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Uchihara Taking Japanese Diamond Brands International

Q&A with Ichiro Uchihara, CEO of Uchihara Group

Jun 19, 2015 2:23 AM   By Avi Krawitz
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RAPAPORT... Uchihara Group is an Osaka and Tokyo-based jewelry wholesaler and retailer catering to high-end consumers through its brands. In his first interview in decades, Ichiro Uchihara, CEO of Uchihara Group, spoke with Rapaport News at the recent JCK Las Vegas show about the company’s strategy and efforts to expand its brand equity in Japan and Asia.

Rapaport News: What is your background and that of Uchihara Group?

IU: My great grandfather, Kaname Uchihara, started a retail business in Osaka, Japan in 1920, marking the beginning of Uchihara Group’s history. Therefore, we’ll be celebrating our 100th anniversary in 2020.

I’m fourth generation in the jewelry business and I use much of what I learned from my father, Keisuke Uchihara. Before him, the company was focused on watches and clocks, and less on jewelry. He challenged the way we do business and our jewelry sales increased under his leadership.

He would travel to the cutting centers to purchase loose diamonds and he expanded the business from Osaka to Tokyo. My father also started the wholesale business, reselling many of those imported loose diamonds.

At that time, Japan was experiencing rapid economic growth and my father succeeded to grow the family business into an international diamond and jewelry company.

I graduated with a degree in economics from Kyoto University’s Economic School. I then studied gemology at the Gemological Institute of America (GIA) and also became a fellow of the Gemmological Association of Great Britain (Gem-A).

After that, I worked in information and communications technology (ICT) and in consulting. When I returned to Uchihara, I realized that business practices in the diamond and jewelry industry were different to my experiences in other fields, so I started to reform the company.

Rapaport News: What did those reforms entail?

IU: I gradually withdrew under-performing sales outlets, very slow-payment clients, and cut off unprofitable brands. Today, only the stronger-performing retail outlets, trustworthy clients and sustainable brands remain. Through that process, we improved our cash flow and return on capital.

At the same time, we developed our branding strategy to establish internationally sustainable brands of our own.

In 2006, Uchihara launched SA Birth, which is an important diamond and diamond jewelry brand in Japan. This year, we’re promoting our brand strategy more than ever and we formed a strategic partnership with Royal Asscher.

We’re now planning to expand our business across Asia. As a Japanese brand, we feel that all Asian people love and trust Japanese brands, companies and products.

Rapaport News: What is your business model?

IU: Uchihara Group operates both retail and wholesale operations with a strong focus on brands in the mid- to high-end market in Japan and the rest of Asia.

Having started as a retailer, we have strong consumer and retail know-how. We also have a dominant position in Japan, which is a very quality-conscious diamond consumer market.

Our strategy to go upstream and closer to the source means that we now have a good business base at both ends of the supply chain.

We’ve established a unique vertical integration system through which we import loose diamonds from leading manufacturers, develop our own designs and make them into jewelry pieces mainly in Japan.

Our focus is on the branding, marketing, wholesaling and retailing of diamonds, colored gemstones, pearls and jewelry. We also import select European and Asian jewelry, which we brand and sell at the wholesale and retail level.

We sell at our own stores and at leading Japanese department stores, which hold greater prestige than those in Europe and the U.S. Department stores are supported by many wealthy people in Japan.

Our strategy has been to establish sales counters and shop-in-shops at the best locations in the Japanese department stores. We send our own sales people to the stores to sell our own merchandise to consumers. It’s essentially our operation and we don’t sell wholesale to the department stores.

Therefore, the company has transformed from its focus on trading and importing generic diamonds from India, and wholesaling those goods upstream. Today, Uchihara is more of a platform that distributes its own brand, along with other foreign and domestic brands, to the Japanese market and to South East Asia.

Rapaport News: What is the concept of the SA Birth brand?

IU: Our main strategy today is branding and our ability to bring diamonds from the source to the consumer.

One of Uchihara’s most important brands is SA Birth, which uses diamonds that are mined in southern Africa – South Africa and Botswana – and cut and polished at the local factories of a leading De Beers sightholder in those countries. We’ve enjoyed a partnership with that sightholder for decades.

Therefore, we offer full traceability of diamonds larger than 0.18 carats. Using carefully selected brilliant diamonds from southern Africa, we design and set the stones into jewelry in Japan using the country’s high processing techniques.

We’re very proud to be a pioneer in beneficiation, bringing a traceable, brilliant southern African-origin diamond brand to consumers. We’re able to explain that every purchase of an SA Birth diamond and piece of jewelry will contribute to better living standards in southern Africa, which satisfies the Japanese consumer.

Another key value of Uchihara is that we specialize in the medium to high-end market in Japan. Many of the most exclusive and prestigious diamond and jewelry pieces sold in Japan have been directly or indirectly related to Uchihara.

Rapaport News: How is the market in Japan?

IU: During the so-called bubble economy of the late 80s and early 90s, Japan had a large share of world diamond consumption, accounting for more than 30 percent of the global market.

After the economy collapsed, the country’s market share declined and many Japanese and foreign dealers withdrew from the market. However, well-managed companies remained, and some got even stronger.

Japanese consumers continued purchasing diamonds even through the 20-year recession. Uchihara sold more expensive diamonds and jewelry pieces in those years than before. The Japanese market today is mature and it’s still a good market.

Rapaport News: Have the economic measures taken by Prime Minister Abe affected the diamond and jewelry industry?

IU: The main policy of so-called “Abenomics” was the drastic monetary easing. As a result, we have very low interest rates and a large money supply. This influenced a remarkable rise in the stock market and a weakening of the yen currency.

The Nikkei average, which was around 9,000 before the Abe administration, is now over 20,000. The exchange rate has depreciated from 80 yen to the dollar to over 120 yen.

The asset effect, due to the rise in stock prices, inspires wealthy consumers to buy more, which is good for the diamond industry. However, it is not desirable for the local diamond industry that the cost of imported goods has gone up significantly due to the yen depreciation. Retailers and wholesalers have endured many price revisions, and that affects consumption.

Another aspect is that more bank loans have been available at very low interest rates for healthy Japanese companies. Japanese banks suffered less from the fall of Lehman Brothers than banks in the west, and their financial foundations are very healthy. They’re willing to lend more to companies that are performing well.

Rapaport News: What is the most important thing to know about Japan’s diamond and jewelry market?

IU: Japanese consumers are among the savviest in the world when it comes to quality. They often reject tiny imperfections that might be insignificant in other markets.

The second point is that there is a significant language barrier since consumers and dealers in Japan are generally not good at English.

Thirdly, there are many wealthy consumers in Japan but relatively few billionaires. According to Credit Suisse’s Global Wealth Report, there were 2.7 million millionaires in Japan in 2014 and it is estimated that the number will reach 4.7 million by 2019. However, Japan has only 24 billionaires, according to Forbes, so the income distribution is relatively well spread.

Rapaport News: How should overseas diamond companies approach entry into Japan?

IU: There are opportunities, but companies need to fulfill some requirements. Firstly, they need to have a good local partner.

Importantly, they also need to make their differentiation understandable for Japanese consumers, so that those consumers can see the benefit in buying from them. It’s a competitive market and there are already many foreign and domestic diamond and jewelry companies operating there. Therefore, companies need to ask what unique benefit their product brings to the Japanese consumer.

It’s not good enough for a company to say that their product is special, exclusively designed, handmade or contains quality stones. What matters is how consumers perceive them and the benefits they are going to feel. If they don’t see that benefit, then it would be more effective for a company to recognize that its merchandise does not have any particular uniqueness and sell at low prices.

Rapaport News: What are the biggest challenges facing the diamond industry today?

IU: Ensuring consumer trust and satisfaction is most significant. At Uchihara, we’re very careful to eliminate synthetics, conflict diamonds and treated or enhanced diamonds from our supply. We’re able to avoid the risk of losing consumer trust that might result from those problematic diamonds.

That is another reason why Uchihara started SA Birth, in order to keep consumers confident and satisfied.

Rapaport News: What advice would you give someone starting out in the diamond and jewelry industry?

IU: Trust is key to this business. Do not start a diamond and jewelry business without money, but also don’t start it just because you have money. You have to find the right partners whom you can trust and find your own sustainable recipe for success.

Rapaport News: How do you envision your business 10 years from now?

IU: We have a very clear strategy that revolves around branding. Our goal is to brand retail, brand distribution and brand management.

I’m proud that SA Birth has already become the best diamond and diamond jewelry brand from Japan. Our focus now is to make SA Birth one of the best international diamond brands, while other brands, such as our partnership with Royal Asscher, are also very important to us.

I believe that being a branded group is more effective to develop in Asia and our intention is to increase the equity of each brand. The gross domestic product (GDP) of the Asian market is expected to soon account for half of global GDP. Our strategy is to capitalize on that growth by establishing a branded group of Japanese origin in the region.
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Tags: Abe, Abenomics, Avi Krawitz, Botswana, De Beers, diamonds, Japan, Jewelry, Rapaport, royal asscher, SA Birth, South Africa, Uchihara
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