Lab-grown diamonds may still be relative newcomers to the luxury market, but not since the dawn of the internet has a subject left the diamond industry so divided. That’s why it was particularly shocking when, in May 2018, diamond behemoth De Beers announced its Lightbox line of lab-grown mounted jewelry, which launched online direct to consumers in September.
Industry reactions ranged from excitement to fear, and while it’s still too early to know what the long-term impact of Lightbox will be, there is no shortage of opinions about the news.
Popular fashion
For its part, De Beers says Lightbox came to market only after significant consumer research, which it reports has largely shown that people take lab-grown diamonds less seriously than mined ones.
“What we have seen increasingly over time is that there is really broad and growing confusion amongst consumers about what a lab-grown diamond is, and how they’re produced, and how valuable they are, what they should cost,” says David Prager, the company’s executive vice president of corporate affairs. “And we also identified that there was some interest in them as fashion jewelry, once people understood what they were, but that people really didn’t see them as something suited to a life event of real emotional significance.”
Instead, he says, people “see them as pretty and sparkly and fun, and they should be marketed accordingly. You can buy Lightbox for a beach holiday, because you’re not worried if you misplace one of your diamond lab-grown studs. You can go on the website and you can buy one to replace it.”
This more casual segment “wasn’t being served by the lab-grown diamond producers [before now], because they were going for the kind of classic diamond territory,” he explains.
Nonetheless, he acknowledges that many customers may still consider Lightbox high-end. “There are going to be some people who feel like they’re getting a luxury product,” he says.
Putting them in their place
The idea that lab-created diamonds are not suitable for emotional purchasing is certainly not a new one, and De Beers’ entry into this space has helped clarify the distinction for retailers that were already loath to carry them.
“De Beers-produced lab-grown diamonds have been serving as a stabilizing and correcting force in the lab-produced diamond market, just as they have in the mined-diamond market,” says Elizabeth Doyle, co-founder of New York-based vintage and antique jewelry retailer Doyle & Doyle.
Doyle, who does not stock lab-grown product, says the introduction of Lightbox has given these diamonds a level of acceptance they did not previously have, but has also helped put them in their place. “I believe this mainstream acceptance will grow as De Beers continues to market its product to the younger consumer. With that being said, their focus on lab-grown diamonds in a fashion-type product will likely reinforce the widely held belief that lab-grown diamonds are not appropriate for an engagement ring.”
A matter of marketing
Indeed, with a consumer price tag of $800 per carat, Lightbox is not meant to compete with De Beers’ core mined-diamond product, according to Prager. “You’ll notice that on all the Lightbox marketing material and advertising and online, we don’t use the De Beers brand to market it,” he points out. “That’s with a lot of forethought and clear intent, because we understand that in many consumers’ minds, the name De Beers is synonymous with diamonds. And we want to make it really clear what these are and what these aren’t. We want to create a clear separation.”
While there may be marketing plans for Lightbox in New York and Los Angeles, Eric Swanson, sales manager at Neustaedter’s Fine Jewelers in St. Louis, Missouri, reports that the midwest hasn’t seen anything, so the product is effectively nonexistent in the eyes of his customers. In fact, he says, “90% of millennials don’t even know who De Beers is. Young people prefer brands that are small and independent and new and cutting-edge.”
Swanson, whose store stocks both lab-grown and mined stones, says he was “expecting that within a month or two of the announcement, people would ask me why our lab-grown stones were three times the cost of Lightbox, but not one person has said anything at all [about the brand]. So we haven’t had to change anything. Yet.”
For his clients, lab-grown diamonds are just another type of diamond, he adds. “Some flowers are grown in a field, and some are grown in a greenhouse. This is the same thing. Chemically, it’s the same.”
The Federal Trade Commission (FTC) seems to agree: In July 2018, it updated its definition of “diamond,” removing the word “natural” and thereby legally establishing that any stone with the same “optical, physical, and chemical properties as mined diamonds” could be called a diamond.
The price is right
So far, says Prager, the Lightbox initiative has gone well. “Since we launched in September on e-commerce...we’ve seen our traffic increase month on month on month, and week on week.”
The line’s biggest selling point, of course, is the price. An average 1-carat loose mined G-color, SI1-clarity stone runs about $7,400, according to the Rapaport Price List.
By that rubric, lab-created diamonds would appear to be more cost-effective.
“Most lab stones graded by [the International Gemological Institute (IGI)] are about half the price of a natural mined,” says Swanson. “But that’s for ideal-cut diamonds.” Most retailers then sell the stones for about 30% to 40% less than mined, based on common discounts to the Rapaport Price List.
Still, Swanson believes the prices of Lightbox’s mounted jewelry “won’t have any impact at all on natural. There was a race to the bottom [in terms of price, and online jeweler Blue Nile] finally hit it, and that’s it.”
Ronnie VanderLinden, owner of New York-based wholesaler Diamex Inc., concurs. “The only thing that will affect the price of natural is the economy. Is it strong or weak?”
Nonetheless, smaller and lesser-quality mined goods may find it challenging to compete with their lab-created counterparts.
“The fear is that the lower-cost lab-grown diamonds will drag down prices of natural diamonds,” says Edahn Golan, founder of Edahn Golan Diamond Research & Data, which provides consultancy services for the global diamond industry. “So the hope is that creating a clear distinction between the two products [as De Beers is doing] will protect prices of natural diamonds.”
Golan sees Lightbox as setting a new price point for lab-grown product, and predicts that other suppliers will need to follow suit. When Lightbox arrived on the market last year, he says, its pricing structure “had a chilling effect on lab-grown diamonds. Huge markups were erased nearly overnight. Prices kept declining until September, when they stabilized at a new level, [and] this new price level will probably be long-lasting.”
How low can it go?
VanderLinden, who is also president of the Diamond Manufacturers and Importers Association of America (DMIA), agrees that Lightbox prices have set a new standard. “De Beers brought their [lab-grown] prices down to what they thought was a realistic price,” he says. “Now anyone who wants to compete with them will have to restructure their pricing based on that.”
But the change may not be quite so dramatic. Just as Swanson doesn’t expect Lightbox to affect natural prices, he reports that “we haven’t seen any change in the larger loose lab-grown-diamond prices.” Regardless, he says, “Lightbox is mounted stuff, and I don’t think other lab-grown companies will change their price structure based on this.”
Indeed, even in the jewelry sphere, the impact may be limited. Lab-grown producer Diamond Foundry, for example, was already pricing some of its mounted stones similarly to Lightbox (see box). And many lab-created products are certified — a category that, like loose diamonds, isn’t on Lightbox’s agenda.
“We’re not grading [Lightbox stones],” Prager states. “The idea of grading a mass-produced product simply is nonsensical to us.”
At the very least, VanderLinden doesn’t expect the price of mounted lab-growns to fall any further than current Lightbox rates. He stresses that “$800 a carat for lab-grown is the bottom. I don’t see how it’ll go below that, because there’s still the fixed cost of labor and polishing, plus growth, and wages aren’t going back down, either.”
Plans for the future
Are other high-end jewelry brands likely to follow De Beers into the lab-grown space? Prager doesn’t believe they’ll want to.
“I think Tiffany has such a fabulous brand, is well regarded and trusted as another byword for diamonds,” he says. “And I don’t see a time when you’re going to see that Tiffany brand linked to lab-grown diamond, in the same way you’re not going to see the De Beers name linked to Lightbox.”
For consultant Golan, the question is what mid-market retailers will do.
“Currently, Blue Nile and Signet are not offering lab-grown diamonds, but they may change their minds,” he says. “I won’t be surprised if Signet decides to make the jump if it finds that it is missing out on a category that independent jewelers across the country are benefiting from.”
Yet even De Beers stresses that Lightbox will only play a small role in its overall operations. “De Beers has always been a natural-diamond company and will always be a natural-diamond company,” declares Prager. “When you look at the investment we’re making in Lightbox...you can’t even compare the two.”
Of course, that investment is far from small. “Over the next four years, we’ll spend about $94 million in building our [lab-grown diamond] production facility in Oregon, just outside of Portland. It’ll be able to produce 500,000 carats of rough a year. So it’s a serious statement of intent.”
But to put those numbers in perspective, he continues, “the natural-diamond industry mined many, many times that — 34 million to 36 million carats, I think, was our latest production. Obviously, the majority of that is industrial-quality. And over the next five to seven years, we’ll spend something in the order of $10 billion in capital investments bringing mined diamonds to market and marketing mined diamonds.”
So while Lightbox may be “gaining people’s attention and headlines,” he says, “for us, it’s never going to rise to the level of our natural business.”
It is, however, enough to make the industry question its relationship with luxury lab-grown diamonds.
“This is here to stay,” says VanderLinden. “And those who were highly against it are now involved with it. Things change, and if you’re not involved with lab-grown, you’re going to miss an opportunity.”
Image: Lab-grown stones from Diamond FoundryArticle from the Rapaport Magazine - February 2019. To subscribe click here.