As everyone now recognizes, advances in consumer acceptance of lab grown diamonds (LGD) are having a significant negative impact on both the sales as well as the value of mined diamonds. These advances are being driven by a steady reduction in LGD prices, making larger, higher clarity, higher color diamonds ever more accessible in mainstream price points. As a result, De Beers is taking negative price adjustments, India decreed a two-month moratorium on rough diamond imports, and the entire mined supply chain is now in full retreat.
But in my view, this cannibalization is only one facet in the ongoing diminution in mined diamond value. Another is just around the corner, and its inevitable impact will serve to further depress the value of mined diamonds currently in the market.
Each year, roughly 750,000 diamond engagement rings are “repurposed” as their current owners either divorce or die, because while diamonds may be forever, the lifespans of their owners, as well as half of all marriages, are not. And as the Baby Boom generation now faces terminal liquidation due to the unfortunate reality of actuarial tables, we will see an acceleration in this repurposing.
Where do these diamonds go? Back into the market, where they are resold without any mention of their prior history. The secondary market is actually quite robust, and there are even companies like Worthy that are now taking what was once the realm of pawn shops, independent jewelry stores and divorce attorneys (yes, she often pays for her legal help in the divorce with her engagement ring center stone) and attempting to achieve scale. It’s a sad, but very margin friendly business, as these diamonds work their way back into the mainstream. And herein lies what I see to be a massive incipient problem.
The notion that the diamond was formed under extraordinary conditions of high pressure and high temperature deep within the earth billions of years ago and was then extracted from kimberlite pipes using incredible mining technology, and then cut and polished and distributed down the supply chain, finally winding up in a jewelry store near you, provides an undeniably romantic element to the appeal of the diamond in the showcase.
What’s not so romantic is the regrettable and increasingly likely probability that the diamond in the showcase was actually originally purchased by someone else, and then worn for an indeterminate period of time before re-entering the supply chain. And while changes in social norms have diminished the groom’s requirement for his bride to be a virgin, it is undeniable that his bride still wants her diamond to be one. And there’s the rub.
Forevermark was initially a potential answer to this chain of custody challenge, but De Beers allowed that admirable idea to go down unnecessarily in flames. And then GIA launched the Mine to Market program, another terrific idea that died when De Beers and GIA couldn’t come to terms with who owned what intellectual property, again snatching defeat from the jaws of victory.
And now, I’ve been awaiting the global launch of “Code of Origin” for more than two years, hoping that we will finally once again have a wonderful story to tell that will protect mined diamonds as a class. But after month after month of hearing “it’s coming”, I’m starting to wonder why there’s such a lack of urgency on their part. Is this yet another example of misplaying a winning hand? Or is there also a recognition at high levels that Code of Origin is a hard pill for retailers to swallow since if you choose to promote it, how do you then sell your other diamonds? As confirmation, it’s my understanding that this objection was strongly raised 14 months ago by the buying team of one of Signet’s divisions, who loved the idea but shot it down because Code of Origin doesn’t coexist well with their other diamond programs.
It is inevitable that “new” diamonds will now become a “thing”. And lab grown diamond growers who can track their production from “Lab to Market” will be positioned to benefit significantly. Indeed, I am currently launching a way of telling the unique story of the creation of individual lab grown diamonds in a Made to Order marketing initiative (thereby ensuring their “virgin” status), and I can’t imagine that I’ll be the only one for long. And once that happens, will hashtags like #nouseddiamondsforme and #thefirsttowearit be far behind?
Will your customer make a purchase when she suspects that the diamond she’s buying from you might have been worn by a prior owner whose marriage failed? I don’t think so, any more than I think she would be happy to learn that the gold used to make her mounting had a former life as someone’s teeth.
The mined diamond supply chain has failed to provide a workable solution to the problem of provenance and prior ownership. But you can bet that in the near future, key players in the LGD supply chain are going to play this “prior ownership” card by offering Diamond Provenance Reports, with a corresponding negative impact on the value of existing diamonds in the marketplace. Protect yourself and your company by having a wild card up your sleeve when that time comes.
By the way, I’ll be delivering a seminar, Laboratory Grown Diamond Update – A Business Update and Survival Guide at the Atlanta Jewelry Show on Monday, March 18th from 1 – 2 pm. I’d love to have you join me.
Class Dismissed!
