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Consumers Starting to Embrace Lab-Grown Diamonds

Q&A with Thierry Silber, CEO of Diamaz International

Dec 7, 2014 3:43 AM   By Avi Krawitz
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RAPAPORT... Diamaz International is an Antwerp-based distributor of natural and laboratory-grown diamonds. As a proponent of creating better structures in the lab-grown diamond sector, the company believes the natural diamond trade needs to embrace its lab-grown counterparts to effectively combat non-disclosure issues and ensure growth for the natural product. Rapaport News recently spoke with Thierry Silber, CEO of Diamaz, about the lab-grown diamond market and some of the challenges therein:

Rapaport News: What is your background and that of Diamaz?

TS: I'm a third generation diamond dealer. I’ve been in the industry for 36 years and took over the business from my father in 1991.

We always traded natural diamonds, but it was only in 2009 that I decided to also sell lab-grown diamonds. I felt that many things would change after the 2008 financial crisis, especially consumer behavior, and that lab-grown diamonds would provide a choice to consumers.

When the crisis hit, achieving respectable profit margins was a problem for everyone, especially retailers. Lab-grown diamonds could offer a nice alternative and an opportunity to improve those margins, especially in fancy color diamonds where prices are so crazy.

Rapaport News: What added value do lab-grown diamonds provide over natural diamonds?

TS: Firstly, they offer an alternative to consumers. Unfortunately, there are a growing number of consumers that have negative feelings toward natural diamonds for several reasons, including the blood diamond issue, child labor and the environmental damage from mining. An increasing number of consumers today have certain values on a number of ethical issues that are very sensitive.

These consumers still have an opportunity to buy a real diamond and avoid these issues. A lab-grown diamond is a real diamond that is certified by all major grading laboratories with the only difference from a natural-mined diamond being the point of origin.

The new generation is being educated to be socially conscious and care about the environment, and it will eventually affect their buying behavior.

Rapaport News: Are you seeing that already?

TS: It's still a bit early, but I’m sure that within 10 years we will see changes. Understanding who the future buyers of diamonds are is a major concern for the whole industry. We have to adapt to this changing consumer behavior. The young generation is very hi-tech oriented. It's all about the iPhone and iPad, and that’s a sign of what's going on in our society.

Lab-grown diamonds should be very appealing to this hi-tech generation, especially if it can contribute to the environment, and we can give them peace of mind that this diamond is real. At the start of a relationship, you want to make sure that the diamond you buy is clean in terms of its origin so that there is no question about any socially unacceptable situations and you start out with something pure.

Rapaport News: Are these all talking points that you use in your marketing?

TS: Yes, but the main point we talk about is price because the difference in pricing to natural diamonds is significant, especially in color diamonds. For example, a round, 0.50-carat, intense pink natural diamond will easily cost you $80,000 to $100,000 per carat, while we sell the equivalent lab-grown diamond for $3,800 per carat. So suddenly it becomes affordable for a whole group of consumers.

Rapaport News: What about the more commercial white goods?

TS: There is also a big difference in price between natural white and colored diamonds and the whites are obviously much cheaper. Today, the difference in pricing between white lab-grown and natural-mined diamonds is about 50 percent. That’s still a major difference.

The younger generation doesn’t make a lot of money and the economic situation is difficult for everybody. Still, it’s part of human nature to want the biggest and the best. I think we have a product that can make that affordable.

Rapaport News: Is the price difference sustainable? Is the gap closing as the quality of lab-grown diamonds improves, or perhaps it’s increasing as natural diamond prices rise due to scarcity?

TS: Natural diamond prices will continue to rise in the long term as it has in the past and expected supply shortages will contribute to that. So I don’t think that lab-grown diamonds will affect the price of natural diamonds in a negative way.

Lab-grown diamonds will fill supply gaps but we are still very limited by production, both in terms of quantity and quality. Technology will inevitably enable manufactures to grow bigger diamonds with better color and purity. There will always be a minimum cost threshold and larger diamonds need a longer growing period which will lead to higher costs. I believe that as natural diamond prices continue to rise, the price difference between lab-grown and natural diamonds will be even larger in the future in certain sizes.

Rapaport News: How are lab-grown diamonds traded? Is there a price list or discount system as you have in natural diamonds?

TS: The lab-grown diamond market is very similar to the natural diamond market. In the case of white goods you have no choice but to calculate the price according to the price of the equivalent natural diamond, as well as the price of a natural treated diamond. At the moment, the pricing levels of lab-grown diamonds are about the same as that of HPHT natural treated diamonds. However, lab-grown diamonds are preferable because you will never be able to supply a retail program with HPHT natural treated diamonds, whereas you can with lab-grown diamonds.

There is no list for fancy color diamonds so we base the price of lab-grown color diamonds on our costs and add a margin.

Some clients are only interested in dealing in lab-grown diamonds because of the price point, so they always push us on price. The only thing that they want is a good price because it gives them an opportunity to create cheap but beautiful jewelry.

Rapaport News: What are some of the challenges facing the lab-grown diamond industry?

TS: The main challenge is education and the dissemination of accurate information because consumers are still not aware about the existence of lab-grown diamonds. Our experience tells us that their level of acceptance is very high once you properly explain to them what the product really is. Providing the correct disclosure and transparency is very important as consumers have to know exactly what they’re getting.

Rapaport News: The issue of non-disclosed lab-grown diamonds being mixed in parcels of natural stones has been a hot topic in the trade in the last two years. How do you engage in this debate as a supplier of lab-grown diamonds?

TS: We refuse to supply stones below 0.25-carat. Smaller sizes are difficult to certify and therefore disclosure becomes an issue. We certify our diamonds, which makes full disclosure easy. In the case of clients who don't want certified goods, we make a laser inscription on the girdle indicating that the diamond is lab grown.

We’ve also created our own text that appears on our invoices stating that the goods are lab-grown diamonds. The buyer must undersign that he clearly understands what he is buying and that he agrees to sell them as lab-grown diamonds by giving complete disclosure.

We cannot control everything, but we can do our best to try and monitor our goods. When we have concerns over whether or not a client will continue to disclose the way we would like, then we don't do business with them.

Rapaport News: How do you respond to the resistance of the trade to lab-grown diamonds?

TS: I'm concerned that the industry is more focused on the threat of lab-grown diamonds than they are on the dissemination of accurate information. Lab-grown diamonds are a legitimate product and the industry’s leadership needs to tackle the issue of non-disclosure internally.

When you hear industry leaders saying that they accept lab-grown diamonds but are concerned about disclosure issues, then they need to do something about it. We need to regulate the lab-grown diamond business and create a body that will represent the lab-grown diamond trade.

If the industry accepts the legitimate lab-grown trade as part of the industry, then we need to find a proper place for lab-grown diamonds inside the diamond industry structure.

There is no way to stop the growth of lab-grown diamonds. Ultimately, it's the consumer and not the industry who will decide if lab-grown diamonds are desirable. For now, the industry is trying to police the market. So while the leadership says that they accept it, they’re also trying to prevent lab-grown diamonds from having a presence in the market. For example, we are not allowed to be part of the AWDC diamond pavilion at some trade shows. The result is a ban on selling a legitimate diamond product. With this type of marketing ban, the industry is missing an opportunity to regulate the sale of these diamonds.

Rapaport News: Has there been an initiative among the lab-grown diamond trade to formalize the industry’s structure?

TS: It’s been mentioned but nobody has responded. I would like to contribute to the regulation of sales and the promotion of best practice principles. There should be an official lab-grown diamond association that can monitor and regulate sales and disclosure procedures. It's not up to the natural diamond industry to monitor the sale of lab-grown diamonds. The lab-grown diamond industry should do that with the willing assistance of the natural diamond industry.

Rapaport News: Why are you against calling these diamonds synthetics?

TS: People associate synthetic with fake or imitation, but lab-grown diamonds are not fake. When I speak with my colleagues in the lab-grown industry, some like to call them lab-created, or man-made. My preference is to use the term ‘laboratory-grown diamonds’ because the major grading labs all use the term ‘laboratory-grown diamonds’ on their grading reports. I believe we should follow their lead and just speak one language.

Rapaport News: What are your expectations for the lab-grown diamond market in the next five to 10 years?

TS: I expect a great future. The popularity of lab-grown diamonds is growing rapidly as consumers become more aware and educated about the product. It just needs one major jewelry brand to embrace lab-grown diamonds and I think it will really take off.

We’re already seeing some of the bigger chain stores selling these diamonds and jewelry stores are starting to include lab-grown diamonds in their showcases. If this is already happening, it means these companies believe in the viability of these diamonds. It also means that there is demand from consumers. 
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