By Ehud Arye Laniadowww.ehudlaniado.com

Excess fragmentation in the

diamond sector and lessons

from other industries

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Presentation by Ehud Arye Laniado on fragmentation in the diamond industry

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• The excess fragmentation we are facing in parts of the diamond

sector must be addressed to:

Allow the diamond industry as a whole to operative more

effectively

Provide the new generations of professionals with more

sustainable opportunities to flourish

• We can draw lessons from more consolidated industries

A full version of this article can be found at: http://goo.gl/7KYtbr

April 2015

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Excess fragmentation in the upstream and midstream parts of the diamond market

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~ 5,000 diamond companies compete over

$7bn added-value to annual rough production [1]

Midstream marketDownstream market

~ 200,000 retail players compete over a ~$75bn

p.a. retail market ($375,000 p.a. on average) [1]

• Difficult to develop sustainable strategies

when too many players fight over some

profits, as recently: buying diamonds at high

price speculatively or just to stay in the game,

but often ending up selling at low

prices/volumes

• A fragmented midstream is less and less

compatible with rising inventory costs, high

financing costs and banks’ increasing scrutiny.

• How can retailers, who play a key role in

persuading consumers to buy diamonds, be

convinced to make significant investments in

marketing when revenues are spread over so

many players?

[1] http://www.bain.com/publications/articles/global-diamond-report-2014.aspx; https://www.diamondintelligence.com/magazine/magazine.aspx?id=12730

It may be time instead to address the more structural issues, including

what feels excess fragmentation in the diamond industry.

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Benefits of consolidation and example from other industries

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• Greater financial health will help better absorb

shocks and manage increased costs

• More bargaining power with both upstream

rough sellers and downstream jewelry buyers

Midstream marketDownstream market

• Fewer and stronger players gives each a

larger parts of the profits and incentivises

them to make more substantial investments

in marketing

• Top 5 companies have over 50% global

market share (just over 30% in 2003) [2]

• Consolidation allowed companies to invest

more substantially in emerging markets [3]

Example - Beer industry

• 4 largest purchasing alliances share over

33% of the market [4]

• Helps them function as umbrella

companies and provides them with

leverage in regards to parts prices [4]

Example - Automotive services

[2] Quoted in: http://www.businessinsider.com/global-beer-industry-consolidation-2014-2#ixzz3XTwZwL00;

[3] http://www.bain.com/Images/INDUSTRY_BRIEF_Ahead_of_curve_in_emerging_markets.pdf

[4] https://www.bcg.com/documents/file111373.pdf

Experience from other industries suggest that consolidation can offer significant benefits

(provided of course competition does not suffer any harm as a result)

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Prospects for further consolidation in the diamond industry

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• Further consolidation in the diamond sector is expected – McKinsey & Co anticipates the

downstream market to consolidate like the apparel brands industry [5]

• Many ways an industry can consolidate

Typical mergers & acquisitions

But also tailored solutions, e.g. alliances between smaller independent companies

A strong industry can be composed of big and niche players

• But we must all consider our role and how best to adapt to continue adding value to our industry.

• It is our duty to involve the new generation of professionals in this planning process in order to

equip them to succeed in a more consolidated environment and to ensure they can grow in an

industry with inspiring and sustainable prospects

[5] http://www.mckinsey.com/insights/consumer_and_retail/a_multifaceted_future_the_jewelry_industry_in_2020

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Can we afford to wait?

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• Trend towards consolidation in the diamond industry has started:

Acquisitions in the downstream market - Bulgari by LVMH in 2011, Ultra Diamonds by Signet

Jewelers in 2012 and Harry Winston by the Swatch Group in 2013

Vertical integrations (Chow Tai Fook and Chow Sang Sang)

• But progress towards consolidation in the diamond industry remains slow overall

• Can we afford to wait?

Unlike cars and pharmaceuticals, diamonds are not a necessity

Therefore continued investments are necessary to grow and sustain consumer demand for our

industry’s beautiful product.

Particularly given that some trends such as the growth of lab grown diamonds, if not managed

carefully, can affect consumer confidence towards natural diamonds

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website

without consulting a professional qualified adviser.