Lazare Kaplan International Inc.

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Lazare Kaplan International Inc.

529 Fifth Avenue
New York, New York 10017
U.S.A.
(212) 972-9700
Fax: (212) 972-8561

Public Company
Founded: 1903
Employees: 710
Sales: $266.32 million (1996)
Stock Exchanges: American
SICs: 3915 Jewelers’ Materials and Lapidary Work; 5094 Jewelry and Precious Stones

Lazare Kaplan International Inc. is the largest manufacturer of diamonds in the United States. The company is primarily engaged in the cutting and polishing of ideal cut diamonds which it sells to retail jewelers throughout the United States and abroad. At manufacturing facilities in Puerto Rico, Botswana, and Russia, Lazare Kaplan turns rough diamonds into high quality ideal cut gemstones marketed under the Lazare Diamond brand name. Lazare Kaplan International also operates a rough diamond trading center in Belgium where the company sells rough, uncut diamonds obtained on the world market.

Company Origins in the Early 1900s

Lazare Kaplan International was founded in 1903 by Lazare Kaplan in Antwerp, Belgium. Lazare Kaplan was born in Russia in 1883 but his family immigrated to Belgium following a devastating epidemic that killed eight of his ten siblings. The Kaplan family had a long tradition in the jewelry trade. Lazare’s great-grandfather had been a jeweler and watchmaker and the craft had been passed down through the generations. Lazare Kaplan’s uncle, Abraham Tolkowsky, had specialized in diamond cutting and Lazare was apprenticed to him at the age of 13.

Diamond cutting is a complex process that involves taking the rough stone and breaking it into smaller pieces that are then facetted to create the finished gem. The initial division of the stone, called cleaving, is accomplished in a single blow and the cleaver must have a thorough understanding of the properties of diamonds in order to maximize the value of the final product. Lazare Kaplan became particularly adept at cleaving flawed or irregular stones. “I could take a twin of some other irregularly shaped stone, or a diamond with a bad inclusion that did not seem to be on a cleavage plane, and get many fine small stones out of it,” Kaplan reminisced in an interview with Jeweler’s Circular Keystone in 1979. Kaplan’s skill at working with irregular rough stones became the key to his early success. In 1903, at the age of 20, Lazare Kaplan felt that he was ready to start his own diamond cutting firm but the wholesalers who sold the rough diamonds dealt only with well-established cutters. By agreeing to take undesirable, irregular stones Kaplan was able to gain a foothold in the business and to build up a reputation as a reliable cutter.

Starting Over in the United States

By the early 1910s, Lazare Kaplan’s company had grown to be one of the most prominent diamond cutting firms in Antwerp. In 1914 this prosperity came to a sudden halt when Germany invaded Belgium and Europe was plunged into war. Kaplan was visiting his mother in America when the invasion occurred and, unable to return home or to retrieve his assets back in Belgium, Kaplan was forced to start over again with only a small loan from a friend. Once again, Kaplan used his skill in working imperfect stones to build a niche for himself in this highly competitive business. By 1917 Kaplan was running a successful diamond cutting firm in the United States when, for a second time, war intervened. The United States entry into World War I cost Kaplan many of his skilled diamond cutters who enlisted to fight the “war to end all wars.” On the suggestion of a cousin, Kaplan moved his cutting operations to Puerto Rico, where unskilled labor was plentiful. Kaplan quickly set up a training program to teach the local Puerto Ricans the intricacies of diamond cutting, thereby establishing a Puerto Rican gem cutting industry that would survive into the next century. Lazare Kaplan’s Puerto Rican manufacturing plant would also remain the keystone of the company’s cutting operations for the next 70 years.

With the Puerto Rican plant in full operation, Lazare Kaplan’s firm flourished and soon sons Leo and George were working alongside their father. Like so many other American businesses, Lazare Kaplan’s prosperity came to a sudden halt on October 29, 1929, when the stock market crashed. “I was wiped out,” Kaplan recalled in Jewelers Circular Keystone. “I sold everything I produced to wholesalers. The jewelers couldn’t pay the wholesalers so the wholesalers couldn’t pay me. I was wiped out. Wiped out. My son Leo had saved $300. It was the money I had paid him for working in the shop. He saved every penny. So I borrowed his $300 and began again.”

Building a Reputation in the 1930s and 1940s

It was Lazare Kaplan’s personal reputation as a cleaver of difficult stones that ultimately brought the business back to its former prosperity and beyond. In 1936, diamond dealer Harry Winston acquired the “Jonker Diamond” which was, at that time, the largest uncut diamond in the world. After consulting the most prominent European cutters, Winston showed the diamond to Kaplan for his advice on the best method for cleaving the stone. Kaplan’s suggestion was at odds with the other cutters but would, if successful, result in better quality finished diamonds. To the consternation of the European experts, Winston decided to trust Kaplan’s plan and the diamond was consigned to the Lazare Kaplan firm for cutting. Kaplan purportedly spent a year studying the structure of the unusual stone before venturing the single hammer blow that would cleave the rough diamond into 12 separate gems, the largest a 170 carat flawless showpiece. Never shy of publicity, Winston ensured that the cutting of the diamond was a matter for public speculation and its success was widely reported in the world press. Lazare Kaplan’s reputation soared overnight and his firm’s position in the diamond world was established.

From the beginning of his career Kaplan had faced the problem of obtaining an adequate supply of rough diamonds. At the turn of the century when Kaplan first opened his firm in Antwerp, the worldwide diamond supply had been controlled by three companies. Through time, the largest of these companies, De Beers Consolidated, had gained almost complete dominance over the industry so that by the middle of the century almost 90 percent of the world diamond output was purchased for resale by the Central Selling Organization, a De Beers subsidiary. This virtual cartel was tolerated by the diamond industry because it meant that supply, and therefore prices, were kept stable in the face of political and economic turbulence. De Beers held offerings, called “sights,” several times a year in London at which a select group of about 250 firms from around the world were invited to purchase rough stones. The many diamond dealers who were not De Beers sightholders were forced to purchase rough diamonds either from De Beers clients, at an increased cost, or from the few primary sources who were not affiliated with De Beers. Becoming a De Beers sightholder was therefore critical to the long-term growth of a diamond firm. Lazare Kaplan & Sons Inc. achieved this distinction in 1946, establishing the company as one of the premier diamond cutting firms in the United States.

Lazare Kaplan & Sons’ reputation as suppliers of highquality gems continued to grow through the 1950s and 1960s. Lazare Kaplan’s personal place within the history of diamond cutting was assured in 1957 with his invention of the “oval cut” method of finishing certain irregularly shaped stones. His lifetime achievements were recognized by his peers in 1979 when, at the age of 96, Lazare Kaplan became the first inductee into the Retail Jewelers International Hall of Fame.

Boom and Bust in the 1970s

By the early 1970s Lazare Kaplan & Sons, run by Lazare’s sons George and Leo, had become one of the largest diamond manufacturers in the United States. At the company’s 16,000-square-foot facility in Puerto Rico enough diamonds were cut and polished to produce a total of $12 million in sales in 1971. In 1972 the Kaplan brothers decided to take the company public to raise cash for expansion. The 1970s saw a booming diamond market as consumer demand rose. By the late 1970s investors began to look to diamonds as a hedge against inflation and diamond sales soared. Lazare Kaplan & Sons, renamed Lazare Kaplan International, continued to specialize in the high-quality, ideal cut diamonds that were particularly attractive to investors. By 1975 sales had risen to $17 million and then more than doubled to $40 million by the end of the decade.

In 1981 the diamond investment boom of the 1970s came to a screeching halt. The demand for high quality diamonds all but disappeared as investors withdrew from the market. In addition, jewelry buyers, scared away by the high price differential that had developed between top and commercial grade diamonds, were opting for lower quality gems. Lazare Kaplan International was left with large inventories of high quality stones whose value had plummeted by up to 70 percent. To make matters worse, the company had borrowed heavily during the early 1980s in order to purchase the high priced rough stones from De Beers.

Company Perspectives:

Lazare Kaplan International is the largest manufacturer of diamonds in the United States. Founded in 1903, the company has built an exceptional reputation based on strict quality control in all aspects of production and grading. Integrity, professionalism and skilled craftsmanship established the company as the largest manufacturer and marketer of ideal cut diamonds. The ideal cut diamond is a stone of exceptional brilliance resulting from cutting rough stones to mathematically based angles and proportions. Lazare Kaplan markets its diamonds through a broadly based U.S. domestic and international retail distribution network. It is the only publicly traded diamond company, and is listed on the American Stock Exchange.

Lazare Kaplan posted a $6.6 million net loss in 1982. The company scrambled to institute a recovery plan. Inventories of the higher-quality diamonds were sold off at reduced prices with the proceeds being used to start a new subsidiary, Preferred Diamonds Inc., that would specialize in the lower-priced non-ideal cut diamonds which consumers were still buying. Lazare Kaplan’s high debt load and lack of capital, however, precluded the investment of cash needed to make a success of the new subsidiary. In 1983, after recording a net loss for the third consecutive year, Lazare Kaplan filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

New Ownership in the 1980s

During the 1970s diamond boom, Maurice and Leon Tempelsman, owners of a New York firm that had previously specialized in industrial grade diamonds and other commodities, began to enter the jewelry market with the production of higher grade gems. When the crash came in the early 1980s the Tempelsmans’ diverse interests were able to cushion the company’s losses. Seeking to expand their high grade diamond production business, the Tempelsmans made an offer to buy the floundering but still prestigious Lazare Kaplan International. The father and son team agreed to pay $22.86 million for a 72 percent share in Lazare Kaplan and, although George R. Kaplan remained a member of the board, in 1984 the 80-year-old firm slipped quietly out of control of the Kaplan family.

Contrary to analysts’ expectations, the Tempelsmans’ approach to salvaging Lazare Kaplan International was to retain the emphasis on the high-priced quality gems that had been the hallmark of the company, instead of moving to the lower-quality diamonds which were then dominating the market. Maurice Tempelsman reasoned that consumers would come back to the higher-value stones and that the intense discounting in the retail market would be unable to survive for an extended period of time.

Lazare Kaplan’s new management began an intensive advertising and marketing campaign to educate consumers about the value of the high-quality diamonds produced by the firm. The cornerstone of this campaign was the development of the first ever brand name diamond dubbed the “Lazare Diamond.” Each diamond produced by the firm would be laser inscribed using a special process developed by the company for commercial applications during the late 1970s. Visible only under magnification, the inscription would include a serial number and the Lazare logo and would unmistakeably identify the gem as the product of the Lazare Kaplan firm. A series of ads in mass circulation magazines touted the quality of the Lazare Diamonds with the slogan, “The Lazare Diamond—Setting the standard for brilliance.”

In addition to launching a massive American marketing campaign to promote the higher-quality diamonds produced by the firm, Lazare Kaplan began intensive efforts to sell its diamonds to growing markets in the Far East and Europe. Sales offices were opened in Japan, Hong Kong, and Europe and Lazare Diamonds were sold through jewelry outlets in Japan, Hong Kong, Taiwan, Korea, Indonesia, and Malaysia as well as various countries in Europe.

In 1988, Lazare Kaplan returned to its roots when the company opened a rough diamond trading office in Antwerp, Belgium, one of the major centers of the diamond trade and the location of the original founding of the firm in 1903. This office was designed to enhance the company’s rough trading capabilities which were providing an increasingly large percentage of total sales, as well as to open up new sources of supply for Lazare Kaplan’s core manufacturing business.

International Expansion in the 1990s

During the 1980s and 1990s the structure of the diamond industry began to undergo profound changes as the complete dominance by De Beers over the diamond supply gradually diminished, particularly in the smaller and lower-quality diamond market. Partly as the result of this restructuring, Lazare Kaplan was able to enter into a series of agreements with foreign governments to set up manufacturing and marketing activities for rough diamonds. Maurice Tempelsman had a long history of dealing with African countries dating back to the 1950s when he arranged a wheat for diamonds deal with the Belgian Congo. He had also been closely allied with a series of Democratic administrations from the Kennedy era to the Clinton presidency and was the longtime companion of Jacqueline Kennedy Onassis. Tempelsman’s connections and experience in dealing with the political sphere facilitated Lazare Kaplan’s growing international business alliances.

In 1989 Lazare Kaplan International reached an exclusive agreement with the Angolan government to export Angolan rough diamonds after a protracted civil war had left the country’s diamond industry in a shambles. A year later the company was granted a license by the government of Botswana, a major rough diamond producer, to build and operate a cutting factory in that country. After some initial difficulties in startup and training, by 1996 the 543 local employees of Lazare Kaplan Botswana were producing small size ideal cut stones for the worldwide market. The government of Ghana also reached an agreement with Lazare Kaplan whereby the company would serve as the marketing agent for the rough diamonds produced at the country’s Birim mine.

Tempelsman’s political savvy came into play once again in the mid-1990s when he negotiated a deal to refinance Russia’s aging diamond industry. The agreement, which involved both the U.S. and Russian governments and took a year to negotiate, called for Lazare Kaplan International to build and manage a diamond cutting factory to be staffed by Russian technicians. AK Almazi Rossii Sakha (ARS), the state-controlled company with responsibility for exporting rough Russian diamonds, would supply a minimum of $45 million per year of large rough diamonds for processing in this facility and Lazare Kaplan would sell the diamonds through its distribution network. This deal would serve as security for a $60 million loan to the ARS by the Export-Import Bank of the United States, an independent U.S. government agency.

Under the Tempelsmans’ management the small but prestigious American diamond firm was transformed into a major player in the worldwide diamond industry. After a number of years of reorganization Lazare Kaplan returned to profitability in 1987 with net income of $548,000 on $52 million in sales. By the end of the decade sales had doubled to $110 million and then soared to $266 million in 1996. If the numerous foreign operations that have become central to Lazare Kaplan’s business plan can be maintained in the difficult political climates of these diamond-rich countries, Lazare Kaplan International will continue to grow.

Principal Subsidiaries

Lazare Kaplan (Sierra Leone) Limited; Lazare Kaplan Japan, Inc.; Lazare Kaplan Belgium, N.V.; Lazare Kaplan Europe Inc.; Lazare Kaplan Africa Inc.; Lazare Kaplan Botswana Limited (60%); Lazare Kaplan Ghana Ltd.; Kaplan Offshore Trading Limited; Lazare Kaplan (Russia) Inc.