Tiffany Expanding its Diamond Cutting and Polishing Operations
Posted on October 25, 2009After avoiding getting involved in the diamond sourcing, cutting and polishing business for 172 years, Tiffany and Co. has changed course. Earlier this decade jewelers were concerned about a dwindling supply of diamonds. So Tiffany headed to Africa and invested in the supply end of the diamond business.
Now that the bottom has fallen out of the luxury jewelry business, Tiffany's has had to drop the retail prices of its diamonds. The mining part of the business has not gone well for the company and it was forced to write off a $12.4 million investment into a mining operation in Sierra Leone.Tiffany's is an extreme example of an industry shift that started during the recent luxury boom. Like most other diamond retailers, Tiffany long bought the vast majority of its diamonds pre-cut and pre-polished from industry middlemen. But with global diamond jewelry sales soaring earlier this decade, Tiffany and others worried they would soon be fighting over dwindling supplies.
The retailer invested in mine operators, and in 2002 it began opening cutting-and-polishing plants in Canada, Belgium, South Africa and Vietnam. In the past two years it added similar operations in China and Mauritius. The in-house unit Tiffany founded in 2002 to run these plants, Laurelton Diamonds, now employs 1,100 workers, or 14% of the company's work force. It will supply more than 50% of Tiffany's diamonds this year -- up from 40% last year and none in 2003.
Others have made similar bets. Privately held retailer Graff Diamonds International owns a majority stake in a South African diamond wholesaler and polisher with facilities from Antwerp and New York to Botswana. Suppliers have made incursions on retailers' turf. Mining giant De Beers Group operates retail stores in a joint venture with LVMH Moet Hennessy Louis Vuitton SA. Canadian miner Aber Diamond bought a controlling interest in retailer Harry Winston in 2004. Indian jewelry manufacturer Gitanjali Gems Ltd. transformed itself into a global retailer starting in 2006, buying U.S.-based Samuels and Rogers jewelry chains.
Some industry analysts see risk in running operations that span from mining and manufacturing to high-end retailing and marketing. "[They're] all totally different types of activity -- and one needs tremendous expertise, skills, infrastructure to be truly competitive" in each, says Chaim Even-Zohar, principal of Tacy Ltd., a Tel Aviv-based industry consultant.
But the company says it is quite happy with its cutting and polishing operations. In fact, it plans on expanding those operations in Botswana, where the government is happy with its policies of training local workers in the trade. And when the market turns, Tiffany says it will benefit from in-house stocks and trained cutters and polishers that will be able to meet Tiffany's exacting demands.