RAPAPORT... Oriental Diamond Co., Ltd. of Tokyo has been acquired by Nissen Co., Ltd. of Kyoto for an undisclosed amount, effective April 1. Oriental Diamond, a 100 percent subsidiary of Sumitomo Corporation, one of Japan’s largest trading firms, was incorporated in 1966 with strong support from De Beers. During its heyday, the company had a diamond-cutting factory in Ofuna, on the outskirts of Tokyo, and enjoyed the status of being Japan’s first sightholder among approximately 200 sightholders worldwide. But when De Beers was suspected of infringing antitrust laws several years ago, Oriental severed its ties to the company.
Throughout the decade-long recession that started in the early 1990s, Oriental, along with the rest of the diamond trade, struggled and sought ways to survive. In addition to selling loose stones to wholesale markets, Oriental created jewelry lines and wholesaled them to retailers and department stores. It also opened 13 retail stores, two of which are directly managed by Oriental and 11 by Oriental’s subsidiary, Trecenti Co., Ltd. Some of Oriental’s brands, such as “Hoshi-no-Suna” and “WISP,” turned out to be quite successful among young consumers. Under the terms of the acquisition, all of Oriental’s stores, employees and intangible assets such as brands and expertise are being transferred to Nissen.
Win-WinNissen Co., Ltd., on the other hand, is a marketer of diversified high-fashion merchandise, including kimonos, apparel, interior goods and furniture, with annual sales of 155 billion yen ($1.3 billion). Eighty percent of Nissen’s sales are from mail order and/or catalog sales, while the remaining 20 percent are from exhibition show sales and trunk show operations, which often include jewelry. Nissen is publicly traded and is listed on the Tokyo and Osaka Stock Exchanges, with capital of 7.7 billion yen ($65 million).
“We acquired Oriental Diamond as we wish to strengthen our jewelry businesses. Now that we have manufacturing to retailing under our control, we anticipate this objective will be achieved,” said Kazuhiro Oda, Nissen’s director of investor relations. Prior to the acquisition, the company had no business relationship with Oriental. The merger was arranged through Nissen’s bank, said Oda.
“This is not a bad deal for anyone involved,” said a market observer, noting that Oriental’s expertise will not be wasted but rather strengthened by merging with Nissen, and Nissen will gain retail stores, which it did not have before but which it coveted. “This is just speculation,” said the observer, “but a couple of big kimono marketers with operations similar to Nissen’s have gone bankrupt in recent years, causing concern over consumer credit. Owning and running brick-and-mortar retail stores is a credible business.”
“For Sumitomo, Oriental’s parent, why should they waste time with diamonds and jewelry when the rest of the world’s commodity markets are heating up? This is the area where big trading firms like Sumitomo excel, rather than running diamond businesses,” commented another market observer. In fact, Sumitomo’s stock price has rallied over the past year. “Sumitomo must have loved the opportunity to let go of a subsidiary whose performance has been lackluster for some time,” he said.
Changing TimesIt was not only Sumitomo, but other big trading firms such as Itochu, Mitsubishi and Marubeni, that joined the arena of diamond trading and jewelry marketing during the 1980s and early 1990s. None of them are in the business today. “It was not a good idea for big trading firms to be involved in diamond businesses in the first place,” said Masahiko Akaike of Orient 4Cs, a diamond and jewelry manufacturer/wholesaler. “This business requires lots of money, yet the profit margin is so thin. These big firms were financially well off, but it takes more than financial resources to run jewelry businesses — it takes finely tuned expertise. You have to know the products you sell, know where the markets are heading, know your clients, know how to merchandise and maintain and replenish inventories. None of this is easy.”
As opposed to big trading firms, Akaike mentioned big jewelry firms — Kashikey, Uchihara, Nagahori — Japan’s homegrown jewelers for generations. “Despite long recessions and international brand aggression from abroad, they have stayed in business,” said Akaike. And in recent years, they have grown stronger, more sophisticated, and are even advancing to overseas markets.”
“Mergers and acquisitions do not happen every day for most old-time jewelers,” said Yasuhiro Fujimura, another market observer. “It was shocking to learn that once-famous Oriental was being bought by someone else. We must understand that the times are changing.”
“The only thing changed is the ownership of the company. Nothing else has changed,” said Hiroshi Gotsu of Oriental Diamonds. “At our office, it is business as usual.”
The Marketplace• The market in general is weak. Indian buyers got active when the yen weakened.
• As the bridal market continues to lag, pointers are weak.
• The Platinum Guild International’s (PGI) “Propose Again” campaign is being very well received.
• Demand for larger sizes of 3, 5 and 10 carats is strong. Larger stones are becoming scarce.
• It is suspected that high-color, better-quality-material stones — smalls, melees, stars — are being shipped to Hong Kong to be set in jewelry in Mainland China and then exported to the U.S.
Article from the Rapaport Magazine - May 2007. To subscribe click here.