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Baubles Galore: Luxe Firms Seek Piece of $100B Jewelry Sector

A new gold rush is on as luxury firms look to strike it rich with high-end, branded jewelry collections aimed at fashion customers.

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De Beers

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Boucheron

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Garrard

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De Vroomen

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LONDON — A new gold rush is on, but this time the miners are wearing pinstripes rather than blue jeans.

Luxury companies including LVMH Moët Hennessy Louis Vuitton, Gucci Group and A&G Group are looking to strike it rich with high-end, branded jewelry collections aimed at fashion customers. Industry executives and financial analysts say the branded jewelry market is untapped territory — though one that will take significant long-term investment and a strategy not without its risks.

"The jewelry market is large and unbranded, and luxury goods companies have recognized the opportunity," said Sagra Maciera de Rosen, luxury goods analyst at J.P. Morgan. "They’re moving so fast and so aggressively, the customer needs time to catch up."

The potential prize is too large to ignore, however. De Beers Group and LVMH, which linked up in January 2001 to the diamond jewelry company De Beers LV, estimated at the time that the diamond jewelry market alone was worth about $60 billion. As Bernard Arnault, chairman of LVMH, said in announcing the joint venture, "It is our strategy to build one of the largest [jewelry] companies in the world in 10 years. But even a fraction of a percent of $60 billion is quite a lot of money."

The overall global jewelry market racks up sales of $100 billion worldwide, according to Sagra Maciera de Rosen, luxury goods analyst at J.P. Morgan in London. Only 4 to 5 percent of those sales come from high-end, branded jewelry, she said, adding that that percentage could easily double.

"This market can support an unlimited number of brands," she said. "Of course, like any other industry this one will have its top 10 players, but that doesn’t mean smaller brands can’t prosper, too."

Claire Kent, head luxury analyst at Morgan Stanley, agreed. "The jewelry market isn’t dominated by brands, so there’s a lot of growth potential there," she said. "In addition, with watches and jewelry, you get a very high [sales] return on very little floor space."

Regardless of their strategy, all jewelry businesses have to take the long view, given the sputtering global economy, war in Iraq and such worries as Severe Acute Respiratory Syndrome. Every jeweler interviewed expressed confidence that demand for fine jewelry would eventually rebound.
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"It’s been a tough year for jewelry, but we are super-optimistic about luxury brands in general," said Domenico De Sole, chief executive of Gucci Group which owns Boucheron, adding that Gucci is focusing now on beefing up the nine fashion, accessory and jewelry brands in its stable. "It takes years to build brands, and you have to take the long-term view."

Gucci is ringing up annual sales of $100 million after five years in the branded jewelry business, while Asprey’s new owners are so confident about the future of their brand that they’re building 20,000-square-foot stores in London and New York — at a total cost of $80 million.

The brands have also taken on board edgy, up-and-coming jewelers in a bid to appeal to a young-and-hip clientele. Boucheron began working with Solange Azagury-Partridge, who still has her own store on London’s Westbourne Grove, Asprey has linked up with Hussein Chalayan and others to develop its products and its sister company Garrard hired Jade Jagger.

Gianluca Brozzetti, chief executive of A&G Group, which owns Asprey and Garrard, said the brands’ relaunches were on track. "Despite all of the problems happening in the market right now, our project is going ahead," he said. "True, the current market is not helping us, but this is a complex, long-term project, and we have made no changes to our original plans. Keep in mind that it takes time to build luxury houses."

Alain Lorenzo, chief executive of De Beers LV — which has hired cult London jewelry designer Reema Pachachi — agreed, saying he was not bothered by the timing of the opening of the company’s first store in London’s Piccadilly last November, and is not daunted by the economy or gloomy world events. "When is a good time to open a store?" he replied. "We believe that in times of crisis, the top brands suffer very little. We are looking at this project as very long-term."

De Beers Group is obviously optimistic about the diamond business. According to the company, total sales of diamond jewelry are now $57 billion — of which the U.S. accounts for 40 percent — and the top five diamond jewelry brands represent less than 3 percent of that market.
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"It’s feasible the branded diamond business could eventually account for 20 to 25 percent of the market," said Stephen Lussier, the international marketing director of the Diamond Trading Company, the sorting, sales and marketing arm of the De Beers Group. "Our research has shown us that consumers are willing to pay a premium price for branded jewels."

Lussier said those customers can be broken down into three categories: those who are looking for the traditional engagement ring; fashion- and design-driven shoppers, and status-seekers. "The engagement ring customers say they’re happy to pay extra for the confidence that a brand gives them, the fashion customers are driven by the excitement the brands ignite — Gucci is a perfect example of that — and the status seekers want a big diamond from a branded name."

De Beers is betting on all three sets of customers to drive its new joint venture with LVMH. Nicky Oppenheimer, chairman of De Beers, said he never thought he’d see the day that De Beers sold jewelry. "It was never in our mind-set," he said at the opening of De Beers LV’s London store. "But for 60 years we’ve essentially been buying advertising for jewelry that we never even sold. We weren’t getting value from the brand."

He added that he’s curious to see what the future brings. "Will this venture be a success? Come and see me in a year’s time."

The first De Beers LV unit, a 7,500-square-foot store on the corner of Piccadilly and Old Bond Street that opened last November, offers four collections: signature, bridal, classics and watches, with starting prices that range from about $780 to $4,750. For big spenders, there are diamond rings that cost upward of $1.5 million, and colored diamonds in vivid blues, yellows and pinks that cost several million dollars and will be set according to a customer’s preference. At the opening, guests had a hard time keeping their hands off the rocks. Solitaire rings from the bridal collection, which start at $1,500, were scooped up virtually as fast as the hors d’oeuvres, and waiting lists were drawn up for items like the three-prong diamond pendant and the diamond-studded leather choker.
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The next De Beers LV store is set to open in Tokyo in the second half of 2003, while the third will open in New York, but not before 2004.

The Oppenheimers aren’t the only investors banking on the power of name recognition. Lawrence Stroll and Silas Chou, the longtime friends and business partners who built Tommy Hilfiger into a $1.88 billion empire, are planning to work similar magic with the Asprey and Garrard brands.

Stroll and Chou, who built up the Polo business in Europe and helped transform Tommy Hilfiger into a mega-brand, bought Asprey & Garrard a little more than two years ago and separated the briefly merged labels. Their goal is to build Asprey and Garrard into luxury lifestyle brands.

The same thing that happened in the fashion business is going to happen in the jewelry business, Stroll declared in an interview with WWD last September, noting: "There’s going to come a time when the consumer who buys fashion apparel is going to recognize and want branded jewelry, and they’re going to turn to true jewelers like ourselves."

Instead of an anonymous diamond ring and setting bought from a neighborhood jeweler, Stroll suggested, customers are going to want the security and status of a brand name. "That’s one reason why we’re laser-engraving our diamond rings, for example," he pointed out, "so you will always know you have a Garrard diamond."

Rita Clifton, chairman of Interbrand Corp., said companies that hope to stimulate demand with wider distribution and innovation are embarking on a "high-risk" strategy, one that’s based on "push rather than pull." However, she allowed that "any market can be stimulated by innovation," and that fashion trends are coalescing in support of greater ornamentation.

Paris-based trend forecaster Li Edelkoort agreed, saying a comeback in jewelry was inevitable. "We’ve been starving ourselves of jewelry for about 15 years," she said, referring to the minimalist trend from which fashion is now emerging. "I remember when I could not go out of my house without earrings. I would feel naked. For a while, that totally disappeared."

But not all jewelry experts are convinced that big branding is the answer to consumers’ — and investors’ — dreams. Leo De Vroomen, the high-end jewelry designer who opened his first freestanding store on London’s Elizabeth Street last summer, said consumers may very well resist the branding trend.
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"These jewelry brands, which were once great and famous for their individuality and craftsmanship, for the integrity of their design, are today just names," De Vroomen argued. "No matter how many millions of advertising dollars you throw at those names today, they will still be production jewelers, making products in large numbers. These brands today are dining out on the past, hoping that it will burnish the current brand image."

De Vroomen, who designs and makes all of his jewelry himself in the workshop below his store, and sells his line at Neiman Marcus and Saks Fifth Avenue, also took a swipe at the "lifestyle brand" concept. "Lifestyle branding is a wonderful thing, but jewelry doesn’t belong in the context of a lifestyle brand," he said. "It has such a long life span. It supposed to get passed down through generations, and it’s supposed to be exquisite in its own right. Brands do not last forever, but a piece of jewelry does."

De Beers’ Lussier said there is room for everyone — branded and unbranded alike. "The branded jewelry business will not dominate the market," he said. "It will have a significant, but minority, percentage of the sector."

The entry into fine jewelry of luxury behemoths like Gucci and LVMH may, however, make it even tougher for the smaller player. Theo Fennell, the publicly-traded London-based jeweler that counts Elton John, David Beckham and Elizabeth Hurley among its clients, issued a warning in early March saying that profits would be below expectations after a "disappointing" Christmas and that full-year results would show a "modest" profit.

De Vroomen, too, conceded that business has been quiet over the eight months since he opened his first freestanding store in London. "I don’t know whether to blame it on the war, the troubled economy, or the fact that I’m new here," he said, "but I’m hoping the worst is over and that things will get better."

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