Boycotting Russian diamonds or component shortage, complex cogs that await watchmaking and jewelry in 2022

Now vacant, the alleys of Watches & Wonders still resonate with strong handshakes and great speeches. Emptied of their newly unveiled treasures, but filled with orders and promises, the brands now face the urgency of tomorrow: component shippings. The most advanced industrial strategies will certainly make a difference, but subcontractors are under pressure. Big groups just like small independent brands are taking significant risks: honoring orders as soon as possible while the economic situation is at its highest. Jean-François Mojon, administrator at Chronode SA based in le Locle, explains this urgency during a meeting on the booth of the Cyrus brand, one of the labels for which he delivers watchmaking movements: “We are creating significant amounts of watchmaking complications which you can admire in some brands. The vertical tourbillon or the double chronograph of the Cyrus brand, as well as the GMT presented this year by the house Hermès are some creations among many others with which we are proud to be associated. Our job is about innovation and being capable of creating timekeepers, from studying technical projects all the way to producing series of watches. We do not create components; it is therefore essential for us to have access to them. And the shortage which we have been facing over the past few months is a great dilemma for the entire industry.”

Regarding this issue, most exhibiting brands are unanimous, the latest edition of Watches & Wonders has been a success and this great happening needs to keep on going. Yet one point differs, the commercial reach of such an event. For Cyrille Vigneron, CEO and Chairman of Cartier International, “Watches & Wonders enables a certain point of view and perspective on watchmaking. The display is as important as the offer. Even if this happening does not represent a great deal in terms of important sales for Cartier - for two years, the pandemic prevented the fair from taking place, yet we have never sold as much – it is a great pleasure to be part of it.” On the contrary, Walter Ribaga, general manager of the brand Cyrus Genève which was exhibiting for the first time at the Carré des Horlogers of Watches & Wonders claims: “The difference in orders is significant between what we went through at Baselworld and what we recorded in Palexpo. We have sold a record number of pieces over just a few days, not to mention the new points of sale which we managed to attract. Now, the hardest part is left to do. If we want to transform this momentum into a commercial success, we are obligated to deliver quickly, otherwise the interest will fade. The shortage in components is significantly complicating our business.”

At Czapek, an independent brand relaunched in 2012 whose watch production will not surpass 800 pieces in 2022, also shows a certain optimism, tempered by the fear of not being able to deliver. “While the whole of the Antarctica Chronograph models found takers last year in 24 hours, this year the 2022 version was sold in only a few minutes, tells Valeria Garavaglia Perdoni, PR manager of the brand. To avoid having our models end up on speculative markets, we only sell watches when the salesperson announces an end client. Everything will now happen according to component shipping, which we are waiting in order to start our production.”

For brands of big luxury groups, whose industrial tool has now been integrated for almost two decades, the supply chain will undergo less tension, even if the shortage in raw materials and the price increase related to energy costs for metals such as steel (the price of the ton was established at 900 francs in April 2021 and at 1,540 francs in 2022) or nickel (the price of nickel was over 100,000 dollars a ton in March 2022) will be a clear problem for luxury houses. While the war in Ukraine and sanctions that Russia is undergoing are in part related to these shortages and price increases, the repercussions on costs are insignificant, but noticeable on end prices for watches and jewelry in boutiques. Much less insignificant are the repercussions of boycotts on diamonds from Russia.

Announcements of big jewelry houses have taken turns during Watches & Wonders. Some, such as the brands of the Richemont Group, Gucci, Saint-Laurent or Pandora and more recently the Belgian company Wouters & Hendrix, have stopped their supply of diamonds from Russia and communicated their immediate retraction from the Responsible Jewellery Council (RJC), the organ which surveils societal and environmental ethical impact of international diamond trade. The trust in the institution is gone, have confirmed all brands, regardless of the voluntary retraction from the Russian giant Alrosa, whose turnover had doubled in 2021 reaching 4.3 billion dollars. Other houses, like Tiffany, Chanel or Chopard preferred to only communicate about completely stopping their diamond supply from Russia.

But what is the impact of such a boycott for jewelry houses that remain more confidential? We contacted the Parisian house Akillis, founded by Caroline Gaspard in 2007, who answered: “The Akillis company only works with Parisian diamond suppliers whose gross supply no longer comes from Russia (our supplying countries being South Africa and Canada) and whose traceability processes enable to guarantee the origin of diamonds from mines to product. A price review is currently ongoing for the entire catalogue to counter price increases for precious metals and stones over the first quarter of 2022 (prior to the start of the conflict). Regarding diamonds, our suppliers guarantee these new prices, at least until the end of the 2022 first quarter.”

Diamonds used by the luxury industry represent a small part of the global production. “Jewelry consumes only 4% of produced diamonds, explained Cyrille Vigneron during a round table organized with a few press representatives. The market will find its balance, as other countries such as South Africa, Lesotho, Botswana, Canada or Australia are also diamond suppliers. But there will be a short-term shortage. The challenge is mainly related to traceability. Central diamonds have a certificate of origin. Mixed diamonds do not. That is the reason why we have chosen to stop all supplies. We will now take the time to analyze and question all our suppliers to see who accepts to make their traceability effective. While up until now, what we call the site holders did not want to make this distinction, the industry will be obligated to do so. For the time being, we have sufficient stock for the coming four months. Then, we will have sorted through our suppliers and will be able to continue our orders.”

Luxury houses’ adaptation capabilities will once again be central in the pursuit of business which has been defining the sector over the past two years. The pandemic, the conflict in Ukraine are many challenges which continue to disrupt the world economy. “The deadlines are more open than before, and the orders more instantaneous, confirms Cyrille Vigneron, head of Cartier. The world’s volatility is forcing us to do so. We manage the deployment of products according to the dynamics of the markets at a given moment. The forecast model, industrial deployment and flexibility went from nine to twelve months as usual, to three months. The pandemic and the shop closures have forced volume variations oscillating from the lowest at -30% to + 100% at the highest over one year. Industrial flexibility has been key and has been repercussed on the exceptional figures from end of December 2021. Our forecast models based on powerful artificial intelligence algorithms have been performing well. We have been ready for five years already. We were able to face the pandemic and are now ready to face this crisis as well.