Oppenheimer also founded, in 1917, South African mining giant Anglo-American PLC and bequeathed to his posterity a large percentage of each company's shares, which were fastidiously built upon in the succeeding decades. To date, the two companies are linked in a labyrinth of secretive banking red tape, which is the result of 84 years of economic conquest. As a recent article in Fortune pointed out, "Rockefeller's Standard Oil and Gates' Microsoft have briefly enjoyed this kind of dominance, but the length of the De Beers supremacy is unprecedented" (Nicholas Stein, 19 February 2001). Together, De Beers and Anglo-American form perhaps the most recognizable face to South African business and share a combined market capitalization of almost US$ 50 billion.
But even the mightiest empires fall into the sea, eventually. New kids on the diamond block are thumbing their noses at Old Man DB and getting rich doing it. Throughout the 90s, new diamond mines opened in Russia, Australia and Canada, which have either failed to play ball with De Beers or have sold their diamonds to the company at grossly inflated prices. Additionally, the advent of online buying has meant that the average Joe who wants a decent half carat ring for his fiancée can hop on the Internet and buy from a supplier in Russia, Canada or even China, foregoing De Beers altogether. As a result, throughout the last decade, De Beers' market share has fallen from 85 percent to 65 percent and it is now stuck with US$5 billion worth of hoarded diamonds while its competitors at Diamonds-R-Us.Com -- who have no back stock -- are enjoying a roaring marketplace for diamonds thanks to the (until recent) bull market. It was during these troubling times that many De Beers investors defected.
To make matters worse for De Beers, in 1994, the US opened up an indictment against the company for price fixing on industrial diamonds. Therefore, De Beers cannot deal directly with the world's largest diamond market (US consumers buy close to half of all the world's diamonds), and De Beers' directors, including current chairman Nicholas "Nicky" Oppenheimer, can't set foot in the country for fear of being arrested. And already the antitrust powers that be in the EU are sharpening their claws. Years of unquestioned supremacy in a multi-billion dollar industry had turned De Beers into a bloated Vatican with a corporate culture of omerta that would make Don Corleone blink. The time had come by the end of the twentieth century for De Beers to abandon its old ways.
Birth of a Brand
For the last few decades, De Beers, always happy to stay clear of the public eye, has focused on selling the concept of buying diamonds in general rather than the idea of buying De Beers diamonds in particular. To this end, it spearheaded the familiar "Diamonds are Forever" campaign that has been tremendously successful both in the US and Europe. Its advertising philosophy has been supported by De Beers' belief that once a diamond is bought in the free world, chances are almost a hundred percent that it will come from one of its fiefdoms. The advent of upstart, renegade diamond mines in Russia and Canada throughout the nineties changed all that, and De Beers has been forced to step out of the shadows and cease being the world's main supplier of diamonds and begin being what it calls the supplier of choice: the one true religion in a strip mall of false prophets. To do this, De Beers has been forced to embrace hardcore branding.
Its first initiative has been to create its own swanky hallmark, called the Forevermark. In January of this year, De Beers announced a partnership with French luxury goods giant LVMH to develop a real strategy for the De Beers brand name in Europe and, later, in the US. Roger Van Eeghan, spokesman for De Beers in London told us that, as of yet, they have not announced a new head to this marketing organization, and at this point, it would be "extremely difficult to tell you what our strategy will be in terms of promoting the De Beers brand name in the future."
One thing is almost certain, De Beers will be making a concerted effort to link its name publicly with the luxury of LVMH and will be putting investment into marketing strategies that will see its diamonds enjoy an association with the super rich and the ultra-luxurious. De Beers hopes that its marketing will prompt customers around the world to differentiate between De Beer's Forevermark diamonds and the rocks you can pick up online, just as Louis Vuitton has made its luggage stand out from, say, Samsonite.
De Beers is also eager to clean up its corporate image. This means appealing to not only the all-important American consumer but also to the American judicial system. The New York Times points out that it is crucial De Beers convince federal investigators that it no long runs contrary to federal antitrust laws. "Until it does," the Times posited, "De Beers cannot set up American operations to fully exploit its brand name in the world's biggest market for polished stones." This means that the revamped De Beers brand name will have its testing grounds in advertising in Europe and Asia, though US consumers will still be able to get diamonds with the Forevermark through its siteholders. Meanwhile, De Beers acolytes will make yearly pilgrimages to the States in an attempt to have the fatwa lifted even as it sends its emissaries into the US under LVMH banners.
De Beers is adroitly handling the other threat to the integrity of its reputation and that of diamonds as a whole: the specter of the so called "blood diamonds" or "conflict diamonds." These are stones from war-torn areas in Central Africa that have appeared on the market sold by insurgent forces to buy weapons. Since nobody likes the idea of the proceeds from their jewelry purchases going to support death and destruction, De Beers has seized the initiative to promise consumers and merchants "conflict free diamonds." This is a sharp turn-around in marketing philosophy from a company that, in 1988, was vilified in the Western press for selling diamonds from the Angolan government as well as from Angolan rebels, thus helping to arm both sides in one of Africa's bloodiest wars. However, to paraphrase Bob Dylan, "things have changed."
In December of last year, the South African General assembly put forth a resolution to the United Nations to create a world-recognized certification that labels diamonds "conflict free." Neighboring De Beers-controlled, diamond-producing countries Namibia and Botswana backed the resolution. Additionally, De Beers now promises that any sightholder (preferred De Beers buyers) who is caught handling conflict diamonds would be struck from their list. Nicky Oppenheimer himself was quoted in the New York Times as being especially eager to drive out conflict diamonds from the market as they only represent three percent of the world's production, but tarnish the bulk of the diamonds that come from "good areas" (22 August 2000). By guaranteeing to consumers that diamonds bearing the Forevermark were not sold to buy AK-47s to prolong a desperate conflict in some steaming jungle, De Beers have managed to make a virtue of the diamond world's biggest shame. Whether or not people will accept De Beers' deathbed conversion before its brand name reincarnation remains to be seen, but an article in the Fall 1999 Chicago Graduate School of Business Capital Ideas newsletter cites research confirming that consumers are, more than ever, "extremely value conscious and eager to patronize businesses that share their own values and ethics."
De Beers also plans to capitalize on its presence here in South Africa. Tom Tweedy, South African media communications manager for De Beers in Johannesburg, told us that that in the coming months De Beers hopes to break through the western business world's traditional "African pessimism" by being a modern company African businesspeople can point to as an example of the incredible success possible on a continent most often linked to dismal failure and corruption. Successful implementation of this promotion would make De Beers a very important player in the much-vaunted African Renaissance and possibly wipe away some of its past sins. Africa, after all, is a much more romantic origin for a diamond than a frozen steppe in Russia or beneath the frost of Canadian tundra.
De Beers recently posted its most in-depth marketing and shareholders' report on its website ever for the benefit of its shareholders -- a good portion of whom reside in the US (www.debeersgroup.com). These downloadable reports, Tweedy claims, "strip open De Beers," and offer the most comprehensive view of the workings and profits of the modern company that has ever been published. It is, possibly, the first step of De Beers' corporate makeover. Tweedy went on to say that in the future, De Beers plans to close ranks with hipper, younger, multi-billion dollar enterprises like "Virgin and Turner." He also arranged for brandchannel to send, via email, the following questions to De Beers' managing director Gary Ralfe in London to be answered in writing.
BC: What, in your words, should consumers think about when they think of the De Beers name a year from now?
GR: The De Beers Group's core activities will remain rough diamond mining and marketing. In a year from now we would hope to see a further drive for efficiency in our rough diamond mining and marketing activities. As far as the De Beers brand name is concerned, we believe that there is equity in the De Beers name and this is why we have formed this important strategic alliance with the LVMH Group, the world's leading brand exponents. The strategic alliance, which is a 50:50 partnership with LVMH, will see LVMH managing the De Beers brand name in the retail environment around the world. When the new venture was first announced on 15 January 2001, Bernard Arnault, chairman of LVMH, said that he hoped to see branded retail outlets in the capital cities of the world, including New York, within the next 12-18 months.
BC: You were quoted in the New York Times as saying, "De Beers as a company could not afford to even indirectly come anywhere near diamonds, which can be termed conflict diamonds. Like Caesar's wife, we have to be above reproach." How do you plan on ensuring De Beers stays "above reproach"?
GR: As our Chairman, Nicky Oppenheimer, says in his 2000 Chairman's statement, it is appalling that a product, which is the ultimate symbol of enduring love and purity and all that is best in mankind, should be linked in any way with the obscenity of war and the suffering of the innocent. De Beers, having ensured that it could confidently describe the diamonds that it sells as conflict free, has also used its authority and expertise to urge and encourage the rest of the diamond industry to follow suit.
Its efforts have not gone unrecognized. Addressing the World Economic Forum in Davos in January 2001, UN Secretary General, Kofi Annan urged private companies to act responsibly in ways that do not fuel the continuation of conflict. "De Beers has," he said, "set an example with its response to criticism of the diamond trade in Africa and its efforts to ensure that traders and consumers of diamonds will no longer unwittingly help to finance warlords."
Throughout 2000, De Beers has engaged with the United Nations, the US government, the British Foreign office, governments of southern African non-governmental organizations, and leaders of the international diamond industry to pioneer and promote a comprehensive suite of solutions. Some of these, however, particularly those which call for a certificate of origin for rough diamond imports, require legislative support from all producing and importing countries if they are to be effective in driving conflict diamonds out of the legitimate trade.
It is important to remember, however, that conflict diamonds still represent less than 3 percent of the world diamond trade. For three of the world's major producers -- all developing southern African countries -- income from the orderly and well-regulated production of diamonds remains central to their economic growth and the wellbeing of their people.
BC: Americans will be reading this piece. They are most concerned over the legal problems De Beers have had with US anti-trust regulators, including the outstanding 1994 indictment De Beers has been served for violating federal anti-trust laws. To date, De Beers directors cannot set foot in the US because of this. Obviously, to sell to this tremendous segment of the polished diamond industry (50 percent of the market), De Beers must have a strategy to set things aright. Could you tell us something about that strategy?
GR: De Beers wishes to be on good terms with all governments irrespective of whether it operates in the country or not. It would like to resolve its difficulties with the US Department of Justice, particularly regarding the case against De Beers' subsidiary, De Beers Industrial Diamond Division. As you may be aware, the DoJ served an indictment against General Electric and De Beers Industrial Diamond Division on the charge of price fixing in 1994. This indictment was thrown out by the local courts and, as a result, the case no longer stands against General Electric. The case however against De Beers Industrial Diamond Division stands as De Beers never contested the allegation as it has no legal status in the US. De Beers would like to see this outstanding indictment set aside in the same way as it has been set aside against General Electric.
De Beers is however realistic about its position relative to the laws of America. As you know De Beers' own mines produce some 44 percent of the world's rough diamond production and, with its contractual arrangements with Russia and Canada markets, approximately two-thirds of world production, which clearly brings De Beers outside of US competition laws. This is something we accept and believe would be unlikely to change.
BC: In a Fortune article entitled "The De Beers Story" by Nicholas Stein, you were quoted thus: "I don't want diamonds to be discounted. I abhor it. What is tantalizing is that at the luxury end -- the famous blue box of Tiffany's -- there are brands getting the margins and markups enjoyed in the luxury goods business as a whole. We want to see stores pushing the preciousness of diamonds rather than treating them as a commodity you can discount." This is an interesting statement; how do you plan on making this happen?
GR: A successful De Beers brand competing with other brands in the luxury goods sector in say five to ten years time would be a very satisfactory outcome to our brand strategy. What we are seeking is a competitive brand environment and it is from the action of competing brands that we would expect to see increased marketing spent and greater premiums in relation to diamond prices; in the same way that a rising tide raises all ships.
BC: Have there been any recent developments at De Beers, from a branding perspective, that our readers ought to be aware of?