Jewelers sweat a 'Blood Diamond' holiday
Industry fears controversial film, which showcases illicit gem trade in Africa, could lead to major PR crisis ahead of the critical holiday period.
By Parija B. Kavilanz, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- As U.S. jewelry merchants see it, "Blood Diamond" could mean a blue Christmas.

"It's a tough movie ... it will raise a lot of questions," Tiffany (Charts) CEO Michael Kowalski told analysts last week at the Goldman Sachs retail conference in New York

blood_diamond.03.jpg
Will bloodshed and violence in the movie 'Blood Diamond' put people off purchasing diamonds?

The movie from Warner Bros., which stars Leonardo DiCaprio as a South African mercenary who's jailed for smuggling, highlights the illegal "conflict diamond" trade during civil wars in Sierra Leone and Angola in the late 1990s.

"I think it could do some good business. The cast could get it some attention. The subject matter is already getting attention. And that could snowball between now and December," said Gitesh Pandya of Boxofficeguru.com.

And that might mean jewelry, particularly diamonds, could get cast in a bad light.

"It is absolutely a concern for us," said Guy Leymarie, CEO of De Beers LV, the world's major diamond consortium, in an interview.

The jewelry category is on fire lately, with retail sales up a sharp 8.7 percent in the first six months of this year, according to government estimates.

However, the industry's most lucrative period is yet to come.

According to analysts, the November-December holiday shopping period typically accounts for almost half of jewelers' annual sales and up to 100 percent of their full-year profits.

If the first-half momentum holds, then jewelry sellers could be poised for a stellar year overall. But negative publicity from the movie could slow things down.

"The industry is paranoid because this film is releasing around the crucial holiday season. If they lose sales, retailers won't be able to recover the shortfall until the following year," said Ken Gassman, president of the Jewelry Industry Research Institute.

Total jewelry sales last year grew 3.8 percent to $59.4 billion. That was well below the previous year's 6.1 percent increase.

"The 3.8 percent increase was far short of expectations when the industry has been averaging 4 to 5 percent gains annually so far this decade," said Gassman. "I'm sure retailers are hoping to get back on track."

"It's difficult to forecast the degree of impact [of 'Blood Diamond'] on the Christmas season," said Leymarie of De Beers. He also noted that strict regulations currently in place have reduced the trade in conflict diamonds to less than 1 percent of all diamonds traded.

For its part, the industry has launched an all-out pre-emptive strike to ensure that purchasers are armed with the facts as a way to neutralize any negative publicity stemming from the movie.

The World Diamond Council (WDC), which represents the global industry in diamond trading, this month launched a new Web site called Diamondfacts.org to educate consumers about conflict diamonds.

The group also embarked on a major advertising effort this month that includes full-page print ads in major U.S. and international newspapers including The New York Times, USA Today, the Los Angeles Times and the International Herald Tribune, touting the success of measures like the so-called Kimberly Process. Established in 2003, that regulation requires certification of diamond exports as "nonconflict" diamonds.

Cecilia Gardner, general counsel with WDC, said these efforts were partly to offset any fallout from the movie, which opens in December, as well as "rap songs and recent books" that have highlighted the conflict diamond trade.

"At the very height, conflict diamonds represented a very small percentage of the global diamond production. Today it's very small minority," Gardner said.

New York-based Jewelers of America, the national association that represents more than 11,000 merchants including Tiffany and Zale Corp. (Charts), requires its members to pledge annually not to trade in conflict diamonds.

Peggy Jo Donahue, spokeswoman for Jewelers of America, said she was aware that Tiffany and Sterling Jewelers, which owns the Kay and Jared chains, were developing their own "educational" campaigns.

But Donahue said she felt it's important to highlight another aspect of this issue. "What isn't being said is how important a resource diamonds are for the poorest African countries. Diamonds are one of the few products Sierra Leone has. As an association we support efforts to legitimize diamond trade," she said.

"Yes there is a profit motive for our members here but diamonds are also very vital for Africa," Donahue added.

Marshal Cohen, chief industry analyst with NPD Group, expects the jewelry industry will be able to survive the movie with its reputation largely unscathed.

"If the movie is very negative, there could be a three-week blip in sales but then people get over it. Consumers will move on," he said.

Time Warner (Charts) is the parent company of both Warner Bros. and CNNMoney.com.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.