Friday, June 8, 2018

The New De Beers

This past week we saw De Beers introduce Lightbox Jewelry, a full-bore, direct to consumer (DTC) retailer that will exclusively use man-made diamonds (MMDs) produced by their Element 6 division.  The concept is neatly packaged to offer a basic selection of body jewelry at moderate prices.  The DTC approach is intended to circumvent the entire traditional channels of distribution established by De Beers over the last century, in an effort to demonstrate that this is just a low-end, low-value product aimed at an under-served public.  De Beers claims that it will only benefit its existing clients by demonstrating how much more valuable "real" diamonds are.

This move cam as no surprise at all to me.

There are many gaps and holes in this plan, and I will try to outline them in future blog posts.

To begin with, I posted three times in 2015 with my views on the subject.  Here are the links to those blog posts, as it would save me time repeating the points I made back then!

http://janosconsultants.blogspot.com/2015/05/the-top-10-issues-for-2015-1-three.html
http://janosconsultants.blogspot.com/2015/06/the-top-10-issues-for-2015-2-second-of.html
http://janosconsultants.blogspot.com/2015/06/the-top-10-issues-for-2015-3-third-of.html

Though I did not say it directly, my contention at the time, when I noted that we were facing a "paradigm shift" in the very nature of the diamond business, was that it was inevitable, logical and unavoidable.  De Beers, among all the diamond mining companies, was the only one with a developed marketing division, and an apparent wish to survive the end of large scale diamond mining.  Rio Tinto, currently the third largest source, will step out of the business within 10 years.  Alrosa, Botswana and Namibia are a bit further away from exhausting their resources.  None of them apparently seek to have a position in the diamond business once their mines are played out.

In that regard, De Beers stands alone.  At the better end of the diamond market, it has wholly owned stores under its name; a brand in Forevermark; an effort to capture diamonds being recycled; and now a first entry into the mass market with the only product that could replace declining supplies of natural diamonds with something that is close.  No, Moissonite and CZs will not do.  In sum, we could look at all of this as a three-pronged offensive aimed at becoming the dominant power, once again, in the diamond business.

Anyone who thinks that De Beers' objective in using MMDs starts and stops at fun body jewelry is, in my opinion, very mistaken.  Barring disastrous geo-political catastrophes, the world's population will grow and will continue the expansion of newly affluent and rich publics.  As demand for jewelry grows along with stronger demographics, the need for greater supplies of "diamonds", however we define them, will mean that well-established suppliers and manufacturers of MMDs and MMD jewelry will have the biggest market opportunities.  De Beers wants to be number one in that situation, and if that requires expanding it selection into larger diamonds, even into engagement rings, it will do so in a timely manner - and with little hesitation.

De Beers is building for the future - its own future.  We cannot blame them for that.  It is the very nature of commerce.  For those in the industry that still believe that De Beers should be protecting its traditional clients, I say it is time to realize that that position is untenable and completely unrealistic.  Yes, De Beers will, of course, continue to do whatever it can to sustain the natural diamond business as it still has huge investments and interests to protect.  DPA is a good example of that.  And it will continue to seek the highest prices it can get, with sights or not, and at the fastest rate possible.

But this is a new day, one in which the legitimacy of MMDs as a viable product is here.  However it turns out, the New De Beers will be, in time, very much unlike the old one.

I have many observations on the impact of Lightbox, and on the possible repercussions. I'll save those for next time, as there are too many to cover here.  Feel free to contact me if you want to see early drafts.



10 comments:

  1. Hi Ben: The Lightbox jewelry styles I've seen are diamond fashion jewelry classics like stud earrings and diamond solitaire necklaces in pink and blue as well as colorless. I wouldn't call it "body jewelry." Although they have characterized it as "fun" I think that really refers to the brand positioning and not the jewelry which is very traditional.

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    1. Yes, non-ring products, and basic. Then again, we are not even up to day one yet. Let's see where it goes.

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  2. "Body Jewelry" is non-bridal diamond jewelry.

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  3. Ben,

    The launch will be to consumers to build brand awareness, but Lightbox will be sold through retail stores soon thereafter.

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  4. Thanks, Ben, as always for your enlightening comments. Linking De Beers's moves to the end of diamond mining is so exactly right. As mining evolves, there will be less of it - and it will be for products that are necessary and with no known exact substitute. Diamonds will not be on that list.

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    1. What we will see is whether or not the distinction between natural and not will survive. As we see high volume of recycled diamonds continue, the differentiation beyond stones than are lab graded may well disappear.

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  5. My prediction is that in time MMD's will own the low end of the market and naturals will be reserved for luxury consumers. The price delta between MMDs and naturals was only going to widen, and back when the other MMD companies launched, my gut said the price of lab-growns needed to be about 30% OF the price of naturals, not 30% OFF naturals. That day was going to come sooner or later as production improved and mining costs rose. De Beers just hastened the day. And as the costs of mining don't get cheaper, eventually consumers were going to look at the little chip of frozen spit their $5000 could buy and say "no thanks," we'll buy something else or, more likely, do something else instead of buying jewelry. Fact is, anything--ANYTHING--that gets people interested in fine jewelry and into a jewelry store is a good thing. We've already left gobs and gobs of money on the table to bags and shoes, because the industry didn't believe me 15 years ago when I wrote and lectured about how the female self-purchase market was the biggest growth opportunity we had. No, lots of older male jewelers patted my head and told me I didn't know what I was talking about, that jewelry is a gift given by a man to a woman. Fine. Keep believing that. But I was right then and I believe I'm right now, and I also think Ben hit this nail squarely on the head. Read my 5/31 editorial in The Centurion Newsletter.

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    1. Hedda, nothing like saying what you think! Yes, I recall you saying, many times, that women self-purchasing was a big piece missing in industry thinking. Of course, half of it all is women smiling nicely as they suggest what men should buy, so they ran the whole business all along.
      We could make a rough comparison between the advent of junk diamonds 30 years or so ago, and the advent of MMDs over the last decade or so. Both serve to widen the market by providing great price points. But the big difference is that MMDs can be very high quality "diamonds", something that can't be said for junk. That difference presents an entirely different equation: Do I really want tp spend lots more money for stones that are ancient, or will I be happy owning a beautiful piece of jewelry, and put the rest of the money into my retirement? Women, being far more practical than men, will, I believe, pick the latter. Hang in there, Hedda, no matter what, we are in for a ride.

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  6. I haven't seen what quality they will be but the photos on the website look fabulous. The diamonds show the tell tale "arrows" patterns indicative of excellent cutting. I can see many budget conscious millenials buying the one carat pendants in sterling for $900. Then they throw away the sterling silver mounting and pop them into a Tacori or similar designer mounting. They end up with a $10,000 look for a fraction of the price and use the savings for a honeymoon. I hear the familiar "Danger Will Robinson" warning in the air for all of us. All of us except Debeers that is.

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