Speaking at the De Beers’ Insight Session in the afternoon of May 29th at the JCK Las Vegas Show, Philippe Mellier, CEO of the De Beers Group, focussed firmly on “Building the Future”, as his speech was entitled.

“We recognise that there are challenges for the industry to address and we do not underestimate them,” he said. While challenges could not be ignored, Mellier felt that opportunities must also be kept in view.

“And whichever way we look at the industry, it’s undeniably set on a very strong global footing,” he said. “And within this worldwide picture the US has also been performing well. And as we look ahead, in the medium to long-term the industry has very favourable global prospects and the US market is set to play a central role in the industry’s bright future.”

Turning his attention to global industry performance, Mellier said that De Beers data showed that worldwide  diamond jewellery demand reached a new record high of $81bn in 2014. 

Turning to the US market he said: “One thing that I believe surprised many people is that the US, despite being easily the largest and the most mature consumer market, posted the strongest growth last year with 7% growth year on year. 

Mellier made a strong case for the future prospects of the US industry. “Historically, growth in demand for diamonds in the US has a close correlation with increases in GDP and, as we look ahead to the end of the decade, forecasts are for strong US GDP growth over this period,” he outlined. “Data also indicates that we can expect to see a significant uptick in US private consumption in this timeframe, as well as healthy growth in personal disposable income. In addition, diamonds’ share of the US consumer’s wallet has been increasing since 2009 and is forecast to continue to grow.”

There is a growth forecast in the base of affluent consumers in the US too. “Affluent consumers are expected to be the engines of US diamond jewellery demand growth and the number of US households with annual income over $100,000 is expected to increase by a Compound Annual Growth Rate of almost 5% through to 2019. This means that around 10 million additional affluent households will be created by 2019 in a country that currently has just 115 million households in total.” Added to this internal demand is that from international consumers. “Chinese tourists are well known to undertake a lot of their luxury spending overseas and forecasts are that, by 2019, the numbers of Chinese tourists visiting the US will see a Compound Annual Growth Rate of almost 20%,” Mellier informed the audience.

Referring to the potential in both the global and US market, Mellier cautioned  “potential is one thing and realising that potential is another”, saying that opportunities  can only be realised and  maximised “if we as an industry find the right ways to navigate the challenges that could prevent us from reaching the bright future that all of the data indicates”.

Enumerating the challenges confronting the diamond industry, he first focussed on “global production capacity in the face of growing demand”.

“Looking first at existing sources of supply, global rough diamond production forecasts from McKinsey indicate that existing rough diamond production will start to plateau and then decline gradually post 2020,”Mellier said.  He emphasised that De Beers was not only maximising the capacity at its existing mines “through a programme of major capital investment”, but  also continuing to invest in exploration. Other diamond producers are also “showing their faith in the industry’s future by developing sources of supply in locations as diverse as Russia, Canada and India,” he said.

Mellier pointed out “the increasing need for financial transparency”, as the   second key challenge. Post the financial crisis of 2008-09,  banks  “require much more ‘bankability’ from those to which they lend”, he stressed.

“In the diamond sector this has had major consequences,” he continued to say. “Since the financial crisis, the rates at which banks lend to diamantaires have increased significantly. This clearly puts a strain on the liquidity in the diamond pipeline, creating in imbalance in the flow of goods and reducing the efficiency of the value chain. At De Beers we have responded by introducing more rigorous financial strength and transparency requirements for our Global Sightholder Sales customers, thereby supporting the development of the diamond sector as a worthy recipient of bank funding.” 

The growing impact of technology was another challenge focussed on by Mellier. Technology was important as it enhanced efficiency and curtailed costs. He referred to De Beers’ recent investment in Synova, a technology business that develops water-guided laser cutting equipment that has the potential to deliver significant efficiency benefits in the cutting sector. “In an environment where the industry’s midstream is increasingly looking for ways to keep costs low and to improve efficiency, several diamond technology companies have developed new solutions that will help the industry sustain its success long into the future,” he said.

The fourth concern Mellier highlighted was consumer confidence. “The end consumer’s desire for diamonds is the only true source of value in the diamond industry, so their confidence in their purchases is vitally important to our future success,” he emphasised. Pointing out that  everyone was aware  of the risks related to the trade in undisclosed gem synthetics, he said: “We are proud at De Beers to be one of the leading developers of instruments to ensure that we can detect all gem synthetics, simulants and treatments so that consumers can be confident when they buy a diamond.”

Retail margin pressure was another challenge Mellier dwelt upon. “As consumers increasingly use the internet for research purposes ahead of a diamond purchase, brick and mortar retailers are faced with greater pressure on their margins,” he said. “Consumers are now much more able to play retailers off against one another. They can look up diamonds or diamond jewellery with a particular set of 4Cs on the internet and identify typical price ranges for the stones concerned.”

Branded products were the answer he felt. “.... branded offerings create new choices for consumers and help to generate value as people are usually willing to pay more for differentiated products,” he said. “They also help generate greater consumer traffic in-store as the differentiated offerings provide a new point of interest with a distinct marketing approach”

Finally, saying that “this list of industry challenges is not exhaustive”, he turned his attention upon one more  issue:  “ the growing importance of responsible sourcing for millennials”.

“Fair trade products are occupying a greater share of retail categories across the board and it is no surprise that this is of particular importance to people when buying something with the uniquely emotional appeal of a diamond,” Mellier explained. “Younger consumers increasingly want to be shown, rather than told, how a product can evidence its ethical credentials and this will increasingly be the difference between making a sale and watching the consumer purchase a different product or something from another category altogether.”

To meet these challenges, Mellier said, “We require an industry-wide effort to deliver industry-wide success.”

 Meller concluded by saying: “If we can all overcome the challenges we face while keeping in mind the scale of the long-term potential for the industry then we will forge a future of which we will all be proud. A future in which banks and regulators have full confidence in a robust and reliable industry.  A future in which technology doesn’t hold us back, but drives every part of the pipeline forward. A future in which consumers connect strongly with brands and retain their trust in diamonds. And a future in which demand grows more strongly than ever before.”