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CIBJO Speech

Matching the Economics of the Demand with the Needs of Development

Thank you Madame Chairman.

I am Michael Haynes, Chief Executive Officer of Collectors Universe, a NASDAQ Global Markets traded company, which in our most recent fiscal year, provided authenticity and quality ratings for more than 3.1 million individual, high value assets with a total market worth of approximately US$1.8 billion.

I bid greetings to all the delegates, visiting dignitaries, non‐government organizations and my colleagues in the jewelry industry.

I also thank the United Nations and CIBJO for the opportunity to briefly address this important conference.

There is a focus at the Conference on this issue:

How to develop and enhance the working relationship between civil society and the commercial enterprises for the improvement of living conditions.

As we collectively examine the way forward, there will be other speakers and panels to address the current state of affairs in the developing or underdeveloped countries. Others will also address the plans for positive progress in the achievement of the stated goals. However, for the next few minutes, we will focus on the subject of the demand for jewelry that ultimately provides the economic support for any of the development initiatives.

CEO Michael Haynes giving a speech at UN headquarters in Geneva

In essence, we see a channel that transfers wealth from the one end, the retail customer, to the other end, the original sources of the products, using commercial entities in between the two ends of the channel to affect the transfer. In the case of our jewelry markets, the retail product is the jewelry, a luxury product, and on one end of the channel there are the retail consumers, generally described as “luxury market” or “wealthy” consumers. The commercial entities affecting the transfer are retailers, distributors and manufacturers, while on the other end of the channel the source of the jewelry materials is the mining businesses and their employees.

With this construction in our jewelry markets, on one end the luxury market retail consumer and the other end the mining source of the jewelry products, the key question we are considering is:

Will the luxury markets for jewelry provide sufficient economic support through the distribution channel so that the citizens of the producing and developing nations can benefit?

As we examine this question, there is evidence that would indicate in the affirmative, that there is now sufficient economic support, or there could be developed an even more sufficient level of economic support in the luxury markets in order to enhance the citizens of the producing nations.

Let’s examine some of the evidence.

In the recently released book from Harvard Business School Press titled Authenticity, authors James Gilmore and Joseph Pine explain there is strong desire in today’s economy for an authentic experience or product that is verified “authentic.”

The book Authenticity explains that the market is so interested in “authentic” that many experiences and products are presented as authentic without sufficient support or justification for the claim, creating confusion and doubt in the markets.

One of the conclusions of the authors in the book Authenticity is that experiences or products that rightfully are authentic have a distinct advantage in today’s market.

When we apply these principles of authenticity to the jewelry markets, we draw this conclusion:

Jewelry products that can be differentiated by disclosing and marketing the source of a product from a locale, region, country or geography, are, by definition, “authentic” and therefore more desirable to the retail consumer.

Therefore, knowing that “authenticity” matters to the consumer, we also then know that by linking the authenticity of the product to its source or origin establishes the channel of wealth distribution from the consumer to the producing country of origin.

There is also evidence in the luxury markets that socially responsible practices have an influence on retail investment and on the decisions of retail consumers.

Merrill Lynch and CapGemini, in their 11th annual World Wealth Report of 2007, reveal that Socially Responsible Investing is growing worldwide for High Net Worth Individuals. For example, there are over US$5 trillion with investment managers globally that have signed onto the “Principles for Responsible Investment” group, a project coordinated by the United Nations.

To illustrate the flow of funds and the individual choices being made for Socially Responsible Investments, this 2007 World Wealth Report states that 8% of the value in the portfolios are invested in Socially Responsible Investments, which investments vary in the five world regions from a low of 3% to a high of 14% of the aggregate value of those investments.

On one hand, it is clear that the high net worth individuals have an interest in Socially Responsible practices. Now let’s examine, on the other hand, what categories of investments are of interest to the high net worth individuals.

When examining the types of investments, the 2007 Report showed that high net worth individuals held approximately US$5.2 trillion in Alternative investments of which Jewelry was listed as an “investment of passion” inside these portfolios.

Of the investments of passion, jewelry was 18% of the total value of the investments of passion, and in the five world regions, jewelry was taking from a low of 13% to a high 32% of the total value of the investments of passion.

With this important information from Merrill Lynch and CapGemini, we conclude for high net worth individuals that

1. Jewelry is considered a significant and suitable investment to enhance the family net worth; and
2. High net worth individuals have a bias toward investments with Socially Responsible practices.

Therefore, we believe that if jewelry, already an asset of considerable interest to high net worth individuals, can be coupled with disclosure or marketing information to describe the Socially Responsible practices associated with the jewelry products, then there can be an increase in jewelry acquisition.

There is other evidence that the luxury markets actively seek Socially Responsible products.

The Luxury Institute, in the October 15, 2007 issue of The Wealth Report, describes demand for brands associated with Corporate Social Responsibility. In the Report, more than half, or to be exact, 57%, of wealthy consumers say they would pay higher prices for brands with Socially Responsible practices. This is not just a preference by the wealthy consumer, this is a stated willingness to pay even more for brands that have Socially Responsible practices.

Also in the Report, almost two out of three, specifically 62%, of those aged 45 to 64 – one of the prime jewelry consumer groups with discretionary funds ‐ would give a preference for brands with socially responsible practices. Further in the analysis, the Report also states that Corporate Social Responsibility can be a deciding factor for a retail purchase of a brand when other features, such as quality, service and price, are substantially equal.

With this research from the Luxury Institute, we can draw the following conclusions:

1. Wealthy consumers that purchase jewelry would pay a premium for brands associated with Corporate Social Responsibility practices; and
2. Corporate Social Responsibility practices can be a deciding factor when selecting a brand for purchase.

Therefore, we believe that if jewelry can be branded and associated with Corporate Social Responsible practices, then the wealthy consumer will exercise a preference for those brands with Corporate Social Responsibility and perhaps the majority of the wealthy consumers would even pay a premium for such brands.

With this information from Harvard Business School Press, Merrill Lynch and the Luxury Institute, what did we learn about the prospects of transferring wealth from the retail consumer, on one end of the channel to the other end, the original sources of the materials in the jewelry products?

In summary, here are our conclusions about the jewelry markets and the available economic support from the luxury market or wealthy consumer:

1. Wealthy consumers consider jewelry an important and integral asset in the net worth of the family;
2. Wealthy consumers will pay a premium for brands associated with Corporate Social Responsibility;
3. Wealthy consumers have a bias to purchase brands associated with Corporate Social Responsibility; and
4. Jewelry products identified with materials from the source, origin or producing region or country can carry “authenticity” of the highest order and are therefore more desirable by the consumer.

As earlier explained, we believe that there is evidence that shows the jewelry luxury consumer can provide the economic support on one end of the channel of distribution so that the other end, the businesses and employees in the producing and developing nations, can benefit. Although there are perhaps many improvements to make at various points along the jewelry distribution channel to insure that the economic benefit provided by the retail consumer transfers successfully to the origin or source of the materials for the jewelry product, here are three improvements which can be implemented individually or, as may be possible, collectively, that can assist in taking increased advantage of the desires of the retail consumer:

1. Disclose – Disclose and market Corporate Social Responsibility practices through the channel, from origin to retail counter, so that the consumer is aware of the brands with this preference;
2. Associate – Associate the application of the Corporate Social Responsibility practices directly with the businesses in the producing and developing countries of origin; and
3. Identify – Identify the specific producing and developing countries with the product or brand to assure authenticity and to establish linkage of the Corporate Social Responsibility practices with the sourcing countries so that the consumer is clear about the relationship of the jewelry to its origin and the implied support of the country of origin by the purchase of the jewelry item.

Ladies and gentlemen, the luxury markets seem to stand ready to provide the economics for the transfer of wealth from the consumer to the workers in the producing and developing nations. I encourage our dynamic and creative commercial enterprises in the jewelry distribution channel to work together with government and non-government institutions to provide the link between the wealth consumers and the citizens of the country of origin.

I look forward to working with you to achieve these objectives and I thank you for your kind attention.

Collectors Universe CEO Michael Haynes