ALROSA is continuing to expand its customer base assisted by international retailers. According to the Kommersant Daily, the diamond company is close to signing a three-year contract with Signet Jewellers Ltd, the largest jewelry retailer by sales catering for the middle class in the United Kingdom and the United States. The London-based subsidiary of Signet will be able to purchase $ 80 million worth of diamonds in Russia annually. This is less than 2% of ALROSA’s total sales in terms of money, but it is strategically important for the company to gain a foothold in the world's largest jewelry market.
The fact that ALROSA is preparing to sign a contract with Signet Jewellers was disclosed to the Kommersant by a source familiar with the negotiations. "This refers to a long-term commercial contract. To strengthen its customer base ALROSA is placing its stake on global brands coequal to Tiffany & Co. and on large retailers," the source said. According to this source, ALROSA may drive its annual supplies of rough to Signet Jewellers approximately to about $ 80 million. About the same amount of rough diamonds is bought by another regular customer of ALROSA - Chow Tai Fook Jewellery Group developing the largest jewelry brand in China, Hong Kong and Macau. The three-year contract with this company was signed by ALROSA a year ago. According to the Kommersant’s sources, the contract with Signet Jewellers may be signed within a month. ALROSA declined to comment on Tuesday. Signet Jewellers did not respond to the inquiry sent by the Kommersant.
The Kommersant’s source close to ALROSA said that currently the miner was busy renegotiating its long-term contracts: nearly half of the three-year contracts concluded with the company’s regular customers (to date, the ALROSA Alliance Program includes 34 companies) will terminate in 2013. The key criteria for selecting partners include their financial stability and willingness to work with ALROSA, including in "bad market" periods, as well as their own marketing capabilities. "Basically, the emphasis is on companies with recognizable brands on the market," the source said.
Established in 1949, Signet Jewellers (Ratner Group until 1993) is the largest retail jewelry chain in the U.S. and the UK in terms of sales. It owns 1,440 stores in 50 states and 511 stores in the British Isles. The company’s shares are traded on the NYSE and LSE, its largest stockholders being Blackrock (5.59%), Investec Asset Management (5.45%) and Vanguard Group (5.06%). Signet Jewellers’ capitalization reached $5.7 billion and its sales reached $3.7 billion in 2012.
ALROSA will sign a contract with London-based Signet Direct Diamond Sourcing Ltd (SDDS), which is a cutting unit of Signet Jewellers. Until now, SDDS (it has its own diamond cutting factory in Botswana) purchased rough diamonds from Rio Tinto Diamonds and Dominion Diamond Corp. (formerly a diamond asset of BHP), as well as from De Beers within the frames of a strategic partnership. SDDS wants to buy another diamond cutting factory in Botswana, and then it will be able to process $ 110 million worth of rough in a year.
The U.S. accounts for 82% of sales and 93% of operating profit derived by Signet Jewellers. In the U.S. market, the Group is represented by its Kay (49% of sales) and Jared (25%) brands, focused on the middle class. Another 7% of sales is generated by regional brands, the largest of which is Ultra Stores (a network of outlets), as well as by online stores. The key brands of Signet Jewellers in the U.K. are H. Samuel (the top player in the mass market accounting for 10% of the Group’s sales), Ernest Jones and Leslie Davis, specializing in the sale of diamond jewelry and watches in the middle price segment (8% of their parent’s sales).
ALROSA seeks to gain a foothold in the U.S. market, the largest in the world by sales of diamond jewelry (about 40% of global sales), Sergey Goryainov, an expert of the Rough&Polished industry agency said. According to him, last spring in addition to the contract with American Tiffany & Co. ALROSA agreed with Sotheby's to promote its rough and polished diamonds in the U.S. (see the Kommersant for March 14). "American companies need to understand the origin of rough diamonds, which excludes illegal artisanal mining and "conflict diamonds." Local jewelers are proactive in their support of the Chain of Custody Concept in the industry, and not only in terms of the legal origin of diamonds, but also with regard to the origin of other precious stones and metals," Mr. Goryainov explains. He noted that there is a special section on conflict minerals in the Dodd - Frank Act adopted in the summer of 2010 in order to reduce the risks for the U.S. financial system, involving severe penalties for listed companies in case of they use such gems and metals.
