News

Advanced Search

Lev Leviev’s Market Strategy

Nov 1, 2001 5:12 PM   By Martin Rapaport
Email Email Print Print Facebook Facebook Twitter Twitter Share Share










Lev Leviev’s Market Strategy



By Martin Rapaport



Lev Leviev, the 45 year old Russian-born Israeli diamantaire is a major force of change and development in the diamond industry. Leviev’s group has exclusive rights to all of Angola’s diamond production and is a major worldwide manufacturer of polished diamonds and jewelry. In this exclusive interview with Martin Rapaport, Leviev shares his insights and perspective of the current state of the diamond industry.





Martin Rapaport: How do you access the diamond markets after the attacks in the United States?





Lev Leviev: No one expected or dreamed that this could happen. I am saddened by the terrible terrorist attack and hope that the American people and economy will recover as quickly as possible.





Ever since the big crisis in 1980 there has been an upward trend in the diamond markets. During the last 20 years there were hard times economically in one region or the other but it was always balanced by positive developments in another region. One country had a crisis while another was thriving. Hard times in Japan and the Far East have little by little moved the diamond business to the United States. The big hope for the diamond industry has been America. No one dreamed that there could be a problem like this.





I hope this turmoil will pass and that it will only take a few months for business to return to normal. However, until business returns to normal we must be concerned about what will happen to all the workers in the diamond industry. That is the question. We have dealers, small manufacturers, large firms, jewelry manufacturers and many others. We must be concerned with the overall diamond sector from a global perspective.





The diamond industry is primarily dependent on the policy of the rough suppliers. If the rough prices are stable and strong and goods aren’t thrown on the market, then there is protection of the polished and jewelry price levels. Certainly, De Beers, who has watched over and protected the diamond market for so many years, is trying to continue to do this job as best as possible in the current situation. We must recognize and appreciate De Beers’ efforts in this regard.





On the other hand, in the past we have seen that even during the smallest crisis many people were forced out of the diamond industry. Companies closed and many manufacturers simply stopped manufacturing. The reason for this is that while De Beers protected the prices, they did not protect the manufacturers and dealers involved in production by ensuring that there were sufficient profits to enable them to survive during difficult times. The rough prices were always so high that manufacturers had little or no profits. Therefore, many in the trade could not withstand even the smallest crisis and may now be forced out of the business.





Increasingly, we see that buyers are turning to larger and more stable companies. Many understand that the business has moved to the U.S. important jewelers and large chain stores need to know that they can rely on suppliers that are secure and consistent.





There is also an increase in rough diamond sources. There are more rough diamonds in the world and insufficient quantities of rough are being absorbed. I hope this will change.





MR: What do you think about De Beers’ new policies?





LL: I am not expert in what De Beers does but from what I hear from sightholders, many are unhappy and it appears that De Beers is confused. De Beers had made declarations that they will choose clients and support the market by tightening up distribution. But the opposite has become apparent. De Beers today is looking for customers to whom to give rough. Today we are witness to the fact that De Beers changes its marketing policy constantly. I think that this approach misses the point, because it does not support the market in the face of the difficult situation that we are confronting today.





If one considers the non-Indian sightholders, almost all of the assortments are broadly distributed to the entire group. For example, if you have a box — say 3 to 6 grainers — then some 40 firms are getting this same assortment. I think this is a mistake. De Beers should cultivate specific manufacturers that specialize in specific sizes and qualities and develop them exclusively. Manufacturers that specialize in specific types of goods should be supported. Instead, De Beers creates competitors for them by distributing similar goods to other sightholders, hereby creating the effect of undesired price reduction, instead of supporting every manufacturer according to his specialization.





De Beers would have been able to control the types of goods distributed to their clients as they have planned under supplier of choice, if they had protected the profitability of their clients. If they had seen to it that their clients had profit reserves. The big problem with De Beers is that they do not let their people make profit at all. Period.





Because of this, I am quite skeptical about whether their plans can work. I think they need to understand that there is no general without an army and their army is their clients. They have to let their clients enjoy profits in order to support the new direction De Beers wishes to establish.





MR: The market says that you are De Beers’ biggest competitor. They say that in the current market your prices are below De Beers.





LL: I don’t know if I determine the price in the world. I think we live according to the market. We don’t lower the price in the market. I hear the opposite — that I sell at very strong prices. It’s obvious that customers always want to buy cheaper, but we work in a system that is very different from De Beers and much more suitable for the manufacturer. We sort the goods differently and present them differently.





With us, the manufacturer is offered a very select assortment. Not in a box that is comprised of goods that are from $100 to $500 per carat or $1,000 to $3,000 per carat. With us, he sees a price difference of only 5 percent to 10 percent in each assortment. We sort the rough more thoroughly than others sort their polished. We assort to the needs of every manufacturer providing exactly what they want.





I don’t look for big clients. We build on and believe that we must develop the mid-level manufacturers. I believe that in my time, if I was not cultivated properly, I would never have gotten to where I am today. We must develop the mid-size manufacturers today because they know how to work the goods. And we must develop them in a way that assures them a good profit. I will never push a customer to buy goods that are not suitable for him. I will only sell him the goods that he can manufacture and sell. And I will price the goods so that he can sell profitably. While we do not give our customers any big gifts, we make sure not to push them into the slightest loss.





MR: How do you decide the price?





LL: We know the price of polished and we live according to


the market.





MR: Do you price according to De Beers prices?





LL: De Beers has a number of price books — their own, one for their partners, a price book for working with the Russians, the price book they sell at, etc.





We don’t work like this. We know that all our partners — those we buy from and those that we sell to — must make profit. We make sure that the profitability is divided fairly among all. Then we can grow together with our partners and customers.





MR: What about Russia?





LL: Russia is one of the most interesting sources of rough diamonds. They have a partnership of many decades with De Beers where they sell their rough through De Beers. In the current situation, I strongly encourage and recommend that the Russians renew their agreement with De Beers. The agreement is not only good for De Beers, but also for the Russians. The De Beers’ buying price list for the last two months is relatively high. And it would pay for the Russians to renew the agreement with De Beers.





I have never presented myself as a candidate to replace De Beers in Russia — not in talks, not in writing and not in newspapers. It is not in my interest. For me, Russian rough exists only to manufacture polished. I do not export any rough from Russia.





My profits from manufacturing polished in Russia are much higher than I could make by selling the rough. So I recommend the signing of the agreement with De Beers and I help from the Russian side, without De Beers necessarily knowing. I think the agreement is important for me as well as everyone else in the industry.





MR: Is there a danger that Russia’s Gokhran (stockpile) may release rough that could unbalance the market?





LL: Gokhran no longer has the inventories that it once had. It has very small inventories left with goods that are not very saleable. Russia is no longer a threat to stability. Our great luck is that the large inventory accumulated in Russia was absorbed into the market over the last 10 years when the market was relatively good and the sale of these goods did not damage the markets.





MR: How much rough do you sell a year?





LL: Over $1 billion.





MR: And polished?





LL: The turnover of the entire Leviev Group is over $2 billion





MR: So you have great power in the diamond markets and are able to compete with De Beers. What is better — business polished or rough?





LL: I will tell you. When people say that I am a competitor of De Beers I think they miss the point. I am not a competitor and do not wish to be a competitor of De Beers. De Beers, even in its 100 years of existence, never built an independent infrastructure from rough to polished. This is what I have done. We have a totally independent infrastructure. I am not dependent on anyone for my rough. I don’t depend on anyone for my factories and I don’t depend on anyone for my marketing.





Therefore, our group is considered and known as one of the most efficient and sophisticated diamond manufacturers in the world. We know how to optimize the diamond and have invested tens of millions of dollars to build the most modern and efficient polishing factories in the world. There are many developments and new technologies that can be used in order to produce diamonds more efficiently. Companies that use the same production methods they have used over the past 10 years cannot compete with us effectively. We are using state-of -the-art technology.





MR: So there is more profitability for you in polished than rough.





LL: Certainly.





MR: How do you market the polished?





LL: Our marketing strategy is to distribute our product to a relatively small group of select clientele, people that we know and consider to be strong, loyal and reliable. We believe in our customer’s abilities and capabilities regarding the distribution of our polished as it continues to its final destination. Using this method enables us to form a strategic alliance with our customers.





Our policy is to strengthen and support our clients as opposed to competing against them.





Sales from January through October of this year have already surpassed our year 2000 sales and we therefore expect a double-digit increase in polished sales for the year 2001.





In Eastern Europe we have jewelry companies and retail stores. In Moscow, we have one of the largest and oldest jewelry factories with close to 1,000 workers and we supply jewelry with diamonds to retailers. We have our own retail chain of stores in Eastern Europe.





Of course it is not easy to control all of this. But we maintain independence within our group. Our jewelry manufacturing and retail stores are managed as a completely separate profit center. They are run as outside companies with their own profits and losses. Companies in our group do not get goods at prices below the prices we sell to anyone else. No one gets goods at a reduced price. Everyone gets the same price and everyone has to deal with the market conditions.





MR: Why do you not polish all


your goods?





LL: Given the very large quantity that we sell, I don’t think it would be possible for us to sell it all in polished. Also, I have to protect our entire distribution system and be sure that we develop customers at all levels of distribution.





MR: What about goods that are hard


to sell?





LL: The hard-to-sell goods are mostly in small sizes and are produced by inexpensive manufacturing methods in India. We have therefore stopped manufacturing smalls. We don’t produce anything under 10 points in polished.





Our group is gradually reducing activity in several areas. For example, we are one of the largest manufacturers of fancy shapes. We now manufacture fancy shapes only from 1/4-carat polished and up. We stopped producing quarter carat and smaller, for we prefer to invest our best efforts in manufacturing goods, that allows us to use our sophisticated technological potential.





Our fancy shapes production specialized in the special makes. We are manufacturing a huge amount of large fancies and are very strong in princess cuts. For smaller polished diamonds where labor costs are significant, we cannot compete with the Indians. We can compete when manufacturing sophistication, expertise and efficiency is critical but not with small rounds or fancy shapes where there is little sophistication in the manufacturing process. To hire many people for a small gain in turnover is not interesting for us.





MR: Where do you manufacture polished?





LL: We have three large factories in Russia, a large factory in Armenia, and a fairly successful factory in Ukraine. We also manufacture in China and South Africa and have a large business presence in other regions.





MR: Are you a sightholder in South Africa?





LL: Yes.





MR: I understand that you are involved in diamond mining in Angola and Namibia. Are you planning to expand this activity in Africa?





LL: Today, because everyone is in a panic about the market, it is easier to become involved in the diamond mining business. We do not have many competitors in this area. The diamond mining business in Africa is now controlled almost totally by De Beers. Medium to smaller size projects don’t interest them even though these projects can be very profitable. Therefore we are becoming involved with more mining projects.





Our involvement in Angola has encouraged us to progress in the area of mining. When we started in Angola, there were no competitors and no organized mining activity. The buyers, then in Angola, were only interested in alluvial diamonds. No one was interested in investing in a mine. Our success in Angola results from our investment in the Catoca Mine. This mine currently produces nearly three million carats per year at a value of over $200 million. Next year, we hope it will produce $300 million and $400 million the year after that.





MR: Do you market all this rough?





LL: Yes.





MR: Is there a problem with conflict diamonds?





LL: We don’t feel this problem with the goods we export and I think that it is diminishing. People understand how dangerous it is to be involved with conflict diamonds and do not want to have anything to do with them.





MR: We hear that Angola has problems with UNITA.





LL: I’m not familiar with what happens with UNITA but I don’t hear that there are large quantities of conflict diamonds leaving Angola.





MR: What steps do you take in Angola to ensure that you don’t buy conflict diamonds?





LL: We invested a very large amount of work on this matter. In Angola, it is forbidden for anyone to carry diamonds unless they have a certificate of permission issued from the Ministry of Mines and Geology. Everyone who lives in a specific area can receive a permit that is only good for his area. He cannot carry or buy diamonds in a neighboring village or any other area.





Angola has a rather close society and everyone informs on the other. What is very important is that the president of Angola, along with his government, are trying their best to eradicate all corruption from the diamond business. There are even discussions to close the borders so that diamonds won’t be smuggled out and everyone can work in a legitimate and easy manner. I am not only speaking about conflict diamonds, but all smuggling of illicit diamonds to avoid taxation.





MR: What is your opinion of the Canadians?





LL: The Canadians are doing very good work. In a short period of time, they have succeeded in an excellent manner. I think that the Canadians will expand their activities in the diamond sector if there is suitable interest from BHP and other large firms. It is hard to evaluate the considerations of the larger companies as diamonds are really just another small business for them.





MR: Will the diamond industry be able to weather the current difficult market conditions?





LL: I am encouraged by the fact that De Beers is paying close attention to the diamond manufacturing sector and their sightholders. They do not force their sightholders to buy merchandise they cannot sell. They are recognizing the fact that some sightholders may not have the money to take on any more inventory from De Beers.





I hope that the banks will be patient and that they will not pressure the industry. It would be unwise for them to take actions that could damage the small manufacturers. I think it is important that the large entities like De Beers hold rough off the market during these difficult times. If De Beers expresses concern about the diamond industry as a whole, we will support the trade and help as much as we can. We are all in the same boat.





It is very important that we will all work together and do everything possible in order to protect the industry during these difficult periods. It is also important that all of us pursue policies that ensure the continued development of the diamond trade and a reasonable level of profits for all sectors of the industry.



Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Angola, Banks, Catoca, China, Conflict Diamonds, De Beers, Economy, Gokhran, Government, India, Japan, Jewelry, Leviev, Manufacturing, Namibia, Polishing, Production, Russia, Sightholders, South Africa, United States
Similar Articles
De Beers 600De Beers Buys Peregrine Diamonds for $81M
Jul 19, 2018
De Beers’ Canada business has agreed to acquire exploration company Peregrine Diamonds, which owns the promising
© Copyright 1978-2018 by Martin Rapaport. All rights reserved. Index®, RapNet®, Rapaport®, PriceGrid™, Diamonds.Net™, and JNS®; are TradeMarks of Martin Rapaport.
While the information presented is from sources we believe reliable, we do not guarantee the accuracy or validity of any information presented by Rapaport or the views expressed by users of our internet service.