Chief Executive Officer of iconic global diamond company De Beers, Philippe Mellier, says lessons learnt during the previous financial crisis have strengthened the group and transformed it into a company ready to lead the diamond industry into the 21st Century.
Mellier told the audience at a recent Forum event at the Gordon Institute of Business Science (GIBS) in Johannesburg that confident leadership was key in ensuring that the diamond company emerged intact from the economic crisis of 2008-2010 and that it is fully prepared for another downturn.
A shift in ownership from the Oppenheimers to Anglo American, after the family sold the entirety of its 40% stake in De Beers last year, the move of De Beers’ Diamond Trading Company (DTC) from London to Gaborone in Botswana and an expanding retail presence are some of the ventures planned by the 120 year old company in the next few years to ensure it remains at the forefront of its industry.
The newly-appointed CEO, who joined the company in July 2011 after having spent much of his career at the helm of automotive and transport companies, called the financial crisis “terrible” for De Beers: “The implication was that from one day to another, no one bought diamonds anymore. Our customers vanished.”
In response, De Beers’ production was cut by half almost overnight, something which had never been done before, and operation and on-mine costs were drastically reduced.
“It was a very big shock for the De Beers organisation. The balance sheet had very little cash and was simply not prepared for the crisis,” Mellier said.
At the same time, steps had to be taken so that future demand for diamonds would not be irreparably damaged: “We had to protect the diamond equity and adjust to the reduced demand, while investing in new marketing programmes to develop future demand for diamonds, even in the depth of the crisis.”
Mellier spoke of the passion employees of De Beers feel for their product – diamonds: “Diamond equity is something we constantly work on. We mine something which is unique, you don’t know what you are going to get – that is the beauty of this business. Each stone is unique and rare.”
Bold decisions and decisive leadership are vital in a crisis, and will also serve to motivate people, Mellier said. “It can be done, but you have to be extremely decisive.”
Mellier is confident that the steps taken have placed De Beers on a firm footing: “In every crisis, no matter the severity, there is always an opportunity. We are in a much stronger position, and could face another downturn and this is in fact what we are preparing for now.”
A bold move planned by De Beers to help it sustain its competitive advantage in the industry is the relocation of the De Beers Diamond Trading Company (DTC) from London to Gaborone in Botswana by 2013 in one of the biggest ever transfers of economic activity in the history of Africa.
Botswana, which was exporting diamonds to London, will now become a hub of rough diamond sales, selling diamonds mined in Botswana and also those from De Beers mines in Canada.
The country is expected to gain more than $5bn of diamond trading business by the end of next year and the region is also expected to benefit from the influx of 75 sightholders 10 times a year to Gaborone to buy diamonds.
Gaborone has the potential to be one of the largest diamond hubs in the world, and ultimately could become as pivotal as New York, Antwerp, Tel Aviv and Mumbai, Mellier said.
He said De Beers are ready for the opportunities presented by the growing demand of new markets - one of the central trends affecting the diamond industry today is the shift in demand from established markets to emerging ones in the developing world. Changing demographics and an increasing population mean that new consumers, with new preferences, are emerging.
Emerging consumers in the new centres of economic activity in India and China are where the company is turning its attention for future growth opportunities and the increase in average population wealth in these countries holds promise for luxury goods companies.
The combined Chinese and Indian market currently accounts for 25% of the diamond market and Mellier estimates that in 10 to 15 years it will be as big as the US market.
To this end, the company’s retail joint venture with luxury group LVMH, De Beers Diamond Jewellery, is planning ambitious expansions in new markets and will open at least five new stores across China during 2012.
“LVMH have outstanding expertise in the luxury market and together we are upgrading our existing facilities and opening new ones in some exciting markets,” Mellier said.
The diamond industry continues to face numerous pressures, including demands from producing countries to extract more value through beneficiation, increasing mining costs with small mines scattered across the globe which reduce economies of scale and a potential scarcity of capital to fund new mine exploration when banks’ liquidity positions have been weakened.
Despite this, Mellier is confident that the groundwork laid by De Beers will stand the company in good stead in the event of any new threats to the luxury market, and the group is poised to absorb the shock waves of a potential future financial crisis and to continue to maintain its leadership position in the diamond industry.