NEW YORK — In a move that allows De Beers to reenter the lucrative U.S. market for diamond jewelry sales, the world’s largest diamond producer is expected to plead guilty today on criminal charges of price fixing.
This story first appeared in the July 13, 2004 issue of WWD. Subscribe Today.
Lisa Wright, courtroom deputy for U.S. district court judge George Smith in Columbus, Ohio, said Monday that the hearing is set for 2 p.m. today. The hearing will include the guilty plea to criminal charges of price fixing and sentencing.
In entering a guilty plea, De Beers will also subject itself to a fine carrying a reported maximum of $10 million. De Beers executives declined comment, but said a statement will be issued after the hearing.
De Beers used to control 85 percent of the diamond market, but now controls about 55 percent. For the South African firm, diamond profits and prices have been rising, and reentry into the important U.S. market might provide an added boost to its profit margins.
Company executives said in past conference calls regarding earnings results that the U.S. market accounts for 50 percent of the world’s diamond jewelry sales. Managing director Gary Ralfe noted in a call in early February that the trend for diamond jewelry for a woman’s right hand — rather than the left — has taken off in the U.S.
For the year ended Dec. 31, earnings rose 10.3 percent to $484 million from $439 million, due to strong demand for rough diamonds and bigger price tags. De Beers, in fact, raised its rough diamond prices on three occasions in 2003, with prices ending the year about 10 percent higher than in 2002. The company has shifted focus and is eyeing the higher end of the market. In January, the firm raised prices another 3 percent.
Several jewelry executives noted, however, that De Beers’ reentry into the U.S. market is unlikely to affect diamond prices. With diamonds in short supply, prices are driven by supply and demand, and today, there are more suppliers to choose.
“At the high end of the business, the supply of diamonds is limited, so there is only [so] much of that quality you can sell — whether you have one office or 200,” a jewelry executive said.
As reported, De Beers reopened talks with the U.S. Justice Department last summer in a bid to revisit the antitrust issue that has prevented the South African firm from selling its rocks directly to the U.S. for nearly 50 years. The antitrust case was filed in 1994. De Beers, however, first faced criticism about its alleged anticompetitive policies in 1945 over its refusal to provide industrial diamonds during World War II.
Last year, De Beers received the green light from the European Union over its “supplier of choice” distribution strategy aimed at spurring consumer demand for diamonds. At the time, it was a move De Beers hoped would help in negotiations with the justice department.
De Beers is expected to post half-year earnings results next week.
The plea agreement comes at an opportune time for De Beers, which is slated later this year to open a jewelry store on the corner of Fifth Avenue and 55th Street in New York as part of a retail venture with LVMH Moët Hennessy Louis Vuitton.
“For them, being in the U.S. would mean the executives would have more [direct] access to retailers,” said another jeweler.
So far, De Beers board members face arrest if they travel to the U.S. because of the ongoing legal troubles. The state department is expected to lift the bar against De Beers executives today after the hearing.
— With contributions from Marc Karimzadeh