De Beers/LVMH Proposal Cleared by EU

July 25, 2001

De Beers/LVMH Proposal Cleared by EU

The European Commission cleared De Beers' proposed joint venture with retailer LVMH Moet Hennessey Louis Vuitton today, though its Supplier of Choice program is faring less well.

Joint Venture
The joint venture with LVMH will, for the first time, provide De Beers with sustained access to the retail luxury market for diamonds. De Beers says the joint venture, an as-yet-unnamed independent jewelry company, will be headquartered in London under the chairmanship of Myron Ullman, presently the group managing director of LVMH. Alain Lorenzo, also os LVMH, will be the company's CEO.

With the EU endorsement, De Beers says it is embarking on the next phase of determining strategy and targeting store locations. Last year, De Beers reserved its name for use at the retail level to capitalize on the worldwide consumer recognition of its name and its connection to diamonds. De Beers Group, which controls 60-65% of the world's diamond supply, markets diamonds through selected sightholders around the world through the Diamond Trading Co. Since the announcement of the joint venture proposal last year, De Beers has maintained no favoritism would be granted to the new independent retail company, saying it will have to compete with other diamond buyers around the world to source its goods.

Supplier of Choice
The EC did report reservations over De Beers' proposed Supplier of Choice strategy to increase demand for diamonds. The endorsement of the De Beers/LVMH proposal coincided with a Statement of Objections by the EU to the Supplier of Choice initiative.

"The discussions are ongoing and we have made clear that we are open to discourse at any time. Our challenge is in understanding where the EU has difficulties with Supplier of Choice," says Andrew Lamont, a De Beers spokesman. "Supplier of Choice is about raising demand for diamonds and leaving behind the antiquated mode of De Beers being a custodian for the diamond industry. Supplier of Choice is about the diamond market raising its profile and competing with other luxury products. We believe that in so doing, Supplier of Choice will help raise all boats."

Supplier of Choice is designed to make diamond distribution more efficient through a closer relationship between DTC and its sightholders. The strategy includes training, marketing support, market research and a greater understanding of consumer needs.

The World Federation of Diamond Bourses remains one of Supplier of Choice's fiercest critics. Earlier this month, a delegation of WFDB officials met with De Beers officials to voice concern that Supplier of Choice would doom the future of diamonds dealers with small- to medium-sized operations. (WFDB is composed of about 20,000 such small- and medium-sized companies worldwide). WFDB officials say dealers of smaller, polished goods help maintain a balance of diamond stocks in the market. In addition, WFDB points out these dealers perform functions such as financing that could not be done by sightholders alone if the sightholders became the last link to retailers.

De Beers remains adamant Supplier of Choice is good for the industry and says dealers with small- and medium-sized opertations will not be disadvantaged but these dealers must understand the diamond market must change and position itself to compete with other luxury products.

- by Robert Weldon, G.G.