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De Beers Shakes Industry Foundations Lab-Grown Initiative

De Beers Shakes Industry Foundations Lab-Grown Initiative

Last Tuesday, De Beers announced that it will be launching a new brand of fashion jewelry containing laboratory-grown diamonds (LGD). The initiative, called Lightbox Jewelry, had an immediate ripple effect, reverberating throughout the diamond pipeline, from miners to retailers. The magnitude of the announcement cannot be overstated. It is an earthquake.

De Beers has owned Element 6, a lab-grown diamond producer, for many years. Like all such producers of the time, they created industrial grade goods, for industrial applications. Over the years, the company developed its diamond production technology and began producing high-grade, gem-quality lab-made diamonds more than a decade ago. Although stating that the higher quality lab-grown goods were for high-tech needs and audio systems, which call for the use of very clear material, ever since that time there has been serious concern in the diamond industry that the end game was the production of lab-grown diamonds for jewelry.

The questions circulating about the purpose of Element 6’s production of gem-quality goods were driven primarily by the identity of the company’s owner – De Beers. Why else would De Beers want to own a company that can manufacture such goods, people in the diamond industry asked. After all, De Beers’ business is mining and selling rough diamonds. If they are good at producing diamonds – be it from a mine or a lab – good at selling rough diamonds, and have a well-established network of buyers, then why not sell lab-grown diamonds? The questions reverberated not only in diamond traders’ minds, but also in the open. Company executives were asked more than once over the years, both in public and in private, about their intentions. Would they ever start selling lab-grown diamonds for use in jewelry? The company’s response was either a straight out ‘no’ or a soft denial that only fanned the rumors.

The rumors are over. The company made the decision, and now all we can do is try to understand what it means and what impact it may or may not have on the industry. To put this in context, what should other diamond miners do about this? ALROSA, for example, forbids its contract clients from dealing with lab-grown. Large diamond companies and industry organizations have battled lab-grown. Not just the illegal mixing, but the very idea that the goods commonly called “synthetic,” are in anyway even a legitimate category worthy of being carried by retailers, let alone worthy of being traded by diamond traders. “Synthetic” was used as a derogatory term. At times, the battle even took legal forms, when nomenclature and international legal terminology were being defined. One of the bodies that took on that battle was DPA, the Diamond Producers Association, of which De Beers is not only a founding member, but also a major contributor to the budget.

The industry as a whole was surprised by the bold move De Beers made, some felt deceived by the company that is still viewed by many as the custodian of the industry. One surprising reaction was the sudden drop in share prices of publically traded junior diamond mining companies, maybe to be understood as a vote of no confidence by the stock market in the viability and future of natural diamonds. Investors suddenly viewed the move by De Beers as a signal that there is less of a future in natural diamonds. Bloomberg went as far as stating that Diamonds Aren’t Forever and CNN went even further, with the headline, De Beers Admits Defeat over Man-Made Diamonds. I think both headlines are wrong, not to say misleading. Diamonds, natural diamonds created by nature over billions of years, are forever. Changing strategy is no way an admission of defeat.

But once the surprise wears off, decisions will need to be made. It can be argued that De Beers is bowing to public pressure. At the Las Vegas trade show two years ago, retailers expressed strong resistance to lab-grown. Last year the tune was different. The ‘no’ was replaced by a softer approach, and the common saying was that they (retailers) will go where consumers tell them to go. So, if that means offering jewelry set with lab-grown goods, so be it. That was not only a clear change in the direction of the American retail market, but possibly a cue for companies such as De Beers to consider, if not move forward, with lab-grown associated initiatives.

What Are They Offering?

The new De Beers venture, Lightbox Jewelry, offers lab-grown diamonds at $800 per carat, regardless of size, color, clarity, or any other characteristic commonly used for diamonds. They can be set in silver or 10kt gold, with the former costing $100 and the other $200, distinguishing them from bridal jewelry and somewhat above custom or fashion jewelry. The goods will not be certified. I like the idea that these goods are positioned this way.

They are not rare and are positioned as pretty trinkets, nothing more. The goal, it seems, is to strengthen the position of natural diamonds by repositioning lab-grown. If lab-grown are perceived as an inexpensive, fun kind of item, this pulls the rug out from under the positioning that lab-grown producers have tried to create until now – that they are a replacement item, with their price pegged to natural diamonds, and that they are characterized in the same way. The new positioning De Beers is trying to create is moving them away from the diamond-oriented talk. It is no longer about energy use, ethics or margins, and it is hardly about cost either.

In every interview and in their press release as well De Beers repeated that Lightbox is underpinned by extensive consumer research that shows consumers see lab-grown as pretty, fun products that are most appealing in fashion jewelry. If accurate, this could explain the limited adoption rate of lab-grown by the consumer market. If De Beers succeeds in undermining the efforts of the lab-grown producers’ intent on piggybacking their product on naturals and consumer interest in a simple, fun product, they will succeed in changing the discussion around lab-grown altogether. Especially in the consumer market. 

What Is The Possible Impact?

If De Beers succeeds in this mission, and we can only surmise that that is their mission, they will have performed a great service for the entire diamond industry. They will be serving their colleagues, diamond miners such as ALROSA, Rio Tinto, Dominion and Petra will, and they will serve the midstream of the diamond pipeline, the manufacturers and polished diamond traders, by helping them all protect their core business – selling polished diamonds and diamond jewelry to consumers who appreciate them and their rarity, and are therefore willing to pay what they are worth.

On the downside, there are possible negative outcomes. For example, a general degradation in the position of natural diamonds. If in the minds of consumers, lab-grown are already attached enough to natural diamonds, then a reduction in the price of lab-grown may influence consumer willingness to pay full price for natural diamonds. As indicated by the headlines mentioned above and by the decline in share price of a few publically traded junior diamond miners on Tuesday following the news, consumers may have reached a similar conclusion, specifically that the perceived backing of lab-grown goods by De Beers means that they, too, should take lab-grown more seriously, and naturals a little less.

De Beers has invested heavily in Forevermark, its diamond branding initiative. It was also willing to suffer many difficult years with its retail stores, which they owned jointly with LVMH. They eventually bought LVMH’s 50% stake in the company and took full control. Only time will tell if that move will prove successful, but in the meantime, they are demonstrating a willingness to take a long-term view and invest in it, sometimes heavily. A few years ago they launched IIDGR, a diamond grading company. What does all this tell us about De Beers? That where they see an interesting and economically promising opportunity, they will take it. They are willing to enter areas that may be perceived as being in direct competition with their clients (retail), enter new areas and compete with well-established existing operations (grading), and go head-to-head against conventional wisdom and perception, as they are doing with their current venture.

Frankly, this is admirable. This is an excellent way to take leadership. As far as the issues that I have been advocating here for the last few years, Lightbox reflects many of the values I have called for: Lab-grown are not rare, they can be printed out at whatever quantity the market can absorb. Diamonds are very rare, and their price should reflect that, with a clear and obvious differentiation between the two, and most importantly, lab-grown are good for industrial use or as set in jewelry. They do not have any standalone value. Diamonds, on the other hand, do have standalone value, as attested by the ongoing rise in popularity and prices of diamonds sold at auctions in Geneva, Hong Kong and New York. We need to continue to educate consumers about mined diamonds and develop this category as much as possible. If we do so, we will rise, while lab-grown will remain a component in lower-cost jewelry.

 

 

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.

Diamond Portraits: John Wesley Huddleston
Diamond Portraits: Jules Porgès

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