Recently, Richemont, Kering and Danish jewelry brand Pandora Group have all announced their withdrawal from the Responsible Jewelry Council (RJC) in protest of the group's failure to cut ties with Russia, one of the world's leading rough diamond producers. In a statement to WWD, Richemont said: "Richemont and its brands do not want to be part of an industry organization that funds conflict and war. ”
In its statement, Kering said that in view of the inability of the Responsible Jewelry Industry Committee to respond to the current situation in Russia and Ukraine in a manner consistent with Kering's corporate values, the Group has decided to withdraw from the Council through its jewelry brands Boucheron, Pomellato, Qeelin and Gucci.
Prior to this, Tiffany & Co. of the LVMH Group's jewellery brand It has also announced a total suspension of the procurement of rough rough from Russia or diamonds that are mined in Russia and cut and polished elsewhere.
The Responsible Jewelry Council, which has nearly 1,500 members, said it was deeply shocked and concerned by the Russian-Ukrainian conflict and the resulting humanitarian crisis, and had launched an independent third-party legal assessment to determine what measures should be taken. "The process began with a view to considering the status of Alrosa, Russia's largest diamond mining company, as a member of the Responsible Jewelry Industry Committee to ensure that appropriate action was taken, respecting the principles of natural justice. And more importantly, it's within the board's purview," David Bouffard, chairman of the Responsible Jewellery Council, said in a statement.
Alrosa
The American Jewelers' Trade Association also recently issued an industry-wide memorandum urging jewelers to stop buying and selling diamonds, precious metals and gemstones originating in Russia or Belarus, saying that the trading will carry serious moral, reputational and legal risks.
The jewelry industry's boycott of Russian diamonds is ostensibly in line with the fashion industry's ethical stance, but at a deeper level, the groups and brands that launched the boycott also need to bear the short-term turmoil and cost increases caused by supply chain changes. Therefore, this diamond "moral battle" is also the same as the suspension of the Russian market business of fashion luxury goods - public opinion pressure, brand values and business interests, although the trade-off between the three factors will prompt brands to make a clearer position choice, but behind the choice is often accompanied by a series of risks.
The import restrictions imposed by Western countries and hard luxury brands on Russian diamonds have now put the global diamond trade market in the eye of the storm, and may trigger a series of chain reactions.
Because for the market, the first "biggest victim" of sanctions on Russian diamonds is Alrosa, which is precisely a giant in the diamond production industry, and the suspension of transactions with Alrosa will undoubtedly make many jewelry retailers with whom they do business face a lot of raw material shortages and supply pressures.
According to Alrosa's 2021 financial report, its sales for the full year last year were $4.16 billion, net profits reached $943 million, and rough diamonds mined more than 32 million carats. With a total of 116 million carats mined by all upstream miners last year, Alrosa alone accounted for nearly a quarter of its production. It can be seen that the market volume of Alrosa is so large that it can be said that diamonds mined through Alrosa can be found almost everywhere in the global market.
It also has a 95% monopoly on Russian diamond production and is the world's second-largest diamond producer after De Beers. It is also a diamond jewelry retailer Signet Jewelers, american jewelry brand Tiffany & Co. Major rough supplier to Chinese jewelry brand Zhou Shengsheng.
Alrosa is the world's second largest diamond producer after De Beers
But even though some jewelry brands haven't completely cut off their dealings with Alrosa, it will become increasingly difficult for them to source rough diamonds from Russia and Alrosa as the toughest series of financial sanctions in history come into effect. Diamond market analyst Paul Zimnisky said that the wholesale diamond industry may soon experience weeks or even months of delivery delays, after which these problems will be transmitted to the terminal retailer. At that time, the shortage of the global diamond supply chain will continue to emerge.
In the context of the rapid growth of the global hard luxury market, any instability will increase the downside risk of the industry. As an important part of the diamond market, once the rough supply chain fluctuates in the short term, it will inevitably affect the sales of downstream retailers and jewelers. So from the perspective of business logic, the suspension of business in Russia is more like a symbolic act. A brand manager, speaking on condition of anonymity, told WWD: "It is vital to provide humanitarian support to people at risk of war, as is respecting or following Western government sanctions against Russia." But brands need to understand that real life continues, and the business of brands and large companies will not stop, and companies need to consider business factors and relationships. ”
Whether it's withdrawing from RJC in protest or stopping sourcing diamonds from Russia and Alrosa, brands know the risks behind these moves. It is only in terms of public opinion pressure and defending values that brands must set a clear example. After all, today's consumers also demand that brands need to take a clearer stance, and what was previously ambiguous or outright blind is now a risky coping strategy.
After the outbreak of the Russian-Ukrainian conflict, Alrosa voluntarily resigned as vice chairman of the RJC in early March and temporarily left his board seat. At the same time, Alrosa suspended its membership and funding in the Natural Diamond Council and removed the list of its clients from its website, which was seen as a way for it to help the RJC, the Natural Diamond Council and its clients reduce public pressure.
But the capital structure behind Alrosa is closely linked to the Russian government, which is why the industry is pointing the finger at Russia's largest diamond producer. According to Alrosa's previously disclosed information, the Russian government holds a 33% stake in its company, the company's CEO Sergei Ivanov was also a target of U.S. sanctions, and his family background is also very close to the Russian government, so it is not difficult to understand why many brands will target Alrosa.
But aside from these political factors, Alrosa may be one of the best partners for major jewelry retailers. From above-average employee compensation, to union holdings in the company to establishing a complete diamond traceability system, Alrosa is arguably one of the most ethical and sustainable companies in the diamond industry today. Yet these efforts can only be "victimized" by geopolitical conflicts, and a spokesperson for Alrosa said the company is doing its best to mitigate the impact of conflicts and sanctions on customers.
At the same time, brands and retailers themselves are looking for countermeasures to cope with predictable market volatility.
Tiffany & Co. In response, WWD revealed that the brand has completely stopped importing rough diamonds from Russia, as well as gemstones mined in Russia or cut and polished elsewhere. Also Tiffany & Co. Since 2020, it has provided its customers with complete supply chain profiles of all diamonds weighing more than 0.18 carats, enabling both customers and consumers to monitor whether brands are sourcing responsibly.
However, the new ban on Russian diamonds by jewelers has now been extended to all diamond sizes, including very small broken diamonds. Tiffany & Co. He said that the brand's new standard already includes this small size of broken diamonds, even though it may be more difficult to achieve accurate "isolation" of Russian diamonds in practice, but a brand spokesperson said that Tiffany & Co. Its suppliers have been asked to distinguish packages of goods from Russia from packages from other places.
Another Tiffany & Co. A brand spokesperson told WWD that about a third of the world's diamond supply comes from Russia, and Tiffany & Co.'s own diamond supply chain is on par with that number. Brands expect the boycott to not lead to any supply chain tightness and emphasize that they have taken steps to ensure a smooth transition between supply and sales. Diamond products already in circulation and purchased from Russia will continue to circulate, and consumers can make their own judgments about whether to make a purchase through the transparent file of the supply chain provided by the brand.
Another analysis pointed out that the sanctions on Russian diamonds will not immediately affect jewelry retailers, because most of the head brands have sufficient rough reserves, generally can support brand sales for up to three to five months. But for other smaller brands, inventory pressure will increase in the short term.
Most head brands have ample rough reserves
However, some analysts also pointed out that because the proportion of Russian diamonds in the global market is too large, and most of Russia's diamond exports are rough diamonds without processing, Russian diamond dealers such as Alrosa can still cut and polish the rough through other countries that have not imposed sanctions on Russia, such as India and Brazil, and then export, so that the exporting country is no longer Russia. Diamonds are "whitewashed" by transferring origins, thus exploiting the loopholes in sanctions, so the market may not be able to completely resist Russian diamonds.
But it's like Tiffany & Co. Similarly, in recent years, with the increase in awareness of sustainable development and responsible sourcing, many brands have established transparent supply chain information, including many organizations such as RJC and Natural Diamond Association, which have also invested a lot of resources in supply chain issues. In addition, the boycott of Russian diamonds will also bring opportunities to other diamond export markets, such as India and Israel, which may replace Russia as a new supplier to major jewelry retailers.
However, brands must be cautious, due to the increased transparency of the diamond supply chain, the market and consumers will have a more intuitive way to monitor the brand's purchasing behavior, so brands also need to conduct as much as possible full testing of their supply chain, so as not to "mix" the influence from Russia in some processing links. In addition, the epidemic has been developing for more than two years, during which time the shortage of global supply chains, shipping congestion, and labor reduction have led to a decline in natural diamond production. Therefore, regardless of whether the Russian-Ukrainian conflict occurs or not, brands need to focus on their own long-term development, conduct real-time monitoring and risk assessment of the supply chain, in order to cope with the increasingly frequent market environment of black swan events, as well as moral review and public opinion supervision from the market and consumers.
Luca Solca, an analyst at Bain, believes that the decision of the fashion luxury brand to suspend its business in Russia will cause a certain loss of sales and the loss of a part of the consumer, but this impact can be offset by business in other markets, and the brand can also establish a more positive brand image. According to a report released by Morgan Stanley in February, the importance of Russia and its citizens to the development of the luxury industry has been declining for many years and is now in a "relatively insignificant" position.
Morgan Stanley said that for LVMH and Kering, Russian consumers account for about 1% of their global sales. Burberry and Italian brands are more popular with Russian consumers than French luxury brands, generating around 2% of sales for brands such as Moncler, Prada, Salvatore Ferragamo and Tod's.
Russia is not an important consumer market for luxury goods
In addition, even though the European Union has banned member states from exporting luxury goods to Russia, the fact is that luxury spending by Russia's wealthy classes occurs outside Russia. According to global blue, a duty-free shopping company, Russian tourists spent an average of 1,215 euros per transaction in Italy in the 12 months to February this year, an increase of 78% over 2019 before the pandemic.
In the context of high globalization, brands also need to realize that whether it is taking sides, taking sides, taking a stand, or supporting, it is not a foolproof strategy, and each decision will have a reaction and impact on their own development in some aspects. However, for now, fashion brands under the tide of globalization have no other way, the superposition of objective and subjective factors has made them walk on thin ice, "careful" and "balanced" is the only way. WWD
Written by Karlie
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