The Retail Titans of the Diamond Industry

As I have previously mentioned here, diamond retailers are currently undergoing a period of consolidation that has been underway for years. Small independent jewelers are slowly disappearing, replaced by much larger chain stores that are taking significant market share away from the independents.

US giants

The prime example of this phenomenon is Signet, which in 2014 acquired 100% of Zale Corporation in a $1.46 billion, all-cash deal. Signet now operates nearly 3,600 locations under the store brands of Kay, Jared and Zale’s in the US; H. Samuel and Ernest Jones in the UK; and People's in Canada. Signet also operates kiosks in the US under the brand Piercing Pagoda.

This transaction has helped to make Signet the largest specialty jewelry company in the world by market capitalization. The company’s stock value on the New York Stock Exchange has grown by 79% since the acquisition was announced in February 2014. This diamond behemoth had sales of more than $5.7 billion in the 2015 fiscal year. The company has said that it is working on a medium-term plan to increase profit margins, especially through its newly-acquired Zales brand.

Another market darling is Tiffany & Co., which seems to have developed an almost cult-like following in recent years. The company reported total revenue of $4.2 billion in 2014, however it did so with just 295 stores around the world. Tiffany’s brand power allows it to earn among the highest margins in the industry. The company has also been increasing its dividend payout to shareholders consistently for nearly 20 years.

Tiffany was one of the first diamond jewelry retailers to see the value in securing a reliable supply of high-quality rough diamonds in partnership with mining companies. It is currently a De Beers Sightholder. In some cases, Tiffany has even acted as a major shareholder and financier of mine development, in return for first selection of top-quality diamonds for its collection. This has proven to be a positive move for Tiffany, which at one point was able to develop an entire line of diamond jewelry based on canary yellow diamonds as a result of its supply arrangement with Australian diamond mine Ellendale.

Founded more than 175 years ago in New York, Tiffany opens just a few new stores each year. In 2015, there were multiple new store openings in London as well as a flagship store on the Champs-Elysées in Paris.

Market giant Berkshire Hathaway has also been in the jewelry retail sector for more than 25 years. In 1989, legendary investor Warren Buffet purchased a store with a single location, Borsheim’s Fine Jewelry, located in his hometown of Omaha, Nebraska. Since then, Borsheim’s has grown into one of the largest specialty jewelry stores in the world, with more than at 62,500 square feet of retail space. Interestingly, the company has remained a single store outlet, choosing to expand its single site continuously, rather than to open new ones.

Buffet’s foray into jewelry was clearly successful and in 1995, he purchased Kansas-based Helzberg Diamonds, followed up by Seattle’s Ben Bridge Jeweler in 2000. Helzberg now boasts 229 locations, making it the fourth largest retailer in North America by number of doors, with Ben Bridge ranked ninth, with 75 stores, according to National Jeweler.

Asian powerhouses

On the other side of the globe, China’s increasing appetite for diamonds has helped launch several Chinese companies on to the list of largest jewelry retailers in the world. Chow Tai Fook was the most valuable specialty jewelry retailer in the world by market capitalization, before its stock value slumped amidst a general slowdown in the Chinese economy. Founded in 1929, the company was named after founder Chow Chi Yuen, with “Tai Fook” meaning “big blessing” in Chinese.

Chow Tai Fook has now grown to nearly 2,300 retail point-of-sale locations, and has been growing its store base steadily for years, adding 180 stores in fiscal year 2015.  Despite a challenging year for the company, revenue topped $8 billion, making it the highest grossing specialty jeweler in the world. Its profit of $700 million is more than that gained by Signet or Tiffany.

Chow Tai Fook made a splash in the industry in June 2014 with the purchase of Boston-based luxury diamond brand Hearts on Fire, for $150 million. The retailer company has already begun expanding a network of Hearts on Fire branded specialty stores, extending its reach beyond its Asian power base.

Other major Chinese retailers Luk Fook and Chow Sang Sang have seen similar growth in store openings over the past years. While still much smaller than Chow Tai Fook, Chow Sang Sang has annual sales of $2 billion and in mid-2011 had a market cap of over $3.8 billion. All three companies buy diamonds direct from rough diamond producers, and have developed an integrated network of diamond polishing and jewelry manufacturing.

In India, the retail field has changed significantly in recent years. With the recent growth in consumer appetite for diamonds, retailers that have historically focused on gold jewelry have been scrambling to add diamonds to their offerings. Still, just a third of jewelry retailers offer diamonds, according to De Beers’ Diamond Insight Report. However this figure is changing quickly as retailers see better margin opportunities in the gemstones. The role of large retail chains is also on the rise. The same report from De Beers shows that chain stores represented just 2% of doors in 2011, but were responsible for 17% of sales.

Gitanjali Group now boasts over 4,000 retail outlets, mostly in India. In 2006, Gitanjali made an important entrance in to the US market with the purchase of Samuels Jewellers, which operates 106 retail locations in 19 different US states. The company also has a presence in Japan, Europe, the Middle East, China and Hong Kong.

Titan Corporation, now the largest jewelry retailer in India, started out in the 1980s as a joint venture between Tata Group and the Tamil Nadu Industrial Development Corporation. Partly in response to a major lack of foreign currency in India, as well as the desire for Tata to develop brands more appealing to female buyers, Titan began primarily as a producer of watches for the North American market. Since then the company has established more than 1,100 retail outlets in a variety of industries, including the popular Tanishq diamond stores which boast more than 160 boutique locations.

Downstream integration

Almost all large retailers develop some sort of direct downstream supply sources for rough diamonds. Companies like Chow Tai Fook, Tiffany, Signet and Gitanjali are direct customers of the major rough diamond producers. De Beers is an example of a rough producer that has gone the opposite direction with a foray into retailing. De Beers Diamond Jewelers was formed in 2001 as a joint venture between the De Beers Group of Companies and luxury brand Moët Hennessy Louis Vuitton (LVMH).

Since then, the company has expanded to 35 boutique stores in North America, Europe, the Middle East and the Asia-Pacific region. De Beers has also developed its Forevermark diamond brand, which it sells in its own stores as well as through other high-end retailers.

The online community

In the digital world, online retailer Blue Nile remains the market leader. The company began in 1995 under the name of Williams and Son when Doug Williams started selling diamonds online. In 1998, Mark Vadon of consultancy firm Bain & Co. purchased an engagement ring from Williams, and promptly raised $6 million to purchase 85% of the company, later renaming it Blue Nile. Just a few years later in 2004, the company issued an IPO on the New York Stock Exchange. Today it has annual sales of $474 million and a market capitalization of over $400 million. By virtue of its low cost online model, Blue Nile is able to offer consumers some of the best prices in the industry and offers a wide range of consumer diamond education tools on its website.

However, Blue Nile has faced challenges in recent years with increased competition in online sales from established bricks-and-mortar retailers. Diamond purchases have a strong emotional element, and buyers overwhelmingly prefer to see and hold their jewelry before making a purchase. In June 2014, Blue Nile announced a departure from its online-only strategy and established a display of diamond rings at department store giant Nordstrom’s, where customers could see and try on engagement rings. The company recently announced its intention to expand by three or four new “webrooms” in 2016 following the success of the pilot project.

Other massive online retailers like Amazon and eBay have long been players in the diamond jewelry space. A quick search of “diamond ring” on eBay.com brings up more than 1.85 million results. In fact, these online platforms have given established diamond manufacturers and wholesalers another avenue to sell their products to a wider audience.

What’s in a name?

No discussion about diamond retailing can ignore some of the industry’s established brand names. In 2011, United Brands published a list ranking the top global diamond and jewelry brands across multiple categories. The rankings considered “…. a variety of factors that include product quality, design, performance, value, consumer recognition, brand differentiation and marketing effectiveness." Names like Graff, Cartier, Harry Winston, Van Cleef and Arpels, and Bulgari, have developed into brands with significant influence in the premium luxury segment of the diamond industry. As branding becomes increasingly important in the eyes of consumers, established brands, as well as developing ones, are increasingly gaining market share.

The trend towards consolidation in the diamond retail industry has been in the making for years. While the industry’s retail sector is still highly fragmented, large retailers are increasingly integrating downstream into mining and manufacturing to gain more control over their operations. As a result, and also due to the sheer size and buying power of some of these groups, they are having more and more influence over how things are done in other parts of the pipeline. Decisions by these large groups often act as indicators for the health and direction of the industry as a whole. And this process shows no sign of slowing down.

The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.