A NEW ERA OF CHANGE

De Beers’ announcement of Lightbox, its lab-grown diamond jewellery brand, sent the entire diamond industry into a tizzy. The next few days followed by the announcement were of surprise and confusion, as everyone in the industry were busy analysing the possible effects of this shocking move. Shocking because no one saw it coming! Some called it ‘self-cannibalisation,’ while some called it ‘disruptive innovation’, and a section of the industry are concerned if the move will affect the admiration people have towards natural diamonds. However, De Beers maintains that the move is a part of a well-thought and well-researched plan and the company sees an opportunity in labgrown diamond jewellery category. One fact that remains constant in all this is – nothing is forever, change is the only constant. By Kavita Parab

In order to sustain and develop, one needs to reinvent. One of the latest business strategies of development is ‘disruptive innovation’, which De Beers is doing with its lab-grown diamond (LGDs) jewellery brand Lightbox. Though De Beers’ announcement to launch lab-grown diamond jewellery brand is referred as logical, industry players are a little wary of the decision.

What caused the Stir?
For more than 100 years, De Beers has championed the natural diamonds business. How can one forget the advertising tagline ‘Diamonds are Forever’? We have been hammered with the well-oiled marketing and advertising strategy that natural diamonds are the only ‘diamonds’ and are ‘unique’, ‘rare’ and they are meant for special, long-lasting relationships. That is how De Beers became synonymous with natural diamonds and therefore, their announcement to launch lab-grown diamonds jewellery caused quite a stir. Over the years, they had been successful in creating value around diamonds by intelligent storytelling.

Therefore, the announcement was certainly a complete shocker for the entire gems and jewellery industry especially for the natural diamond industry. And this is because in the last few years, the natural diamonds industry has been fighting hard against the rising tide of LGDs as there have been a number of instances of illicit mixing which has put the hard-earned reputation of the natural diamonds industry at stake.

The natural diamond traders feel that the consumer perception of natural diamonds might change with De Beers’ move. The consumer might get attracted to the affordable price-point and opt for LGDs and thus affect the demand for natural diamonds.

However, the LGD industry has welcomed the De Beers move. “It has opened the flood gates of interest in lab grown and sustainable diamonds. We were overwhelmed by the interest we received at both Couture and JCK shows recently and the majority of our inventory is now reserved for the remainder of the year. For the professionals in the industry, a diamond is a diamond. They know the difference between a synthetic gemstone and a LGD that is atomically identical to a mined one. It’s the retailers who stuck to the propaganda that are having a difficult time accepting this now,” said Martin Roscheisen, CEO, Diamond Foundry.

What is De Beers’ Objective?
De Beers has made it clear that LGDs and Natural Diamonds are two different products at two different price points. Through Lightbox, De Beers is trying to change the positioning of these two products. “De Beers carries out a lot of research on issues that are relevant to the diamond sector, and recently carried out research on consumer attitudes regarding synthetic diamond jewellery. This research highlighted that there is widespread confusion about laboratory-grown diamonds – what they are, what they are not, how they are formed, and how they are valued. Lightbox Jewelry will be marketed distinctly as man-made, and it will be priced and positioned in a way that’s different from natural diamonds (because as products of technology that aren’t unique or finite, synthetic diamonds don’t have the inherent preciousness or enduring value of natural diamonds, and it isn’t helpful for anyone if consumers are led into believing otherwise),” the company statement mentioned.

De Beers Group in a statement said, “While the demand dynamics to date indicate that this will be a very small business compared with our core natural diamond business – and in fact we saw global demand for diamond jewellery hit an alltime record high of US$82 billion last year – our research shows that people do have some interest in lab-grown diamonds for accessibly priced fashion jewellery, so that’s what we’re offering and that’s what we think will be the way forward for these products.”

In order to give a clear perspective of their move, De Beers recently held a townhall in Mumbai. After the meeting, the industry seemed divided on the entire perspective, a section of the industry is happy that De Beers has taken an initiative to differentiate the two products, while there is certain section which refuses to accept the De Beers argument and is doubtful and scared about the future of the natural diamond industry. ‘Townhall conducted by De Beers was to give clarity over their recent announcement of their labgrown diamond jewellery brand. Their focus was to make the Indian diamond industry understand how they are going to keep the natural and labgrown diamond business separate. According to the presentation, colour LGDs like pink and blue would be manufactured in vast quantity while production of white LGDs would be very less. However, only De Beers will manufacture the jewellery,” said Rajiv Shah from D Naresh Kumar Exports.

LGD Industry Unperturbed for Now

De Beers is being looked at as disruptive for the current LGD makers. However, the makers of LGD seem to be in a wait and watch mode for now and are keen to see how the product transforms the market. Explaining how De Beers’ price point is not at all ‘disruptive’ to them, Martin said, “The price point offered by De Beers is not disruptive at all -- it’s what the market price has been for a while in the market of smaller sized non-uniques. A 1-carat J colour, I1 clarity diamond wholesales for $800 today. Melee is available for $65 per caratfor mined material as well as manmade -- there is no price difference here as it is mainly the cost of polishing. Further, all diamond growers other than De Beers are currently offering uniques for the bridal market as well as non-uniques for the fashion/fine jewellery markets. Lightbox is only competing in the latter segment.They are positioning their diamonds to compete in the lowest-value market segment which is not as profitable. Their production costs will also end up being much higher -- starting with their overhead and with the cost of electricity being three times higher than average,” Mr Martin added.

“Some smaller growers will definitely come under pressure as their lower quality diamonds will be similar to the De Beers offering,” cautions Martin.

Calling it a chase move, Anna-Mieke Anderson, CEO & Founder of MiaDonna, said that the earth-mined diamond industry has done it in the past to degrade the LGDs but it might not help. “But I must say that the De Beers’ move is like a massive awareness campaign to consume LGDs as diamonds. This time, De Beers has really helped the LGD industry by saying that LGDs are also diamonds.”

This announcement of De Beers also coincided with JCK Las Vegas where an exclusive pavilion for LGDs was introduced for the first time. Dealers of LGDs enjoyed a thorough visibility as demand from buyers was excellent. ‘With De Beers announcement of promoting LGD, there was quite a positive response from most of retailers working with LGD. A lot of jewellery manufacturers who were at the fence are seriously considering starting some sort of pilot project in LGD. Though the footfall was 30 per cent less, we got some serious enquiries and there was an increase in overall sales, which was quite encouraging sign for the LGD industry. The demand for 1-2 cts and larger sizes between 3-5 cts were high in demand in both rounds and fancy,’ said Ashish Jain, CEO, PDC Hong Kong.

Talking about the positives of the move, Chirag Limbasiya, Director, New Diamond Era said, “Being from the lab-grown diamond industry, I feel De Beer’s decision is a kind of boost for the LGD industry. We are expecting healthy business now. If you ask me, it is business as usual. Now people are ready talk about LGDs, which was not the case earlier. However, I feel there is nothing to fear for the natural diamonds industry as both are two different products. I think there is need to create more awareness about the LGDs. Now that the De Beers Group is foraying into the LGD jewellery, it is kind of creating awareness about the product. Their move has created a lot of interest towards the product, which is a good sign for us.”

Though it is too early to analyse the effects, in future the move might give rise to demand for LGDs. “It cannot be denied that it might possibly increase the demand for synthetic stones, and create a risk of devaluation of the core idea of natural diamond, especially in cheaper categories. Without a doubt, it is necessary to accelerate the work on the distinction in the positioning of natural diamonds and synthetics and emphasize all the advantages of the natural diamonds – its rarity, its value, its deep emotional meaning. We also believe that a synthetic product should always be named “synthetic”. We hope that DPA will concentrate its efforts on these areas of work. Major diamond industry players also should be more attentive to the control of compliance with the disclosure of this information,” said ALROSA spokesperson in an email communication with DW.

Talking about the possible threat especially in the India context, ALROSA spokesperson further added, “As you know, India is the largest diamond manufacturer in the world and this leadership was built solely on the natural diamond industry. Today, Indian companies polish 70 per cent to 90 per cent of world’s diamonds, and significant amount is in small goods. Of course we hope that smaller goods segment won’t be affected by synthetics. But as we said before, it cannot be denied that it might possibly increase the demand for synthetic stones, especially in those categories where the price of synthetics is similar with the price of small natural stone.”Since the announcement, back in India, there has been confusion and scare in the minds of the natural diamond trade. Some feel it might affect the demand for natural diamonds while some feel that the De Beers move would actually beneficial to the natural diamond industry.

Looking at the positive side of the move, Ankit Shah from Ankit Gems said, “De Beers has done an amazing job in a way to sell synthetics at a price that it should actually be sold. They have done what they were supposed to do. Natural and synthetics are two different products and should be sold differently. At present, synthetics are sold and marketed in comparison to natural diamonds which should not be so."

“My initial reaction was obviously was that of shock. Most of the diamantaires who understand the whole strategy have understood that De Beers move will eventually help the natural diamond industry. However, a part of the industry is still unhappy with the De Beers decision and is still unable to come to terms with it. De Beers has made two sections in the industry which is good. They have saved the industry,” added Ankit Shah.

What Retailers Think?

Retailers are the ones who actually face consumers on a day-to-day basis. We spoke to a few retailers, while some of them were not surprised with the De Beers move, there were a few who were very sure of natural diamonds and their place in the minds of the consumer. Natural diamonds are hard to replace due to their rarity and uniqueness. No two natural diamonds are same. Talking about their rarity, Amarendran Vummidi, Managing Partner,Vummidi Bangaru Jewellers said, “Diamonds earned esteemed place in the hearts of royalty since ages. The charm of natural diamonds will be intact as the most precious tangible thing on earth forever. It held highest place in customer’s hearts, due to its rarity since ages. The charm and the intangible value associated with ‘Diamond’ would not be there in LGDs.”

However, LGDs might be the preference of the price-conscious consumers. Saurbh Gadgil, MD, PNG Jewellers said, “Considering the announcement from De Beers’ of LGDs, Lightbox jewellery is more of affordable fashion jewellery. The price point of Lightbox is almost one tenth of natural diamonds. LGDs may not be considered precious but it will be attractive considering different customer requirements.”

“Today’s customer wants more variety, if that’s coming at an affordable price, why not? LGDs will not be an alternative for natural diamonds but it will have its own market as long as it’s pitched to the right customer in the right manner,” added Saurabh.

The fear of LGDs replacing natural diamonds doesn’t seem to be true right now as the inherent quality of natural diamonds would remain intact. “Rather both the sections of the industry can coexist as they targeting different markets,” said Kishan Surana, Managing Partner, Shree Krishna Diamonds and Jewellery.

What Might Happen?

Over the years, De Beers had the best technology at hand and has the expertise to make the best quality LGDs. The company is trying to create two different markets which can be beneficial for both the industries. By the different positioning, they are also trying to tell the consumer about how they can take the decision to buy diamonds based on the occasions.

De Beers does not want the consumer to think that LGDs are real and want them to understand the difference. When its US$94 million Portland, Oregon synthetics laboratory plant opens, De Beers will produce 500,000 carats annually, which means it is more likely that it would be one of the giants in the LGD industry. Also, the products are coming with a permanent logo that marks the products as LGDs. As they are offering products at a price that is almost 75 per cent lower, there might be a time when the markets will be inundated with LGDs and every third or fourth LGD might be from Lightbox.

“It’s also clearly the case that as technology improves, and as supply of laboratory-grown products increases, prices come down – there are many examples of this to look at (just like any technological product, whether it’s a flat screen TV, or whether it’s a synthetic ruby, emerald or sapphire). Our technological capability at Element Six means we can offer accessible prices today, meeting what consumers tell us they want from these products, and still run a profitable commercial enterprise,” said De Beers Group.

This is a win-win situation for De Beers. By reducing the prices, at one point of time, there may be price adjustments of LGDs, which will in turn increase rarity and value of natural diamonds. De Beers would continue to enjoy high premiums for natural diamonds while on the other side it will try to monopolise the LGD market.

What’s Next?
No matter how much you study markets, buyer preferences, psychological triggers and pricing strategy, the bottom line is that one needs to acclimatize, take chances and break away from the set ways of business. Nothing is Forever!