STRATEGY 40 | JNA November/December 2022 ‘Enchanted Lotus’ High Jewellery diamond earrings “情迷莲花”高级珠宝钻石耳环 index, stories of people whose lives were touched by the stone, the good the diamond has done – content on its value and its values. The possibilities are endless.” Tracr indeed goes beyond blockchain. Neil Ventura, De Beers’ executive vice president for Strategy & Innovation, calls it a digital trust platform. “Tracr is a culmination of a number of technologies all enabled by connectivity that work together to provide provenance and traceability. Blockchain is foundational but putting the diamonds on Tracr requires IOT (Internet of Things) capabilities. To trace the diamonds from rough to polish, AI is needed. Security and privacy protocols were also developed and integrated,” he said. Initially announced as an industry-wide programme, Tracr has been pulled back in recent times to focus on De Beers diamonds. Ventura does not discount the possibility of opening it to more players in the future. At present, 50 per cent of De Beers’ production is on Tracr. Sixteen of its Sightholders are on the platform and 19 others are at various stages of onboarding. Majority of Sightholders are expected to be part of Tracr soon. Diamond demand On the sales front, De Beers’ Executive Vice President for Diamond Trading Paul Rowley is bullish about demand moving forward, after the industry scored a record year in 2021 on the back of diverted spend and stimulus cheques in the US, among others. During the pandemic, De Beers led from the front and managed supply carefully to achieve good outcomes. The industry contracted when Covid hit in March 2020. For the first time since the second World War, De Beers cancelled its sight scheduled for that quarter. “The objective was to bring calm to the marketplace. Our product does not expire. We wanted to make sure everyone was safe and the mines were secure. We were comfortable about slowing down production and holding on to the stock,” Rowley said. Sales picked up in the second quarter, and stock in the midstream and retail moved strongly as the desire and emotional connection to diamonds gave consumers a sense of stability amid uncertain times. De Beers – and the entire pipeline – entered 2021 in a strong position, achieving its highest retail sales. Pent-up demand, diverted spend, strong gifting possibilities and the reassurance of natural diamonds led to strong sales that pulled a lot of stock out of the midstream and retail. This in turn led to a robust holiday season in the US. “While 2021 was an excellent year and set strong foundations headed into 2022, the market got a bit ahead of itself. There was a strong pull from the US, and we saw speculation in the first quarter, which is not our policy,” Rowley revealed. “The Ukraine situation caused a brief stoppage of rough diamonds coming into the market, but that coincided with lockdowns in China that suppressed demand. That led to an interesting balance this year for a short period of time.” Market conditions While sales have been good throughout the year, De Beers is now in a traditionally quieter quarter as manufacturing calms down due to holidays in diamond centres. China remains the big question mark for Rowley, who sees certain Chinese goods building up stock in the midstream. “Our sense is that stocks in the retail level are relatively low. Once China reopens, there should be some pull through although it will take time to regain its footing,” he said. “Going into next year, production will probably be a bit lower, which should coincide with the market being a bit softer for the rest of the year. Given macroeconomic conditions, Christmas 2022 should be more normal than the exuberance of 2021.” India is booming though, with significant growth in the formal sector, Rowley noted. While this bodes well for De Beers, the Indian market is half the size of China hence does not replace this business. Vietnam and Cambodia are doing well too, perhaps due to the shifting of some manufacturing capacity out of China. Japan has been stable, and the US did extremely well in the first half of 2022, Rowley disclosed. Moving forward, the challenges include mitigating the impact of macroeconomic factors; maintaining demand through effective marketing, with a focus on branded propositions that have proven important to the future consumer; and matching production to demand. “Our product has proven to be tremendously resilient, with consumer desire remaining strong. Though we are in a VUCA – volatile, uncertain, complex and ambiguous – world, I expect 2023 to be a bit more challenging but we should find some stability. The competitiveness of our product category is strong, even in a challenging environment,” said Rowley.
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