting the U.S.: The new land of opportunity for South Seas pearls is the U.S., say producers. Autore says the U.S. has been his biggest market this year for the first time he can remember. “It’s taken awhile, but the Americans are beginning to understand these goods and are more willing to pay the price for fine qualities,” he says.

Not that even commercial quality is cheap. The starting price for a necklace is about $8,000 wholesale. Even $20,000 necklaces don’t make it into the medium quality range.

U.S. dealers agree that consumers here are buying more South Seas pearls (with the exception of last year’s market lull). “There’s been a slow but steady increase over the years,” says Albert Asher of Albert Asher Inc., New York, N.Y. He’s noticed a particular increase in pieces retailing for $100,000. “It’s been especially strong this year, so we are very optimistic that will continue.”

Dealers say the lower end also will grow because more people are learning about South Seas pearls and want them – “even if they don’t have $50,000 to spend,” says Asher.

Another strong area of growth is designer jewelry using one or two pearls, says George Zobel of Tri-Gem Industries, New York, N.Y. “Jewelry featuring one or a few South Seas pearls is much more affordable than strands,” he says. “Also, owners of South Seas strands come back looking for distinctive pearl jewelry to complement them.”

Paspaley and Kalis have already tapped this growing designer market in their country. They’ve established guild retailing operations in several Australian cities and commissioned collections from world-class designers. The limited nature of their production means they don’t have to make their numbers by concentrating on necklaces. The designers can create pieces around baroque, drop and ringed pearls, which normally don’t go in a necklace.

“We have pieces by Carrera y Carrera, Buccalatti, Leo de Vroomen of London and very talented local designers,” says Marilynne Paspaley Grbavac, director of Paspaley’s retail store in downtown Sydney. “Most are one-of-a-kind.” Retail prices in her store range from US$300 to $40,000, with the majority between $2,000 and $8,000.

Holding firm on price: While the appetite for Australian pearls is rising in the U.S. and South Asia, the Japanese continue to shun costly ones, and dealers are starting to do the same. In fact, some dealers have tried to drive down prices with embarrassingly low offers.

The Australians aren’t listening. They say they can sell all of their goods at their price. “Some Japanese buyers have offered us prices 30% below our asking prices,” says Paspaley. “But we can still sell all of our production, and we’ve got the resources to refuse.”

All of Australia’s producers say there’s little leeway in prices. Production costs are high and rising, while strict government regulation leaves little room for expansion.

None of them will discuss profit margins, but Kelley at Broome Pearls acknowledges they’re high. He describes them as an insurance policy against disaster. “There’s go ing to be a year in which something in the environment wipes out our crop,” he says. “If you work on very thin margins, you’ll be out of business.”

Growing their own: Production would change little under tight Australian quotas (no more than 537,000 oysters can be fished for pearling each year; each licensed company is allotted 16,000 to 100,000). But the law has a loophole when it comes to hatchery-grown oysters. Until now, virtually all of Australia’s pearls have come from oysters fished by the reefs off 80 Mile Beach, west of Broome. But the first full production from several cooperative hatcheries is due next year.

The smaller pearl farmers are enthusiastic because this is their only opportunity to increase production. Each company is allowed to add 20,000 hatchery grown oysters to its operating stock, says Greg Finlay, supervisor of Western Australia’s Fisheries Department. “This number will allow companies to grow without creating overproduction,” he says.

Most smaller producers say there’s little difference between pearls from hatchery-grown oysters and those cut from the wild. Paspaley, who has his own hatchery project, doesn’t agree. “With wild shells, we get the extremes, the best and the worst. Hatchery pearls are more uniform and much less exciting, so I think the technology’s got a long way to go.”