Russian diamond company Alrosa will be supplying diamonds to world-known American company Tiffany & Co. The parties have recently signed a contract for three years, according to which Tiffany will be buying Russian diamonds for $60 million annually. How will the appearance of a world-famous competitor affect the domestic market of precious stones?
For Alrosa, the world's largest diamond company, Tiffany jewelers is a drop in the ocean, but it does not stop some experts from saying that the emergence of an American partner will force the management of the Russian diamond corporation to reallocate raw diamonds to the detriment of the domestic market. It transpired that the overseas market would receive high quality raw materials, while Russian jewelers will have to enjoy worse quality minerals. It is assumed that the balance of priorities is based on the prestige of the world member of the jewelry market, which will be acquiring Russian diamonds for several years.
On the part of the US-based company, which was glorified in the 1961 film "Breakfast at Tiffany's," the contract with the Russian diamond corporation was signed by Belgium's Laurelton Diamonds Inc. (a 100-percent daughter of Tiffany) led by President Andrew Hart. On the part of Alrosa, the documents were signed by the President of the company, Fyodor Andreyev.
"A priority for Alrosa is to conclude direct long-term contracts with major companies involved in the production of final product - diamonds and jewelry. We are pleased that the list of our regular customers has been expanded with such a global brand as Tiffany. During the recent years, Laurelton has been a buyer of Alrosa's rough diamonds on the base of single sales contracts. Signing a long-term agreement will make our partnership permanent. It will also increase the supply of diamonds for Tiffany," Expert quoted Mr. Andreyev.
It is worthy of note that Alrosa's three-year contracts with other market players are expiring in 2013. To give the exact number of customers of the Russian diamond giant is quite difficult. According to various sources, their number varies from 24 to 35. All those companies specialize in cutting precious stones. In connection with a sufficient number of partners, a suggestion saying that Alrosa may give priority to the American company, does not seem to be a well-founded one.
"The domestic market is not going to suffer, because the amount of the contract per year is approximately $60 million. For comparison, Alrosa's annual revenue makes up about $4.5 billion, - notes analyst of Investkafe, Andrew Shenk. - The amount of the contract is large, of course. And such contracts comprise the total revenue of Alrosa, but the contract itself will not make a difference. New contracts is a good thing, of course, but Alrosa has about 100 such contracts. The company already has long-term agreements with fairly well known consumers."
To prove the fact that the contract with Tiffany is not the most expensive one, one can say that just two weeks ago Alrosa launched close cooperation with Chinese manufacturers of jewelry. Chow Tai Fook Jewellery Group Ltd undertook to purchase diamonds from Russia's Alrosa for $100 million a year. In this regard, analysts tend to believe that the public attention to the agreement with Tiffany & Co is linked with the popularity of the American company.
"This is mostly a matter of reputation-linked profit, as Tiffany is one of the most famous jewelry companies, and this is what gives the fuss. Basically, this is good from an economic point of view: it's a good contract, a long-term one, which allows to minimize risks. But the image of the partner plays a big role here, of course," said Andrey Shenk.
The history of jewelry company Tiffany & Co has its roots in 1837. It was founded by Charles Lewis Tiffany and John F. Young. From the very beginning, the company declared itself a manufacturer of luxury goods. This kind of products - not for mere mortals - made mostly of silver, appeared in the first Tiffany shop that opened in New York. The brand became global in the middle of the last century, and, thanks to actress Audrey Hepburn, gained fame as the best jewelry store where one could buy diamond wedding rings. In addition to jewelry, the company specializes in the production of accessories, crockery, cutlery, timepieces and other luxury products.
In contrast to Tiffany & Co, few people knew of the world's largest mining group Alrosa. The reason for that was the lack of transparency in the domestic policy of the diamond giant. However, after 2009, Alrosa came out to the world and was soon recognized as the world's largest mining corporation in terms of production. Now Alrosa's management has chosen a new way for development with a goal to attract big world brands and diversify sales geographically. The contract with a famous jewelry company in the world, headquartered in the U.S., is undoubtedly the biggest step towards this goal.