DeBeers’ More Modest ‘Selection’

It is hard to imagine a more dramatic about-face than De Beers’ 2005 selection process for its Diamond Trading Company sightholders. The first, in 2003, was a “bloodbath”—32 sightholders were let go, close to one-fifth of the list at that time.

This time the company was equally unpredictable: After an arduous application process, it announced that, not only would it not cut any sightholders, but it would add 11 new ones. Many observers thought additions were inevitable, but that they would come at the expense of existing clients. Some thought the list would be shortened by as much as a third. To have no one lose their sight was an unexpected—and in most cases, welcome—surprise.

Even so, there is unhappiness, perhaps an inevitable result when the pie is small and a lot of people are looking for food. More clients on the list means fewer diamonds for existing ones—indeed, a major reason for the first dramatic pruning was to better serve existing sightholders.

Officials in Israel can’t be happy that it was the only center not to receive any new sightholders—even Antwerp and New York, both far from their glory days, gained clients. India, still leading the pack among traditional centers, gained four. China gained two. (It should be noted that all these numbers and most of the names are gleaned from informed sources; De Beers won’t release its official list until January.)

The biggest winner was, predictably, Southern Africa. The total number of South African clients jumped from 14 to 19. Many existing sightholders—including Rosy Blue and Louis Glick—got allocations specifically meant for either South Africa or Botswana. The DTC has been under pressure from African governments to increase the amount of cutting in those countries.

So why did things turn out so differently? Longtime observers give the following reasons for the company’s change of heart:

  • Fear of backlash. It’s difficult to see what the DTC achieved with the dramatic pruning of its list in 2003 except attract a lot of bitterness, lawsuits, and European Union complaints.
    De Beers says it hasn’t been hurt by any of the legal actions, but clearly they take a toll in terms of time, energy, and morale. A complaint to the E.U. by former sightholder IDH even led the E.U. to start “fact-finding” as to whether to reopen its Supplier of Choice investigation, casting doubt on one of the policy’s clearest victories. De Beers executives have also intimated that the lawsuits in the United States (including the one from defrocked sightholder W.B. David) are keeping it from entering the country.
    It’s also worth noting that among the new sightholders is Antwerp’s Diamanthandel A. Spira. Spira is noteworthy for having sued the DTC—and won a yearlong extension—when it was cut from the list the last time. All of which raises some questions: Is the DTC really so magnanimous that it can forgive something like a lawsuit? And if Spira is dropped later, will it sue again?

  • More modest goals. People close to De Beers say there seems be a realization at Charterhouse Street that the “transformation” of the diamond industry may be more gradual than originally thought, and that the current structure of the diamond industry isn’t going to instantly change.
    Industry consolidation and more direct contact between vendors and retailers is surely happening, but perhaps not at the pace originally envisioned. “Spaghetti junction”—De Beers’ derisive term for the industry’s tangled pipeline—is still very real.
    Take what happened when the DTC cut 50-year-plus client William Goldberg Diamond Co. The Goldberg company hooked up with sightholder Leo Schachter to buy big stones (Goldberg’s specialty) from Schachter. So instead of De Beers’ selling direct to William Goldberg, it now sells to Schachter, which in turn sells to Goldberg. This doesn’t shorten the pipeline, but arguably lengthens it.
    That said, it is worth noting that the sightholder list is more vertically integrated now than ever. New clients include Tiffany (which has two sights in conjunction with New York’s Rand); Stuller Settings; and the owners of Diamonds International, the 100-store Caribbean chain.

  • It shows the integrity of the system. Supplier of Choice is in many ways a legal construct. It was designed, in part, to give the DTC a legally acceptable (and, in theory, transparent) way to accept and dismiss clients. But what does it say about the legitimacy of the system if a company is accepted in 2003, and then, two years later, it’s deemed unacceptable? Can a company, the system requirements, or what the company is producing be said to have changed so dramatically in such a short period?
    This is why the lengthening of the contract period to two and a half years (and, eventually, three years) may be a mixed blessing for clients. But for now, sightholders are breathing easy. At least until 2007.