The Oppenheimers and De Beers are no more. Here’s a 30-year old article that predicted the cartel’s undoing

De Beers and the Oppenheimer family, one of mining’s most storied relationships, has come to an end after three generations.

In March regulators gave the go-ahead to Nicky Oppenheimer (pictured in 2011) to sell his family’s remaining 40% in the empire which for most of its existence prospered by keeping an iron grip on the production and sale of rough diamonds worldwide.

Cecil John Rhodes formed De Beers Consolidated Mines in 1888 in South Africa. Rhodes either bought up or squelched competitors but Ernest Oppenheimer who traded diamonds from the famous Cullinan mine north of Johannesburg refused to join the cartel.

Ernest Oppenheimer’s Anglo-American, a company co-founded with US financier JP Morgan, eventually bought out De Beers and Ernest Oppenheimer became chairman of the diamond firm in 1927.

The Oppenheimers continued the monopoly business model executed through its Diamond Trading Company throughout the 20th century but in the 1990s changed tack because it was becoming increasingly difficult to keep its grip on the global market.

It stopped stockpiling rough diamond supply and moved into retail and jewellery manufacturing.

The Oppenheimers took the company private in 2001 after a century-long listing on the Johannesburg Stock Exchange. The Oppenheimer family’s wealth is estimated at $6.8 billion.

Here’s an excerpt from an in-depth article on how De Beers “invented” the diamond market that appeared in The Atlantic magazine in February 1982.

The writer, Edward Jay Epstein, speculates how “An unruly market may undo the work of a giant cartel and of an inspired, decades-long ad campaign.”

The excerpt centres on how the Oppenheimers pivoted the business during the 1970s to counter the threat of small Russian diamonds flooding the market.

It is also presented as an example of how marketing can be used to create demand – essential in the diamond business – because the gems hold “little intrinsic value”:

Almost all of the Soviet diamonds were under half a carat in their uncut form, and there was no ready retail outlet for millions of such tiny diamonds. When it made its secret deal with the Soviet Union, De Beers had expected production from the Siberian mines to decrease gradually. Instead, production accelerated at an incredible pace, and De Beers was forced to reconsider its sales strategy. De Beers ordered N. W. Ayer to reverse one of its themes: women were no longer to be led to equate the status and emotional commitment to an engagement with the sheer size of the diamond. A “strategy for small diamond sales” was outlined, stressing the “importance of quality, color and cut” over size. Pictures of “one quarter carat” rings would replace pictures of “up to 2 carat” rings. Moreover, the advertising agency began in its international campaign to “illustrate gems as small as one-tenth of a carat and give them the same emotional importance as larger stones.” The news releases also made clear that women should think of diamonds, regardless of size, as objects of perfection: a small diamond could be as perfect as a large diamond.

DeBeers devised the “eternity ring,” made up of as many as twenty-five tiny Soviet diamonds, which could be sold to an entirely new market of older married women. The advertising campaign was based on the theme of recaptured love. Again, sentiments were born out of necessity: older American women received a ring of miniature diamonds because of the needs of a South African corporation to accommodate the Soviet Union.

The new campaign met with considerable success. The average size of diamonds sold fell from one carat in 1939 to .28 of a carat in 1976, which coincided almost exactly with the average size of the Siberian diamonds De Beers was distributing. However, as American consumers became accustomed to the idea of buying smaller diamonds, they began to perceive larger diamonds as ostentatious. By the mid-1970s, the advertising campaign for smaller diamonds was beginning to seem too successful…”

Continue reading at The Atlantic.

Click here to read Epstein’s book The Rise and Fall of Diamonds: The Shattering of a Brilliant Illusion for free online.

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