Diamond market

History of De Beers

Until the mid-19th century, diamonds were a rarity only seen in the hands of monarchs.  Once the discoveries of the Eureka and Star of South Africa diamonds were publicized in the mid-1800s, there was a diamond rush.  The market was flooded with the stones, suppressing demand.  An ingenious marketing plan would be needed to keep demand and prices high.  

Cecil Rhodes, an English-born businessman, entered the diamond trade in South Africa by renting water pumps to the miners and then buying his own diamond fields.  One of those fields was owned by two brothers named de Beer.  Rhodes teamed up with former rival Barney Barnato (whose real name was Barnett Isaacs) and created the De Beers Mining Company.  In just a few years, the company was able to buy almost all of the diamond mines in South Africa.  In 1888 De Beers Consolidated Mines, Ltd. was created, and a monopoly on production and distribution of all South African diamonds was formed.

Rhodes created the Diamond Trading Company to control supply and demand (and therefore prices).  In 1890 he entered into exclusive contracts with ten London companies in order to limit competition and control prices.  Upon Rhodes’ death in 1902, the company controlled 90% of diamond production and distribution, not just in South Africa, but in the entire world.  This control was actually in the best interest of the entire diamond sector as stable prices meant that diamond dealers and polishers were not at the mercy of economic crises.

Ernest Oppenheimer, a rival producer and owner of Anglo American Corporation, would buy his way into the Board of Directors of De Beers and by 1927 became Chairman of the Board.  He established the Central Selling Organization, creating exclusive contracts with suppliers and buyers.  For most of the 20th century it was impossible to trade diamonds outside of the control of De Beers.  A De Beers subsidiary would purchase diamonds, De Beers would determine how many diamonds to sell at what price for an entire year.  Producers would get their share of the output, and the buyers would resell their diamonds in New York and Antwerp.

Because of the Great Depression of the 1930s, diamond prices were on the decline.  Henry Oppenheimer, son of Ernest, met with the New York advertising agency, N.W. Ayer in 1938.  Together they created a campaign to equate diamonds with love by showing moving stars wearing diamonds and convincing men that the size of the diamond on an engagement ring demonstrated how much they loved their bride-to-be.  The famous tagline “A diamond is forever” was created by Frances Gerety of N.W. Ayer in 1947 which would later become the company’s motto and eventually be named the slogan of the century by Advertising Age.  Thanks to these campaigns, the number of American brides wearing diamond engagement rings rose dramatically.

By the 1960s, diamond engagement rings were the norm in the US, and De Beers set out to conquer the Japanese.  Japan did not have a tradition of tying romance to marriage and in the postwar period imported diamonds were not even allowed into the country.  Using advertising to promote diamonds as a modern Western symbol and a break from tradition, De Beers practically created a market for itself in the country.  In 1967 only 5 percent of Japanese brides wore diamonds, but less than 15 year later, that figure skyrocketed to 60%.

In the 21st century, the company changed its strategy to focus less on controlling the entire industry and more on promoting its own brand and retail stores.  The company entered into a joint venture with Louis Vuitton Moet Hennessy (LVMH) to create De Beers Diamond Jewellers Ltd.  In 2001 the company had only one retail store, but by 2008 it had 39 worldwide.  The Oppenheimer family sold its shares to Anglo American Plc in November 2011, ending its 80-year reign as the sole controller of diamond production and supply. The company’s stated reason for sale is that no one the in Oppenheimer family was interested in continuing the diamond business.  Today the Diamond Trading Company, the De Beers distribution arm responsible for rough diamond sales and distribution processes nearly 75% (by value) of all rough diamonds.