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YELLOWKNIFE, Canada — The Diavik Diamond Mine is literally a world away from the chic environs of Harry Winston’s grand Fifth Avenue salon.

Tucked away on a 7.7-square-mile island in the middle of the Lac de Gras in Canada’s Northwest Territories — and located about 137 miles south of the Arctic Circle — it’s the kind of place so isolated that it can only be reached by air in a small private jet. Featuring wintry temperatures year-round, the mine’s landscape is filled with rocky dunes and volcanic pits. And the giant processing plant, which sorts rough stones, can be deafeningly loud and dusty, requiring visitors to wear a helmet, a safety vest, plastic goggles and earplugs.

The look is a far cry from the posh, designer-clad clientele who usually cross Winston’s threshold — yet the muscle of Aber Diamond Corp., the diamond-mining and marketing firm that owns a stake in the mine as well as a majority of Winston, will be the keystone to the jeweler’s future image and expansion strategy.

Winston’s new team of executives is confident the union between the two ends of the diamond jewelry business — rough mine and Manhattan salon — will allow the jeweler to claim the title of the world’s top purveyor of jewelry featuring the rarest, highest-quality stones available in today’s competitive jewelry market.

“I see Harry Winston as the most exclusive, most luxurious and most reliable fine jewelry and watch company in the world, which is what it had always been,” said Thomas J. O’Neill, Harry Winston’s chief executive officer and president of Aber, on a tour of the diamond mine late last month. “We are out to redeem that territory.”

It’s a territory O’Neill is all too familiar with. He joined Winston from Burberry, where he was president worldwide, but the lion’s share of his expertise was tethered to fine jewelry. Before joining Burberry in 2001, he was head of the watch and jewelry division of LVMH Moët Hennessy Louis Vuitton, where he also worked on the De Beers LV diamond jewelry venture. Prior to that, he was ceo of Marc Jacobs International, president and ceo of LVMH’s fashion and leather goods for the Americas and at Tiffany & Co., where he rose to executive vice president of its international division in 13 years.

This story first appeared in the September 13, 2004 issue of WWD. Subscribe Today.

Under O’Neill, Winston is putting into place a growth strategy that includes opening up to 45 salons in eight years; buying back some of its most legendary jewels, and a bold advertising direction that will break this November with a new campaign shot by legendary photographer Richard Avedon.

The main focus will be on the upper end of the market, where prices can go into millions. Unlike many other high-end jewelers, Winston always shied away from from lesser materials and focused on top-quality diamonds, gold and platinum. Though that will continue, the company also is looking to grow its existing product mix under $50,000.

To achieve these goals and easily compete with players such as Tiffany and Cartier, O’Neill had no qualms about poaching some of the most talented executives from his former stomping grounds. Many new hires come to Winston with extensive experience at Tiffany and LVMH.

In the last four months, O’Neill has tapped James Seuss as president of retail and wholesale operations at Winston, Susan Korb as chief marketing officer, Peter Schneirla as vice chairman, Ray Simpson as chief operating officer and Charles Stanley as vice president of market development. Each comes to Winston with an impressive range of expertise in both the jewelry and fashion worlds. Seuss was ceo for Stella McCartney, and before that, the managing director for Tiffany in the U.K. Korb was president of Assouline and prior to that, spent 17 years at Tiffany rising to head of marketing and communications. Simpson and Stanley, meanwhile, came to Winston from De Beers LV, while Schneirla is a well-known gemologist and jewelry expert who also had worked for Tiffany in the mid-Eighties.

Late last month, Aber presented the new vision for Winston to its employees in the grand salon of the jeweler’s Fifth Avenue flagship, followed by a trip to Aber’s high tech Toronto offices and on to the diamond mine, in which it holds a 40 percent stake (the remaining portion of Diavik is owned by a subsidiary of Rio Tinto plc of London).

“When I look at the business, it went through turbulent times, but what struck me and impressed me was that it was still radiantly shining in the marketplace,” explained O’Neill. “We thought we were going to find a stodgy, sleepy environment, but we didn’t. We found a highly motivated team, and I thought, ‘This is what companies die for.’”

The central plan in Winston’s strategy will be its unique link to Aber, which bought a majority of the jeweler in April, and to Diavik.

“When diamonds are mined, the largest profit margins are at the two ends of the supply chain, on the mine and at retail,” said O’Neill. “What happens in between is an enormous element, but it is a succession of small processes. We are going to sell our rough diamonds to a series of manufacturers [from diamond cutters to polishers] — about 25 to 30 manufacturers — and we have agreements that, in return, they make available a wide selection of polished stones. [At Winston,] we have very specific needs in color, cut and clarity, and sometimes very unique shapes, and also rare blue and pink diamonds. In exchange for selling our rough stones, it opens up their polished inventory for us to purchase.”

Jim Perrone, research analyst at Montreal-based investment firm MacDougall, MacDougall & MacTier, praised Aber’s acquisition of Winston.

“They are very astute,” he said. “If you have the diamond supply like Aber, you have some leverage and clout in the diamond world, which should allow them to grow Harry Winston. In order to grow a jewelry business, you have to have a sure supply since right now, diamonds are in short supply and prices have been high since the millennium which took a lot of inventory out of the system. Some of the older mines are coming to the end of their lives and there’s no large mines coming into production. With one swoop, they got Harry Winston, six stores and a brand name that’s been around for decades.”

But Aber isn’t alone in trying to build a larger jewelry brand. Among Winston’s competitors are De Beers LV, Graff, Cartier and Tiffany. Each has in recent years adopted a more aggressive strategy, opening more stores and tailoring their assortments with colored precious and semiprecious stones and a wider range of price points to suit the growing segment of self-purchase customers. Graff, for instance, is expanding its retail presence in the U.S. by adding stores in Chicago and the Wynn Las Vegas, while aggressively building its exclusive distribution with Saks Fifth Avenue. De Beers LV, meanwhile, is hoping to become a key player Stateside when it plans to open its first U.S. unit on Fifth Avenue and 55th Street next year.

In contrast to Aber and Winston, De Beers LV has no direct connection to the Diamond Trading Company, the marketing arm of De Beers. It is not a siteholder, and the retail jeweler doesn’t buy its diamonds directly from the DTC. It can, however, buy its diamonds through a siteholder.

Canada ranks third in the global rough-diamond production trade after Botswana and Russia and before South Africa and Angola. The Diavik mine was discovered in 1991 and was created in more than 10 years, commencing commercial production in August 2003, with plans for full production to be achieved by mid-2005. The company prides itself on helping the area’s population and preserving the natural environment. For instance, the mine created 800 construction jobs, and it was developed with a commitment to give at least 40 percent of the employment to workers from Northwestern Territories. The long-term goal is to operate the mine for 20 years, with closure planned for 2025, when the company will return the area to its natural state and possibly develop a fish habitat.

In 2003, the mine produced about 3.8 million carats. In 2004, it is projected to turn out 7 to 8 million carats.

“[The diamond mine] has a strategic value and we thought, ‘How do you exploit the strategic value?’” said Robert A. Gannicott, chairman and ceo of Aber. “One of the reasons the diamond retail industry is so fragmented is because their growth is dependent on being able to get rough stones.”

That shouldn’t be a problem for Winston, now that Aber can flex its muscle. Aber’s net earnings for the year ended Jan.31 totaled $27.7 million. Diamond sales totaled $114.8 million.

“It’s one of the richest diamond pipes in the world,” said Perrone. “There are four diamond pipes now that will last about 20 years, and there are about 60 more that they haven’t even explored. They have strong margins on diamond mining, and strong margins in retail, which they hope to improve. They are growing on the diamond-mining side, which hasn’t even reached full production yet, and my guess is they will grow the reserves as well.”

Aber’s earnings could possibly skyrocket now that the Diavik mine is in full operation, and its financial strength will help Winston, which sources estimate to have sales of about $135 million, build a strong assortment to dazzle clients.

This November, the jeweler plans to launch a diamond jewelry collection of about 20 styles, featuring scaled-down versions of important Winston pieces as more of a daytime diamond jewelry category under $50,000. As part of the renewed focus, the jeweler late last month started the restoration of the New York flagship. This is expected to bring it back to its original splendor, with slight tweaks here and there to accommodate the bridal jewelry and jewelry under $50,000. Whereas before the jewelry was sold seated at a desk with a consultant, the foyer will now feature two L-shaped cases to allow customers to make more impulse gift purchases. The overall effect should be less intimidating and more inviting.

“This is not a new direction, but it is a reconcentration,” said O’Neill. “It will house all treasures we don’t talk about.”

As for product, the company’s core focus will be what’s often referred to as “significant jewelry,” where price tags can often go into the millions. The company also is looking to build its assortment of vintage jewels, as well as grow its watch distribution.

“We are aggressively solidifying our position as the world’s finest high-end jewelry merchant, and are doing so by bringing the world’s finest colored stones and diamond jewelry, both back from old clients and new pieces,” said Schneirla, who oversees product development for Winston. “We are also going to be concentrating on capitalizing on the colored-stone business in price points under $100,000. For us, that’s an area we have been involved in but want to flesh out.”

Winston’s current six retail outlets are in Manhattan, Beverly Hills, Paris, Geneva, Tokyo and Osaka, Japan. It plans to open in Taipei and Las Vegas this fall. O’Neill said future plans call for two to three salon openings a year in key markets around the world, to total 40 to 45 locations in eight years.

“We have an opportunity to expand this brand into existing markets where brand equity exists, such as Japan and America, but also into new markets like Russia, Southeastern Asia, like China,” Seuss said. “Everybody loves to talk about China and Russia, but we would be irresponsible not to expand our presence in the U.S. and Japan and concentrate on our core business. The U.S. and Japan represent 63 percent of diamond consumption. We have to look at South Florida, Texas, Chicago, Boston and all obvious choices for a high-end luxury brand. Then Dubai [United Arab Emirates], Hong Kong and Shanghai. We also keep a close eye on India.”

The new direction at Winston will be accompanied by a witty and somewhat provocative advertising campaign shot by Avedon.

“The last campaign [featuring Carolyn Murphy] moved Harry Winston from just a purveyor of large stones into more of a lifestyle brand,” explained Korb. “What we hope to do with the next campaign is to really refine the attitude to express very clearly who we are in an arresting way. We weren’t going for a retro or avant-garde look but a Winston look, which is intelligent, glamourous, exclusive, fun, sexy and international.”

Korb added that clinching a deal with Avedon in addition to the Harry Winston name helped attract high-profile people. Styled by Lori Goldstein, it features candid black-and-white portraits of Mena Suvari, Angelica Huston, Julie Delpy, Malgosia and Cecilia Dean in sparkling jewels.

“We tried to pick people that weren’t just beautiful, but who convey a certain confidence in their own skin so the jewelry was almost part of their own beauty,” Korb said.

The ads showcase the range of jewelry from engagement rings to diamond hoop earrings to a $4 million vintage Harry Winston necklace. The ads feature tag lines such as “Watch the women watching the men watching you” or “Some people won’t understand, are you one of them?”

The campaign breaks in November magazines such as Vanity Fair, W, Departures, Town & Country and Architectural Digest. Korb declined to give details of the ad budget. (W, Vanity Fair and Architectural Digest are owned by Advance Publications Inc., as is WWD.)

Gannicott added that Aber’s future isn’t likely to hold another jewelry retail acquisition, but probably a mining one.

“The objective is to carefully nurture Harry Winston to a very large, high-end, high-jewelry business, while at the same time providing a modest democratization,” he said. “I see no reason that in 10 years, this can’t be a powerful brand name. It’s an excellent platform to market jewelry. The objective is not to diversify with pearls and such, but the objective will always be diamonds.”

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