Vowed for years that it would not sell synthetic diamonds, the world’s largest diamond producer by value De Beers, who supplies over 40 percent of the world’s rough diamonds, has recently taken a two-prong strategy by venturing into the synthetic diamond business with a new fashion jewellery brand Lightbox Jewelry. For decades, De Beers remains synonymous with natural diamonds. It is no surprise that the miner’s announcement in this May made a splash in the whole diamond industry.
Compared with the white-dominant natural diamond offerings, Lightbox has a totally different offering consisting of a lot more pinks and blues than whites, in a selection of accessibly-priced earring and necklace designs. These synthetic stones will retail for US$200 for a quarter carat or US$800 a carat targeting US consumers via e-commerce in September, together with a consumer advertising campaign across out-of-home, print, digital and social media channels. Right now, the brand is exploring its retail potential while having no plan to expand beyond the US market at this stage.
Synthetic diamond is not new for De Beers. Its Element Six has been producing HPHT and CVD synthetics for over 50 years mostly for industrial purposes, and is producing high-quality CVDs for Lightbox at their facility in Ascot, England. Besides that, De Beers is investing a total of US$94 million over four years in a new facility in Oregon of the United States to support the new line. The new facility will start producing synthetics in January 2020. While Lightbox sources synthetic roughs only from Element Six, cutting and polishing will be outsourced to Indian contractors.
Recently, CEO of De Beers Bruce Cleaver revealed to Rapaport that once the new facility is fully operational, the plant will be capable of producing around 500,000 carats of synthetic roughs per year, which approximately equates to 250,000 carats of polished. He expects Lightbox’s annual revenue of US$150 million to US$200 million. Given that De Beers’ natural diamond business is worth about US$6 billion, its synthetics move seems relatively negligible.
Aggressive pricing, different positioning
The aggressive pricing must be one of the most noticeable strategies Lightbox takes. The brand will sell synthetics roughly 75 percent cheaper than natural diamonds, whereas the average percentage is between 30 and 40 for existing synthetic diamond offerings. Bruce Cleaver believes that as technology advances, synthetic diamonds will become more affordable, just like the pricing of synthetic gemstones which are sold at significantly lower prices than the natural counterparts.
After decades of R&D investment at Element Six, De Beers is able to offer consumers a better price of synthetics today. Lightbox will resonate with consumers and provide a new, complementary commercial opportunity for the group, said Cleaver. Positioned to offer fun, pretty fashion accessories for more light-hearted occasions, Lightbox is created to seize this profitable opportunity that has been missed by most synthetic diamond producers.
Consumers want it
David Johnson, head of strategic communication of De Beers told Hong Kong Jewellery that De Beers’ extensive research over an 18-month period indicates that consumers want affordable synthetic diamond fashion jewellery, and the key reason for their interest in synthetics is the price.
The research also found that there is a widespread confusion among consumers about synthetic diamonds – what they are, how they are produced and how they differ from natural diamonds. Johnson said: “The findings highlighted the need to help address the confusion in the industry by launching a brand that would be entirely clear and transparent in terms of synthetic diamonds.”
Differentiate two markets
Emphasised that Lightbox is a totally different business with a separate management team, marketing plans and budgets, De Beers is confident that their synthetic diamond business is not contradictory with the natural’s. Although Lightbox is a subsidiary of the group, De Beers’ name or logo will not be used in Lightbox branding to avoid any risk of consumer confusion. Lightbox will always be transparent with consumers that it is a synthetic diamond brand. Any Lightbox stones of 0.2 carat or above will carry a permanent laser mark inside so they can be quickly and easily identified as synthetic.
In addition, the Lightbox stones will not be graded in the traditional way as most synthetics in the market are done. “Natural diamonds are graded to provide a confirmation of how rare they are based on their natural variations. As synthetic diamonds can be mass-produced to order in batches, grading is meaningless for them,” stated Johnson.
Besides the synthetic diamond business, the company’s natural core business continues to expand with US$3 billion-worth current programmes in a large scale. De Beers expects this two-prong development strategy to create a clear differentiation between synthetic and natural diamond markets.
Win-win or lose-lose?
By strengthening the natural diamond business while trying to dominate the synthetics market, De Beers’ win-win strategy aroused mixed comments from the traders. “The problem with De Beers’ synthetics strategy is that they can’t dance at two weddings at the same time. Synthetic diamond fashion jewellery competes directly with natural diamond fashion jewellery,” said Martin Rapaport, chairman of Rapaport Group in Rapaport.
In his view, there is a trade-off for consumers between natural diamonds and bigger stones. The more De Beers lowers the price of synthetics, the greater the size value of synthetics and the more diamond demand shifts from natural to synthetics. This is especially the case for the engagement ring market where most synthetics producers are going after. De Beers’ synthetics pricing approach looks like a lose-lose situation from the perspective of the natural diamond trade and mining companies, he said.
There are plenty of natural melees priced at US$800 per carat or less. According to Paul Chieveley-Williams of fancy-coloured diamond company Belodiam, when synthetics get lower in price, jewellers who use lower-price diamonds like browns would shift to synthetics. Consequently, it will affect lower- to medium-quality natural diamond business.
“The key thing is that the timing could not be more right, because of the concerns on synthetics in the industry. There was not much difference between CVDs and natural diamonds, more from the perspective of pricing,” Darshit Hirani, partner of Mumbai-based P Hirani commented on De Beers’ synthetics move. Although his fancy-coloured diamond business is not affected that much by synthetics, he acknowledged the need to stop some synthetics traders to misuse information and confuse customers.
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