DE BEERS LVMH TO FORM UNION
Byline: James Fallon
LONDON — If might not only be diamonds that are forever, if LVMH Moet Hennessy Louis Vuitton SA and De Beers Consolidated Mines Ltd. have their way. The two luxury companies are expected today to announce the formation of a joint venture to develop and market a range of luxury goods under the De Beers brand.
LVMH and De Beers have been talking about the joint venture for several months, sources said. It follows the decision by De Beers to seek the help of a major luxury goods group in developing its brand rather than going solo. De Beers is known to have also spoken to Gucci Group NV and Compagnie Financiere Richemont S.A. but in the end focused on LVMH.
The joint venture is expected to be equally owned by the two partners. De Beers controls about two-thirds of the global diamond market while LVMH owns the French jewelers Chaumet and Fred as well as the watch brands Ebel, Tag Heuer and Zenith.
Under the terms of the joint venture, De Beers would inject its brand name, sourcing capability and knowledge of stones in return for LVMH’s expertise in marketing and wholesale and retail distribution. LVMH is expected to help De Beers establish a string of De Beers stores in major cities worldwide. One possible site could be the Warner Bros. flagship on Fifth Avenue and 57th Street which Warner Bros. is vacating and LVMH is reportedly vying for.
Funding for the venture would be made equally by the two partners, sources said. The total funding in the first year is expected to be below $100 million.
Even though De Beers controls about 60 percent of the market for rough diamonds, the jewelry market remains fragmented. The largest single brand is Cartier, which, according to Merrill Lynch estimates, controls about 18 percent of the $3.1 billion global luxury jewelry market. LVMH has been eager to increase its holdings in the global jewelry sector and the De Beers deal is seen as a major step forward.
Under the plan, the venture would operate separately from De Beers’ core business of mining and marketing diamonds. De Beers has insisted in the past that any development of its brand would not come at the expense of its existing 125 customers for its rough diamonds, which are called sightholders. De Beers reportedly plans to source diamonds for the LVMH joint venture by buying them from the sightholders, just like any other jewelry company.
The joint venture follows the announcement by De Beers in July that it was exploring the development of De Beers as a brand name. At the time a De Beers spokeswoman said that while the initial focus would be on diamond jewelry, the feeling was that De Beers could be a brand supporting a range of luxury products — from leathergoods to watches.
De Beers revealed in December that it had record sales of rough diamonds in the year 2000. Rough diamond sales, bolstered by strong U.S. demand, rose 8.2 percent to $5.67 billion last year from $5.24 billion in 1999.