Macau To Enter Rough Trading Through New Diamond and Gem Exchange

Macau is setting up an international trading center for diamonds and rough gems to leverage its relations with Portuguese-speaking diamond producers and take advantage of the rapid development and vast potential of China’s jewelry market.

The Macau China Diamond & Gem Exchange announcement

To help meet this goal, the recently formed Macau China Diamond & Gem Exchange (MDGE) used the September Hong Kong Jewellery & Gem Fair to announce that it signed an agreement with the Shanghai Diamond Exchange (SDE) and the Industrial and Commercial Bank of China (ICBC Macau) to promote the city as a global diamond and gem trading center.

The September 13 announcement was held at the AsiaWorld-Expo convention facility near Hong Kong’s international airport. 

“The rapid development and vast potential of China’s jewelry market has coincided with the evolving plans of the Guangdong-Hong Kong-Macau Greater Bay Area creating an opportunity for diamond and gem trading in Macau,” MDGE said in a statement. “With available financing, low and simple taxation as well as an attractive free trade policy, Macau also has its own commercial and financial advantages to enter the global diamond industry. Building upon China’s “One Country, Two Systems” policy, and the strong support of Macau’s political leaders and business community.”

The organization added, “Through the strategic partnership between MDGE and SDE, the integration of SDE’s policy and management expertise within MDGE will accelerate progress to build upon Macau’s position as an international free trade port and the preferential policies of the Guangdong – Hong Kong – Macau Great Bay Area. Further enhancing this arrangement, ICBC will provide unique financial services to MDGE members as strategic partner of MDGE.”

The agreement allows for the training of professionals in authentication, design and transformation of jewelry. It also makes use of Macau’s position as a world tourism and leisure center and a platform of services between China and Portuguese-speaking countries.

In addition, the agreement will allow MDGE to actively develop concentrated rough-diamond trading, which will drive rough diamonds into the Shanghai Diamond Exchange and further promote the Chinese industry.

Founded in 2000, the Shanghai Diamond Exchange is the only diamond import and export market in the interior of China and the fifth largest diamond trading center in the world.

China imports precious and semi-precious stones from Angola, Brazil and Mozambique.

The demand for diamonds in the wedding market in Macau and in the interior of China has grown significantly as a result of the rapid growth of the Chinese economy.

Tiffany to Pay Elsa Peretti Up to $436 Million Over 20 Years, Maybe More

Variations of the Elsa Peretti “Sevillana” pendant on the Tiffany website.

Since 1974, Tiffany & Co. and Elsa Peretti enjoyed what is arguably the most successful affiliation ever between a retail jeweler and a jewelry designer. The value of that relationship was put to the test in 2012 when Tiffany announced in May that the partnership was in danger of ending.

Peretti jewelry and other branded products accounted for 10 percent of Tiffany’s total net sales for the past three years, the jeweler recently said. Tiffany’s net sales totaled $3.6 billion in 2011, which would mean that sales of Peretti pieces totaled $360 million for the same period. If Tiffany were to lose this business it would have created a huge sales hole that would be difficult to fill—particularly during a time when consumers have become much more cautious of their discretionary spending. In addition, for Peretti, 72, it would be difficult for her to find another partner with the reputation and international reach of Tiffany.

So last week they struck a 20-year deal. It included a strengthening of the termination clauses in the agreement, which were rather loose for both parties. But the main portion of the agreement dealt with finances and from the looks of it Tiffany very much wanted Peretti to stay, according to a document filed with the U.S. Securities and Exchange Commission.

The main component of the financial agreement is that Tiffany will pay Peretti 5 percent of total net sales of Peretti jewelry and other branded objects. In 2011, that would have amounted to $18 million. If sales remained flat during the 20-year life of the agreement, this would amount to $360 million, similar to the total of Peretti sales in 2011. However, with modest increases of less than 5 percent, this could easily add another $20 million over the life of the contract.

As part of the agreement, on December 31, 2012, Tiffany paid a one-time fee of more than $47.2 million to Peretti (no less than $40 million after taxes). In addition, Peretti, 72, will receive a basic annual royalty fee of $450,000 for use of Peretti Intellectual Property ($9 million dollars over 20 years). The one-time payment does not reduce future royalties.

So a conservative estimate of the grand total over the life of the contract, including the modest forecast of annual growth per year of Peretti sales, is $436.2 million.

There are other parts of the contract, according to the SEC document, that will add to Tiffany’s financial commitment and may earn additional money for Peretti. This includes the following:

* An increase in non-jewelry, Peretti-licensed products that Tiffany will sell. In the prior 60 months, that amounted to $4 million in net sales.

* A 100 percent increase (in cost) in the amount of “on-hand and on-order” Peretti-licensed objects in Tiffany’s inventory.

* Peretti will receive an additional 2 percent of net sales of Peretti branded objects for fees in respect of certain quality control services that the designer has committed to in the agreement.

* At least every five years, Tiffany agreed to publish a special catalog or folio of Peretti products that is representative of the full collection of Peretti products being offered for sale by Tiffany.

* Tiffany will expand the content of its website to include a special section containing content regarding Peretti and Peretti products, including narrative and visual information regarding the craftsmanship and the creation of Peretti products.

* Promotional expenses paid by Tiffany equal to at least 2.6 percent of net Peretti sales.

* Under the agreement, Peretti isn’t obligated to make promotional appearances on behalf of Tiffany. However, if she did make an appearance, the luxury jeweler will pay round-trip, first-class air transportation (including to and from Europe) and first-class hotel accommodations for Peretti and another person.

* Tiffany will establish retail prices for Peretti products in accordance with its usual practices. However, under the agreement, Tiffany may reduce retail prices by 20 percent in order to achieve an overall average gross margin for Peretti objects of no greater than 50 percent.

* Peretti products will not be subject to advertised promotional pricing or inventory liquidation events.

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