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Antwerp’s Axed Sightholders Speak Out

Dec 9, 2003 11:13 AM   By Sheryl Katz
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De Beers newly implemented SOC has serious implications for the Antwerp market.

Antwerp was shocked when De Beers axed some of its most loyal customers earlier this year. Although De Beers stated that “those not selected under Supplier of Choice (SOC) should not interpret this as a criticism of their business,” most found it had damaged their prestige somewhat and are undecided as to whether or not they will reapply for the position in the future.

Reactions

Daniel Horowitz, IDH Diamonds managing director, made headlines as the first former sightholder to file a complaint against SOC with the European Commission (EC). Horowitz does not expect any repercussions should he wish to reapply for a sight: “My understanding is that the aptitude to file complaints is not part of the criteria mentioned in SOC.” He adds that most sightholders cut from the Diamond Trading Company (DTC) list are still seeking to secure a regular supply of rough: “As De Beers controls a very large portion of world supply, it remains an almost inescapable option.”

Former sightholder Kurt Einhorn, owner of Kurt Einhorn diamond manufacturers in Antwerp, will not fight De Beers decision: “For 43 years I ate the bread of De Beers and I have no intention of spitting in their soup. The ideas of SOC aren’t bad, but the execution brings victims and I am one of them, so I cannot applaud it.”

Einhorn was not prepared to pursue downstream initiatives with only two or three main customers as the DTC suggested: “I prefer 200 to 300 U.S. jewelers as it’s less credit risk. If something happens and one of the big companies goes bust, “it’s good-bye, Charlie!”

Stephane Fischler, Fischler Diamonds chief executive officer, secretary general of the International Diamond Manufacturers Association (IDMA) and a sightholder since the 1960s, was shocked that he lost his sight: “Their selection system was not transparent and we have to trust it was objective.”

Fischler manufactures 2/3 grainers up to larger sizes and supplies wholesalers and retailers. The company has a high-end jewelry line and an office in the U.S., selling mainly in Antwerp and New York. In Fischler’s opinion, the company was downstreaming. Although unsure yet as to whether or not to reapply, the firm will not file a complaint with the EC, in terms of challenging the issue, but they “leave their options open.”

Isaac Mostovicz, CEO of S. Muller & Sons, manufactures better goods in mostly 50 points and up. He was a DTC client for 38 years and was also surprised that his firm was axed. He has no problem sourcing rough, although the DTC supply channel was very important to him. For this reason, Mostovicz will probably fight for his sight: “We haven’t taken a specific decision on how, but we have a business and reputation to defend. We have to see that our clients are not harmed by the fact that we’re out and we will find solutions to keep supplying them. The EC is always a possibility if it will help us increase our position in the market.”

SOC and Rough Supplies

Former sightholders are now forced to compete for goods on the open market so as not to lose customers. This puts smaller competitors at risk. The question is how SOC will affect the Antwerp market and future rough supplies?

Horowitz says that SOC itself does not affect the overall supply of rough; however, his conception of the secondary market is one in which producers agree to lose track of what established diamantaires are doing with the rough they purchase. In this sense, SOC does reduce the availability of rough on the market. Nevertheless, he believes that market forces always prevail in the long run: “If the SOC model is not coherent with these forces, then the market will eventually dispose of it.”

According to Einhorn, the problem of relying on “outside” goods is that there is no regular supply. Nevertheless, he was lucky that the firm only relied on De Beers for one third of its supplies. The company sources its rough on the Antwerp market and abroad and has agreements with big jewelry retailers in the U.S.

Fischler also never depended on the DTC for all his supplies; however, losing his allocation will affect his supply of 5+ caraters, which are in short supply on the market. He is close to some reliable rough dealers inside and outside Antwerp, although the spate of bankruptcies and high bank debt has shaken the market.

Antwerp and SOC

Despite De Beers actions, there is remarkable faith in Antwerp’s ability to withstand setbacks, as it has done in the past with the crucial support of the Diamond High Council (HRD) and government. Antwerp’s position as a trading center is not yet threatened.

According to Horowitz, Antwerp’s position is not determined by the resolve of any specific player: “It is a combination of multiple assets — such as location, banking system, political stability, cooperative authorities and diamantaires’ skills — that makes Antwerp so attractive to primary producers.”

Einhorn, who is on the HRD board of directors and president of the Rough Dealers Association, also believes in the power of the HRD to keep the market on track by pushing it in the direction of jewelry manufacturing. He says the HRD is trying to mobilize the government to adapt value-added tax (VAT) laws to bring the jewelry industry into the same system as rough and polished diamonds, promoting the work force in Belgium.

According to Fischler, people underestimate polished trading in a center like Antwerp. Even large multinationals sell an important part of their polished in Antwerp. Those companies like to believe they are totally downstream, but it is not realistic for them to tie up all their goods in programs.

Mostovicz warns that SOC has confused the Antwerp market. More and more dealers are being forced to go downstream and are “shooting in all directions and spending lots of money, while only 5 percent of brands are surviving.” In the meantime, the market is shrinking, margins are eroding and bank debts are enormous. He advises Antwerp to perceive diamonds as a luxury mass market item and warns that professional mistakes could destroy the market if consumers get the wrong image of diamond jewelry.

On SOC

De Beers has shown a new face — gone are the traditional loyalties and familial feelings. Former sightholders complain that now computers are making De Beers decisions without an understanding of branding and its applicability to diamonds.

“In the past, De Beers had to do with people, with family,” says Einhorn. “The new generation only knows business from the book. I’m a careful soul and don’t like computers making decisions.”

Fischler is concerned that while his colleagues spend millions on branding, consumers may not be prepared to pay the premiums for a branded diamond as it is not distinguishable from a generic diamond: “This doesn’t matter to De Beers. They want noise and they want sightholders to pay, even if a few are lost along the way. As long as SOC is for growing the market, we’re all for it, but if it aims to block the free market and limit access to rough, we will have to challenge it!”

Mostovicz is adamant that the DTC initiated SOC to increase revenue and equity for its shareholders. “SOC caused sightholders to play a political game to preserve their sight rather than improve their marketing activities,” Mostovicz comments.

“De Beers has a smaller rough supply, but is looking to increase jewelry sales in the market. They will do this by increasing rough prices for manufacturers. De Beers is an excellent explorer, rough manufacturer and sorter, but when they start to move into retail marketing, they don’t have the expertise. What they tell their clients is from a textbook.”

Peter Meeus, HRD managing director, is a great advocate of the principles of SOC and is astonished at how quickly the industry caught on to the branding concept. Nevertheless, he says SOC is affecting Antwerp’s smaller players: “I think there should always be a place for them, but I am convinced, along with De Beers, that they have to find their niche.” He feels, however, that De Beers could have helped its clients find that niche, given them a chance and been more lenient. “I would have preferred De Beers to have clearly told some of these sightholders two

years ago that they were not fitting into the new strategy,” he says, “instead of giving them an unrealistic illusion that they stood a chance, when, in fact, they never did!”
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Tags: Belgium, Consumers, De Beers, DTC, Government, HRD, Jewelry, Manufacturing, Sightholders
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