Professional Jeweler Archive: EC OKs De Beers/LVMH

October 2001


EC OKs De Beers/LVMH

But regulators and some in the industry find fault with De Beers' Supplier of Choice program

The European Commission approved De Beers’ proposed joint venture with LVMH Möet Hennessey Louis Vuitton. The new company, which will be headquartered in London, gives De Beers its first direct access to the retail luxury market. Officials are now deciding strategy and store locations, which analysts say will be luxury boutiques using the De Beers name. Myron Ullman, group managing director of LVMH, will be chairman and Alain Lorenzo, also of LVMH, will be CEO.

De Beers’ next hurdle is obtaining EC approval of its Supplier of Choice program. The program requires De Beers clients to create marketing plans that move them closer to consumer markets, with the intent of raising demand through increased branding and advertising. But the EC, which examines whether company policies are monopolistic, is hearing complaints that Supplier of Choice will squash smaller companies.

WFDB Protest

The World Federation of Diamond Bourses says the program will doom the future of small and midsize diamond dealers, as De Beers clients develop direct relationships with retailers and consumers. Smaller polished diamond middlemen help maintain a balance of stocks in the market and perform functions such as financing that De Beers clients alone could not fulfill, the federation says.

WFDB Vice President Shmuel Schnitzer says retailers should map out their own strategies to deal with changes ahead. “Buy your diamonds where it is most worthwhile, by price, variety and quality. Bigger is not necessarily better. Be open to suppliers who offer the best deal,” he says.

A dealer requesting anonymity went further: “Retailers in the U.S. don’t realize how good they have it with such a quantity of dealers to choose from. They receive competitive prices, credit and service. My feeling is that down the road, De Beers may [try to] divvy-up certain retailers to certain [clients]. Then retailers too will be dependent on De Beers.” His advice: “Keep a distance from De Beers and its clients looking to take your connection with the consumer and fold it into their business.”

Not all dealers feel the same way. “De Beers is simply doing what it has to do in a changing global environment,” says one. “It’s what any business operative has to do today: Better understand the needs and wants of his customers. Shortening the pipeline is going to make things much more reactive and efficient, and the push to brand diamonds will lead to an expansion of diamond sales as a luxury category.”

De Beers spokesman Andrew Lamont says Supplier of Choice is not as draconian as some describe it. “Our challenge is understanding where the EC has difficulties with Supplier of Choice. The discussions are ongoing, and we have made it clear we are open to discourse at any time,” he says. “The way the world conducts business demands that we improve efficiencies and change the way the industry markets diamonds. De Beers is committed to transforming itself.”

– by Robert Weldon, G.G.

De Beers designed this model – called spaghetti junction – to explain the antiquated method of getting diamonds through the pipeline. Supplier of Choice would make distribution more efficient by eliminating many intermediate steps. Small to midsize dealers fear they will be eliminated.

Copyright © 2001 by Bond Communications