Nicky Oppenheimer once admitted that the industry doesn’t always need De Beers. “People often say, ‘We don’t need De Beers,’ and it’s true, in good times you don’t,” he told JCK in 1998. “It’s in bad times that people recognize the benefit of the CSO.”

Today the CSO (Central Selling Organisation) is just a memory, but for an industry that again faces rocky economic terrain, it’s a vivid memory. Weak Christmas 2000 sales caused the pipeline to bulge with low-end “American goods.” (Other items, like better-quality, better-made goods of 2 cts. and above, remain hard to find.) Industry people again feel they need a De Beers, but no one’s sure which De Beers they will see.

Will it be the new De Beers, the one that no longer considers itself the industry “guardian,” the one that’s tired of underwriting not only industry advertising but also a billion-dollar stockpile? Or will it be the old De Beers—the one the industry always leans on in times of trouble, the one that supports the price of diamonds by squirreling away excess stones in its vaults until they’re needed?

Some say the fact that these questions are even asked indicates a bumpy start to De Beers’ “Supplier of Choice” strategy—which, it should be noted, doesn’t officially begin until this month. “De Beers is between a rock and a hard place here,” says Jeff Pfeffer, a diamond industry observer at New York’s Bank Leumi. “It would be inconceivable for them to start building their stockpile back up after what they’ve said for the last year. But I don’t think it’s in their interest to put all this stuff on the market either.”

Stockpiler of choice? The backbone of “Supplier of Choice” is the idea that the industry’s focus must shift from supply to demand. If more advertising leads to increased diamond sales, De Beers can close the book on the era when executives worried that a new diamond find would collapse the diamond market. Instead of allocating diamonds to the market’s whims, they will now breed markets for each diamond.

Or so they hope. Demand is ultimately subject to as many variables as supply. If there’s a protracted downturn, De Beers might not be able to whip up the new consumer interest it’s seeking—no matter how much money it convinces sightholders to spend. Analysts worry that a nasty recession could torpedo the new strategy before it begins. ” ‘Supplier of choice’ presumes strength in the market,” notes Ben Janowski, a New York-based industry consultant. “I don’t think anyone anticipated the decline that we’ve seen.”

However, Diamond Trading Company executive director Gareth Penny, one of the architects of the new direction, argues the opposite—that more marketing will help the industry weather tough times. In an exclusive interview with JCK, Penny noted that “a recession makes our efforts more important, not less.” But he admits that it will take years for those efforts to bear fruit. “We can’t pretend our long-term strategy has kicked in yet,” he says. De Beers spokesman Andrew Lamont adds, “We hope this will be less of an issue in the future when the industry ups its marketing.”

But what of the short term? Like a movie cowboy coaxed out of retirement, De Beers executives say they’ll do their old ride-to-the-rescue if their interests and the industry’s coincide. (And if they don’t, it’s every man for himself.) That includes stockpiling production—though they’ll clearly hold their noses while doing it. “[Stockpiling] is something we wouldn’t want to do,” says Lamont. “But we wouldn’t want to abandon the industry either.” Mark A. Boston of London-based rough broker H. Goldie and Son feels the company is more comfortable with stockpiling now since it’s sold off so much of its inventory over the last year. “They are in much better shape overall,” he says.

Another option—the subject of much market speculation—is for De Beers to have sightholders help bear the brunt of stockpiling, the same way it’s asked them to help shoulder marketing costs. Under one scenario, De Beers will ask clients to accept regular allocations, a strategy that would guarantee sales for De Beers but possibly load up clients with inventory during weak periods. At least one analyst feels that if De Beers “goes private,” its heavy indebtedness will force executives to sell as much as possible. “They will do what they need to do to move stock,” says Hennie Vermuelen of Investec Securities in Johannesburg. But Penny stresses that De Beers doesn’t want its clients overstocked, and that the “privatization” will not affect company policies.

A third option is to institute what De Beers calls “price realignments”—which, it’s safe to say, is company-speak for price decreases. Penny doesn’t rule this out but cautions that any reductions will be “marginal” and “not drastic.”

“In the long-term, we will see prices evolving upwards,” he says. “We would not see a decrease in price to the extent that it hurts consumer or trade confidence. That’s one of the pillars of ‘Supplier of Choice.’ “

Call it a “realignment” of De Beers’ policy, which once held that diamond prices should always head upward. Analysts think De Beers will likely permit more volatility in small goods than in large ones, since De Beers has greater control of the large-stone market, and consumers see large stones as a store of value. A lot hinges on the price policies of competitors like Canada’s Ekati mine, Australia’s Argyle mine, and Israel’s Lev Leviev, who controls the diamond production of Angola. But Boston notes that even the new De Beers generally favors cutting supplies over cutting prices. “In some areas, there has been accumulation of stock, and [De Beers] just stopped supplying the difficult articles,” he notes. “They could have easily dropped the price, but they didn’t do that, because it puts the whole structure under pressure.”

While the new De Beers seems willing to prop up the market if need be, no one expects a return of one vintage CSO policy: scooping up diamonds on the open market to support prices. Even if executives wanted to do that—and they don’t seem so inclined—the conflict diamond issue restricts them, as De Beers has no guarantee that open-market stones are conflict-free. “Before, they were quite obsessive about tracking down every last parcel,” notes Boston. “Now, they are a little less rigid, more flexible, more ready to adapt to market conditions.”

In the end, this new flexibility both worries and heartens the industry. While De Beers’ past response to a downturn was predictable, today not even company bigwigs seem 100% certain of what they will do. Executives boast that their actions are subject to more analysis than in the past and say their tools for gauging supply and demand have become more sophisticated.

Yet for all the talk of new analysis, new tools, and a new De Beers, the smart money feels that, if there is a serious slowdown, the 2001-model company will act a lot like the old one. It’s sold conservatively in the last quarter and will probably be stingy in allocations through the year.

“De Beers may have renounced the title of custodian, but this should be seen as signaling the start of a more proactive De Beers, not an irresponsible De Beers,” says Adam Nagel, another DTC rough broker. “It is in the DTC’s own interests more than anyone’s that stability is maintained.”

The CSO may be officially dead, but even De Beers is unwilling to put its market-guarding days behind it.