European jewelers out matched in the battle for the bride

Implications: European jewelers will have to rethink more than their in-store marketing to steal bridal diamond market share from Tiffany.  Here's why.

Analysis: European jewelers like Cartier and Bulgari will have a difficult time stealing bridal diamond customers from the likes of Tiffany. In part the reason is Tiffany’s top of mind position in the minds of high end consumers as the first place to buy bridal jewelry. Another reason is Tiffany’s cost advantage over many competitors; especially for large diamond rings.

Immortalized by the film Breakfast at Tiffany’s, Tiffany & Co has emerged as about the only internationally recognized jewelry brand over the last half century. While a few other brands such as Graf, Garrand, Cartier, Van Clef and Bulgari have a certain regional cachet with prestige conscious jewelry buyers, Tiffany has a more universal appeal representing quality, as well as, accessibility that makes it the leader in the ‘big diamond’ bridal market.

So long as brides prefer basic styling featuring big diamonds, Tiffany will probably remain a leader. By basic styling, I mean simple solitaires set with a single one, two or three carat diamond or a multi-stone band such as those with three one-half carat diamonds where the value of the jewelry is predominantly defined by the value of gems.

That kind of basic product is highly competitive in the US, European, and Asian markets. Successful Internet companies like Blue Nile frequently operate on 19% or lower margins on large diamond solitaire sales; while Tiffany’s depends on its vertically integrated loose diamond supply chain to keep products competitive. European jewelers like Cartier and Bulgari don’t have these cost advantages, frequently marking up its intricate, labor intensive designs 2.5 to 3.0 times cost.

Unfortunately for theses companies, it is almost impossible to either design or protect a signature style which would symbolize the brand and be recognizable to consumers. Without product brand recognition, few customers will be willing to pay the premium price these European jewelers want for their products.

Consumer taste does change over time, but the demand by brides for large diamonds isn’t likely to materially change in the near future. DeBeers has spent hundreds of millions of dollars in media advertising in the US, Europe, and Japan, to make the large diamond solitaire synonymous with marriage and engagement rings. Now they want to repeat the process again in China and the Middle Eastern countries too. Whether DeBeers or through LVMH, it is in their best economic interest to keep brides attention focused of large diamond jewelry. After all, they still control about 50% of the world’s rough diamond production.

To the degree price and value influence where consumers shop for bridal rings and jewelry, other factors may limit growth in European jewelry brands. Gold and platinum prices increased significantly in the last 24 months. This has increased the price of all jewelry products. However, unlike large diamond styles where commodity and labor content are only fraction of the value added, complex designs typical of Cartier and Bulgari have increased more making those styles less competitive relative to their simpler, more diamond intense alternatives.