Tiffany and Co Business Model Shifts to Fund Diamond Mines
9/25/2011 9:20:19 AM Shira
Tiffany and Co, the luxury jewelry brand, is increasing its financial activities in diamond mines. In exchange for better access to rough diamonds in the face of recent high demand among the wealthy consumer class, and forecasts of falling diamond supplies, Tiffany will divert more monetary resources into financing mines. According to Tiffany’s chief executive officer Michael Kowalski, the company plans on lending money to mines in exchange for the preferential right to buy rough diamonds, in a manner similar to a deal it transacted earlier this year—a loan of $50 million to a Sierra Leone mine.
This represents a bold effort by Tiffany to gain better control of its supply chain and follow the examples of other top jewelers, such as Harry Winston who expanded their business models to include diamond marketing and investing in mines.
"We have recognized that it may be necessary to commit capital to assure diamond supply," said Kowalski. "We’re not going to bet the company on the mining business. What we would do is ... look for selective opportunities."
Despite the global economic recessions, diamond prices have soared due to increased demands from wealthy consumers, particularly those in Asian countries. The value of high-quality polished diamonds of high carat weight (5 carats and over) has increased dramatically.
"We are absolutely facing an environment of shortage, and the shortages are greater at the higher quality levels, so we are in constant search of new supply sources," said Kowalski.
Decision makers at Tiffany are banking on the belief that the capital investment activities will help the company secure its supply of rough diamonds and raise its profit margins.