De Beers Changes Focus from Supply to Demand

July 12, 2000

De Beers Changes Focus from Supply to Demand

In an expected announcement, De Beers said today it is abandoning its role as custodian of the diamond market and focusing on boosting global demand for diamonds.

De Beers is beginning a major overhaul of its business to reposition itself as the "supplier of choice." As part of the change, De Beers will introduce formal contracts called policy statements for its 125 sightholders beginning in July 2001. Those who distribute and market stones most efficiently will be rewarded with extra supply, Reuters reports. The company is also introducing a set of best-practice principles requiring buyers to guarantee they are not dealing in conflict diamonds.

As part of the change, De Beers will reduce its stockpile of diamonds. Company officials told Reuters the current stockpile, valued at $3.9 billion at the end of 1999, will be reduced to a six-month supply during 2001.

One of De Beers' goals is to increase the demand for diamonds through an industry-wide advertising campaign. Currently, the diamond industry spends a little more than 1% of sales on advertising compared to the 6%-10% the rest of the luxury goods industry spends. De Beers hopes increased advertising will help the diamond business catch up to the growth rates of other luxury goods businesses.

De Beers expects the rest of the industry to match the 4% of sales it spends on advertising. The payoff would be a better deal from De Beers, Gareth Penny, an executive director, tells Reuters. "The level of supply will be justified against evidence of meeting marketing criteria," he says. "This will migrate in time into a much more committed set of arrangements which will be individually tailored, reflecting marketing abilities."

- by Julia M. Duncan