Two of the world’s most powerful diamond companies are moving quietly but decisively to counter what some industry insiders are calling an existential threat to the industry: the growing popularity of laboratory-grown diamonds.
In May, Signet Jewelers, the world’s largest diamond retailer, which owns chains such as Jared, Zales, Kay and Blue Nile, began printing a “buyer beware” disclaimer on all sales receipts for lab-grown diamonds, warning customers that the value of their purchases could plummet.
Signet’s receipt states that currently, the relative abundance of lab-grown diamonds “does not guarantee that their value will be maintained over the long term.”
Signet spokeswoman Katie Spencer told The Washington Post that the company is training its 20,000 sales associates to “educate” shoppers about the “unique properties of natural diamonds, including their enduring emotional and monetary value.”
Meanwhile, De Beers, the world’s largest diamond producer, late last month unveiled a new diamond “verification” machine that it will sell to retailers as a tool to reassure buyers that they are buying natural diamonds.
LGD and mined rock are nearly indistinguishable to the naked eye, even by a skilled jeweler.
Signet and De Beers are aiming to deal a heavy blow to so-called LGDs, and the developments come as the companies prepare a major marketing offensive for real diamonds next year as the industry anticipates a surge in much-needed weddings after the pandemic.
“This is the first time in at least 20 years that the largest distributors and producers have come together to take a position on natural diamonds,” diamond analyst Paul Zimniski told The Post.
Signet is scheduled to report quarterly earnings on Thursday.
A year ago, the diamond industry seemed still on fire as LGDs soared in popularity and profitability: De Beers was pouring money into an upstart LGD label called Lightbox, as celebrities like Meghan Markle, Billie Eilish and Leonardo DiCaprio touted them to Gen Z as “conflict-free” and environmentally friendly.
The LGD trend has been devastating for De Beers, which reported a 21% drop in sales year-over-year for the quarter that ended in mid-May. Northcoast Research said it sees a 36% drop in sales in 2023, the year De Beers took a $1.6 billion impairment, in part due to the rise of lab-grown diamonds.
“LGD has 19% of the market and is expected to grow to 22% this year, posing a real threat,” Zimniski said.
But sellers of real diamonds say recent trends are turning in their favor: LGD prices have become so cheap that profit margins on retail prices of as much as 50 percent last year are quickly disappearing.
Last month, De Beers cut the price of its Lightbox LGD brand by 37% to $500 per carat, citing plummeting wholesale prices, following a 10% price cut the diamond giant implemented in January.
In a little-noticed disclosure on May 31, De Beers also said that its Element Six plant would cease production of lab-grown diamonds after six years and return its focus to industrial diamond production.
China has long been the largest producer of man-made diamonds, but India has begun to expand production in recent years, focusing on producing polished synthetic diamonds in the three-, four- and five-carat range.
“Lab-grown diamond production has been better than expected and we believe this is putting downward pressure on prices as supply continues to exceed demand,” Jim Sanderson, an analyst at Northcoast Research, told The Post.
As a result, jewelers are drowning in LGD inventory, with experts saying prices have fallen nearly 30% in the past 12 months alone.
“Retailer sales are under pressure,” Zimniski added. “They have to decide whether they want to sell a $6,000 or $8,000 natural diamond or a $1,200 lab-grown diamond. I think the sudden price decline of generic LGD really highlights this.”
Doug Meadows, owner of David Douglas Diamonds in Marietta, Georgia, is among retailers who are seeing enthusiasm for LGDs waning.
“LGD is racing to the bottom on price,” Meadows told The Post. “No one can sustain this price. It’s just too cheap as it is.”
A year ago, a 2-carat LGD engagement ring sold in his boutique was selling for $4,500. Today, the same ring is priced at $1,000 less. In response, Douglas has begun training his sales staff to emphasize natural diamonds again.
“We got so caught up in LGDs that we forgot to focus on natural diamonds and the subtleties of selling them,” he added.
Signet sales fell 6% to $2.5 billion in the latest quarter ended Feb. 3, and the company said its best-performing brand in the quarter was its lower-priced banner, where sales were flat.
“Price discounts continued in the first quarter, but we expect inventory is beginning to recover somewhat, which may help. We also believe consumers are beginning to realize that prices for lab-grown diamonds are coming down,” Signet Chief Executive Officer Virginia Drosos said in an earnings call on March 20.
Signet and De Beers are emphasizing the low value of LGDs in a coordinated campaign to change consumer minds about buying them as engagement rings.
De Beers’ “Diamonds are Forever” tagline was introduced in 1948 and became one of the most powerful marketing slogans of all time.
“Marketing is a very important part of this industry,” Zimniski says. “It’s the diamond industry’s responsibility to explain to consumers why they should pay more for natural diamonds.”
