UpFront

The American Jewelry Council, though just a few weeks old, is already beginning to make its voice heard in Washington, D.C. For example, it has:

• Begun putting together two advisory caucuses, one in the Senate and one in the House of Representatives. AJC will keep caucus members informed regularly about issues facing jewelers and manufacturers. In turn, AJC will rely on caucus members for advice on legislative issues.

• Defined six issues of concern to the industry: opposition to a national sales tax, reduction and elimination of trade barriers, estate tax reform, reforms of independent contractor regulations, accelerated depreciation of leasehold improvements and enforcement of laws protecting intellectual property rights, such as trademarks and copyrights.

• Learned from federal officials a national sales tax is unlikely any time soon and that the exemption on estate tax would double to $1.2 million under a balanced budget proposed by the House and Senate.

Seven major trade organizations formally launched AJC May 13 in Washington, D.C., with the goal of speaking with one voice to the Congress. The founding organizations are Jewelers of America, Manufacturing Jewelers & Silversmiths of America, American Gem Society, American Trade Gem Association, Jewelry Information Center, Jewelers Vigilance Committee and World Gold Council. In addition, the American Watch Association has indicated it will support AJC on any legislative action on the issues.

Industry representation

AJC actually was created a few years ago as a successor to the Jewelry Industry Coordinating Committee, which led industry’s successful effort to repeal the federal luxury tax. However, AJC was inactive until industry executives at JA’s Call to Action Forum last year realized the industry had to strengthen its presence and image in Washington. They decided to reactivate the AJC and broaden its purpose.

“In the past, we got together only when there was a crisis,” said Matthew A. Runci, executive director of JA. “A sustained, coordinated, industrywide government affairs program like this is long overdue.”

MJSA President James F. Marquart added: “Having all the major industry associations together gives us the opportunity to develop a strong and cohesive industry response to each of these major issues. We can win a lot of fights when we do it together.”

The same day the new organization was unveiled, members met with their respective senators and representatives, or their staffs, to present the industry’s views on the six major issues. They learned from Sen. Alphonse D’Amato, R-N.Y., and other Washington insiders there is little chance of a national sales or value-added tax being enacted in the next two years.

But they said there’s a spreading view in Congress that the tax system should be reformed, and they fear there’s a “real danger” – as one analyst told them – that demand for a broad-based consumption tax will grow. So it’s important for the industry to start building its clout in Congress now, the analyst said.

JEWELRY COMPANIES PLAN MERGERS

Four well-known jewelry manufacturing companies have announced merger plans. Two watchband manufacturers also are discussing that possibility.

The Colibri Group, Providence, R.I., has agreed to acquire certain assets of Krementz Jewelry and Shiman Religious Jewelry from Krementz & Co., Newark, N.J.

The two divisions produce Krementz’s 14k overlay, 18k electroplate and 14k religious jewelry. No purchase price was disclosed. Final staffing and location decisions haven’t been made, but all manufacturing operations will likely be centered at Colibri’s location in Providence by early 1998, says Frank Dallahan, executive vice president of Krementz.

Krementz, which made it intentions to sell the divisions known several months ago, will remain as a jewelry line operated by Colibri. Chairman Richard Krementz Jr., whose grandfather started the company 130 years ago, will continue operating Krementz Gemstones, which produces colored gemstone jewelry by designer Judy Evans.

Colibri is a large jewelry manufacturer making products with brands names that include Colibri, Van Dell, Dolan & Bullock and Linden Clocks.

Meanwhile, Michael Anthony Jewelers Inc., Mt. Vernon, N.Y., has signed a letter of intent to buy Andin International, New York City, which manufactures 14k and 18k gold jewelry. The acquisition of Andin International would create one of the world’s largest manufacturers of gold jewelry. Michael Anthony reported $150 million in sales in 1996 while Andin reported $130 million.

Michael Anthony would pay $70 million for Andin, which would operate under its own name following the purchase. The purchase would include $10 million in cash, assumption of Andin’s $45 million debt and $10 million in stock.

Anthony Paolercio, chairman and chief executive of Michael Anthony, said the purchase would be like “the joining of two families” and that it would benefit both companies as technologies and distribution channels are coordinated for the best of both brands. He said Andin’s strength as the largest maker of gold electroform jewelry is a nice complement to his own company’s wide-ranging 14k gold jewelry and watch business. He also noted Andin’s gem and diamond product lines, and its manufacturing plants in the Dominican Republic and Israel, would offer opportunities for Michael Anthony customers.

Ofer Azrielant and Aya Azrielant, founders and owners of Andin, would continue in the company’s management. Ofer Azrielant would become president and co-chairman of the combined company; Aya Azrielant’s own design line of gold jewelry would still bear her name.

Also, Hirsch USA Inc., a watch strap and bracelet manufacturer in West Caldwell, N.J., the domestic arm of Austrian-based Hirsch Armbander, is negotiating to acquire watchband manufacturer Speidel, a division of Textron Inc. in Providence. William Jahnke, president of Speidel, confirmed that talks were under way, but could not provide details. Michael Oberman, president of Hirsch USA, said only that his firm has expressed interest in Speidel.

JA, JIC ANNOUNCE STRATEGIC ALLIANCE

Jewelers of America and the Jewelry Information Center have formed a strategic alliance to make consumer publicity for jewelry more efficient and widespread. JIC will take over all consumer publicity functions now accomplished by both organizations.

In turn, Matthew Runci, executive director of JA, announced that JA would pledge annual membership dues of $200,000 to JIC’s membership drive, which is aimed at raising $1 million by the year 2000 for the center’s jewelry publicity program.

According to Lynn Ramsey, president and chief executive officer of JIC, the alliance resulted from 11/2 years of discussion between the two associations. “We decided the best way to represent publicity was to merge what the two associations were doing, which was somewhat redundant,” she says. The alliance becomes effective Aug. 1.

NECKLACES PACE DIAMOND JEWELRY SALES GROWTH

Diamond necklaces helped U.S. retailers to a record year in diamond jewelry sales in 1996, says the Diamond Information Center of J. Walter Thompson, which manages the De Beers account.

And the momentum continues, with jewelers in a JWT survey expecting sales to rise 6%-10% this year.

For all of 1997, diamond necklace sales grew 32% in units and 29% in value among married women, says Jim Haag, senior partner at JWT. Overall, diamond jewelry sales rose 7% to $17.9 billion last year.

“In introducing the Diamond Solitaire Necklace as a new product category last year, we positioned it as the next classic – a versatile, wearable item for every woman,” says Haag. “It proved to be a leading Christmas item for many retailers.”

De Beers promotes the necklace as the centerpiece of its Solitaire campaign, says Haag, “so we see another year of robust sales.”

Diamond earring sales also rose sharply (11%) as a result of the Solitaire campaign. Haag says this proves consumers understand the size and quality message that a single, better-quality diamond is the most desirable.

The JWT survey also shows traditional retail jewelers holding a market share of 54% of women’s diamond jewelry sales by unit and 60% by value. This indicates that jewelers are getting the higher-ticket sales. Traditional department stores and discounters showed high growth, increasing their market share to 22% by value.

Women’s self-purchase remains a relatively small part of the market: 19% among married women and 30% among singles by unit.

The diamond engagement ring saw an average price increase of 13% to $1,822 last year.

JVC FORCES UNDERKARATERS IN MALL TO STOP

The Jewelers Vigilance Committee has forced retailers in scores of U.S. malls to stop selling underkarated gold jewelry and is now aiming at the suppliers.

“Project Mall” used private investigators to buy hundreds of pieces of 10k gold jewelry at over 100 stores and kiosks in 74 malls in 13 states. Most of the jewelry was found to be underkarated by the assay office of London’s Goldsmith Hall. Many were not trademarked. Selling underkarated and/or non-trademarked jewelry violates the National Gold & Silver Marking Act, which imposes criminal and civil penalties on violators.

Joel Windman, executive director and general counsel of JVC, notified the retailers and warned them to stop selling underkarated jewelry. Recent anonymous visits to the same stores found more than 80% of the retailers complied.

JVC also informed the mall owners and managers, whose codes allow them to expel retailers who violate the law; the states’ attorneys general; and licensers who own the rights to the jewelry images, many of which were counterfeited. Those licensers, who have endorsed JVC’s actions, include such powerful corporations as Warner Bros., Disney Co., Nike, the National Football League,

NBA Properties and the National Hockey League.

Their support was especially important, said JVC, because “these are people with deep pockets to back up this investigation.”

Suppliers warned

At least five major manufacturers of the underkarated jewelry, all based in the U.S., were implicated, based on information provided by the retailers. JVC officials warned them to comply with the law but declined to make their names public. Legal action against those who don’t is possible, says JVC.

The project was prompted by complaints from some large mall retailers – including Piercing Pagoda – about other retailers who sold 10k jewelry at significant discount prices, said Michael W. Paolercio of Michael Anthony Jewelers, a member of the JVC board and chairman of the project. “There wasn’t a level playing field because some people were illegally selling underkarated jewelry at prices less than wholesale, putting legitimate businesspeople at a disadvantage,” he said.

JVC is expanding its monitoring to include other gold jewelry products and classifications and diamond misrepresentation, says Abe Shainberg, JVC’s executive vice president of operations.

History’s ‘Biggest Mining Fraud’

Investors are still sorting through the lies and the truths surrounding the Busang gold properties in East Kalimantan, Indonesia, but one thing’s for sure: the world’s biggest gold deposit is simply not there.

Dubbed “history’s biggest mining fraud” by the Financial Times of London, the promise of an exceptional gold find that boosted Bre-X Minerals Ltd. from a small Canadian company to a $6.8 billion value has proven to be false.

Strathcona Minerals Services Ltd., an independent consultant in Toronto, Ontario, Canada, released a report verifying the recent doubts of explorers at the Busang site. “We very much regret having to express the firm opinion that an economic gold deposit has not been identified in the Southeast Zone of the Busang property and is unlikely to be,” the report said.

Bre-X officially estimated the Busang gold deposit contained 71 million ounces of gold but said in February 1996 the deposit could be as big as 200 million ounces. The company had the financial backing of Indonesian private investors, the Indonesian government and Freeport-McMoRan Copper and Gold Inc., a Canadian company that planned to develop and operate a mine at the Busang properties.

The first hint that things were not as they seemed occurred when explorers from Freeport found “insignificant” amounts of gold they tested on the site in March. Shortly afterward, on his way to meet with Freeport representatives to discuss the findings, Bre-X Chairman Michael de Guzman died, allegedly throwing himself from a helicopter.

Strathcona verified Freeport’s findings and alleged that the original samples were salted, a mining term for spiking the samples with gold particles to throw off the results. Bre-X used a laboratory in Balikpapan, Indonesia, that may have assisted in the deception, according to the report.

Strathcona recommended authorities investigate the fraudulent activities and halt all exploration work in the region. “The magnitude of the tampering with core samples that we believe has occurred and resulting falsification of assay values at Busang is of a scale and over a period of time and with a precision that, to our knowledge, is without precedent in the history of mining anywhere in the world,” wrote G. Farquharson of Strathcona in the report’s cover letter.

In May the Indonesian government banned Bre-X and affiliated companies from the country and suspended mining at Busang and five directors resigned from the company’s board. Bre-X announced May 8 it had received court protection under the Companies Creditors Arrangement Act and the Alberta and Canadian Business Corporation Acts to protect its assets.

The investigation continued at press time.

THREE GROUPS UNVEIL INTERNET SERVICES

The jeweler’s slice of the Internet keeps growing. The Polygon Network, the Hong Kong Jewelry Manufacturers’ Association and the IDP/JCK International Publishing Group have all announced new Internet ventures or services.

Polygon introduced Virtual Boutiques™, which enable jewelry suppliers to deliver promotional material about their products and services to thousands of jewelers’ Web sites instantly. They also give jewelers control over what and how much supplier material they carry on their Web sites. The service is free to retailers and costs about $3,000 for manufacturers.

Meanwhile, the Hong Kong Jewelry Manufacturers’ Association, has unveiled its Hong Kong Jewelry On-Line Web site (http://www.jewelry.org.hk). Users can order from HKJMA’s more-than-200 members by fax or e-mail. The site also includes a search engine that quickly sources products by typing in a jewelry keyword or selecting one from a pulldown menu, a “New Design Showcase” with up-to-date Hong Kong jewelry designs and relevant information about the Hong Kong jewelry industry.

The IDP/JCK Group announced a new Web site that enables retailers to view Israeli suppliers’ products and is supported by Israel’s major industry associations. “Israeli Diamond Jewelry [http://idj.net] is a super Web site designed to operate as the jeweler’s Internet gateway to the diamond, jewelry and colored gemstone industries in Israel,” says Isaac Arikha, co-owner of IDP.

FRIEDMANS REACH AGREEMENT

The Friedman’s Jewelers trade name has been sold by A.A. Friedman Co. to Friedman’s Inc., the third-largest retail jeweler in the U.S., for $7 million. Both companies had previously claimed legal ownership of the name.

A.A. Friedman, based in Augusta, Ga., will change its corporate name and 110 of its 127 stores to Marks & Morgan by Sept. 30. (It already operates 17 others as “Marks & Morgan.”) Store locations, personnel and ownership will not change.

Friedman’s Inc., based in Savannah, Ga., has 350 fine jewelry stores in 21 states, most in the Southeast, with 224 in power strips and the rest in regional malls.

Both sides praised the decision and its liberating effect on their growth plans. “This decision gives us a tremendous opportunity to define and promote the Marks & Morgan image while building on the strong tradition of our company,’ says Robert W. Hatcher, president of A.A. Friedman Co.

For Friedman’s Inc., the settlement “completely resolves the historical complexity of common trade names” and will “accelerate the overall pace” of its growth by enabling it to grow “in previously inaccessible locations in the next 20 months,” says Chairman Bradley J. Stinn.

The agreement ends almost three years of legal dispute between the two Southeast companies over use of the name. Both trace their origin to Friedman’s Jewelers, founded in the 1920s by two brothers who later divided the company and kept the name but agreed not to compete in the other’s markets.

In 1990, heirs sold the Savannah company to the current operators of Friedman’s Inc., whose rapid growth in the Southeast led A.A. Friedman to sue for trademark infringement in October 1994. Friedman’s Inc. countersued in February 1995, claiming prior rights to the name.

While each claimed legal ownership of the name, its dual use was causing confusion and limiting expansion. “So this is a reasonable solution from a business point of view,” says Joe Scott, general counsel for A.A. Friedman. “It puts the confusion behind us, continues to reflect the family ownership [The “Marks” in Marks & Morgan comes from Betty Marks, the company’s late chairman, and Susan Morgan, her daughter and current chairman] and it removes restrictions on growth.”

COLOMBIA POSTPONES EMERALD CONGRESS

The Colombian government has postponed a World Emerald Congress that was scheduled for later this month.

Sources lay the blame on a splintering of opinion among Congress organizers that culminated in the ousting of Dr. Antonio Sanchez of Mineralco, one of the organizers, and the withdrawal of Circulo Colombiano de Joyerias, a jewelers association that also was among the organizers.

The postponement was announced by Rodrigo Villamizar, the country’s minister of mines and energy. No new date had been set at press time.

The Colombian government now hopes to strengthen its position in world emerald markets by participating in the 1997 International Colored Gemstone Association’s International Congress this month in Belo Horizonte, Brazil.

The Colombians’ aim is to inform the trade of its plans regarding emeralds and to initiate promotions for the World Emerald Congress. Speakers at the ICA Congress will include Jose Antonia Duran, president of Fedesmeraldas, whose topic is “The Present and Future Plans of the Colombian Emerald Industry,” and German Bernal, general manager of Tecminas Ltd., who will present “Industrial Technological Park for the Emerald Industry in Colombia.”

“Colombia is entering a new age in the emerald sector,” says Villamizar. “We are working to place Colombia as a world leader in the emerald business by establishing the first worldwide emerald bourse as well as a manufacturing free-trade zone in Colombia.”

SIGNET GROUP PROPOSES CAPITAL RESTRUCTURING

The London-based Signet Group – one of the world’s largest jewelers and parent of Sterling Inc., the second-largest U.S. chain jeweler – wants to covert all classes of its preference shares into about 1.4 million new ordinary shares.

The move, part of a reorganization of the debt-burdened company’s complex capital structure, would erase a $240 million deficit, including some $200 in unpaid dividends on the preference shares. In addition, all shareholders would hold the same class of shares. The move is necessary, says the company, because Signet’s capital structure is unbalanced, with a disproportionate amount of preference share capital.

Shareholders were scheduled to vote on the proposal in late June. If approved, says the company, the change would “significantly improve the overall perception [of Signet], increase staff morale and assist [Signet] in recruiting and retaining high-calibre management and employees.”