Imran Amed learns about the ups and downs of buying and selling diamonds and gold.
LONDON – Claire Hose exemplifies the internationally-mobile, savvy business leaders that make up our growing Luxury Society community.
Hailing from South Africa, Hose gained experience in the local jewellery and fashion industry, before landing in London to join De Beers Diamond Jewellers, the joint venture between De Beers and LVMH, in 2002. Her first role was in merchandising before she was to become the Supply Chain Director.
Last year, Hose joined Garrard and its sister company Stephen Webster as Chief Operating Officer, taking responsibility for the upstream supply chain of the London-based fine jewellery company at a time when key raw materials prices, including that of gold and diamonds, were in the middle of a rollercoaster ride. While diamond prices were dropping, gold prices were soaring.
Just last week, the price of gold hit an all-time high after the Indian government decided to hold $4b more of its reserves in gold bullion — a response to the depreciating US dollar. Following this announcement from the Indian Reserve Bank, gold prices shot up past $1,078 an ounce.
Clearly the price volatility of key raw materials is an important consideration for luxury supply chain executives like Hose. I caught up with her to get her read on how to manage these market acrobatics within the context of a challenging luxury market.
IA: When it comes to raw materials, what’s the biggest challenge high-end luxury jewellers like Garrard and Stephen Webster face today?
CH: It’s interesting. If you had asked me a year and half ago before the credit crunch, I would have told you that it was the availability of important diamonds.
In September of last year, diamond prices reached a record high. At the time, I was at De Beers and getting good quality stones was a huge challenge across the industry. Prices were increasing at 10% a month.
This was made even worse by the fact that there was a lot of inter-dealing further up the supply chain, so diamonds were not filtering through to the consumer market. Dealers were flipping stones to each other, making quick profits.
IA: So was there a market bubble in diamonds, too?
Yes, there was definitely a huge bubble — and then, after the stock markets crashed, it burst. Brands were suddenly left with excess inventory at high prices, and everybody stopped buying. The diamond manufacturing industry responded by slowing down production significantly in order to bring prices back in line.
But at the moment, sourcing stones is not the major stumbling block. Instead, the biggest challenge is the price of metal.
IA: Indeed, last week, the price of gold hit another record high. How do you manage this?
CH: There are two ways you can work with it. Obviously, you could just agree to pay today’s price, which is very transparent and based on a clear market metric. But then you are exposed to costs that can go up or down — lately, they have only been going up—which can make it very difficult to manage your margins.
On the other hand, you could work with your suppliers to fix your cost price for six months for a specific quantity of gold to achieve a specific margin. However, using this method, your prices might be a little less competitive at the retail level, as there is a premium you pay for the privilege of locking in prices.
I like to deal very openly with it. I talk to our suppliers and say that we want to fix our gold prices so that we can manage our business and our prices, but we prefer to check in after three months to ensure the price is still fair.
This requires transparency and clear communication. We are able to be open with our suppliers in a way that some larger companies may not.
IA: Is it strategic, therefore, to have a small base of preferred suppliers? Or, is it better to have as many supplier options as possible so you can get the most competitive price?
CH: I think the answer depends on the size of the business. For a business of our size, we feel it is better to have a good relationship with a few suppliers. We are not a large enough business to be a big fish in many different ponds. Instead, we focus on building a few strong partnerships with suppliers for whom our business is important.
IA: We have spoken of the cost side, but how do you manage the pricing side of these market dynamics? *
CH: While a lot of brands increased prices at the beginning of this year around February or March, Garrard didn’t because it was part of our strategy to be positioned at the most competitive price possible for the quality that we offer. As our brands are still in a high growth phase, we took the decision to remain competitive on price, rather than to preserve margins at this stage.
IA: Do you think consumers are well-informed about the price inflation of these precious raw materials?
There is probably a segment of consumers that is aware of this, but this is not so generally speaking. Most consumers don’t seem to make the connection that retail prices have not gone up as quickly as the price of raw materials.
Consumers are getting very good value today.
IA: Now that the bloodshed has stopped in the hard luxury market, and things don’t seem to be getting worse, going forward, what do you see as the key issues in sourcing high quality raw materials and managing the supply chain?
CH: As always, it’s about price and reliability, especially as it concerns diamonds. There’s a lot of industry talk that pushes prices up and down, like a form of internal hype that created the bubble in the first place and inflated the prices.
I think there’s a risk the diamond industry will try to create more hype in order to raise prices back to earlier levels.
IA: All of that said, even with world-class strategic sourcing, luxury jewellery is about design, is it not?
CH: Yes, in a sense, design is everything. Raw materials don’t excite consumers; design does. Without design, there would be no brands. Design is the pivotal element in communicating what a jewellery brand stands for.
Garrard’s recent collaboration with Georgina Chapman of Marchesa is the perfect example. Certainly it works because Marchesa fits very well with Garrard, but it also works because her designs are unique and special.
She is all about feathers and a lot of that comes though in the jewellery. Everybody who sees it likes it. This appeal spans various age groups, attracting people with different tastes, from classic to edgy. This is very hard to achieve with jewellery, and therefore speaks to the quality of her designs.
Imran Amed, Editor-in-Chief