Diamonds have lost their twinkle in the eyes of the consumer, and industry professionals are sounding the alarms.
“The diamond industry is in trouble,” Ankur Daga, founder and CEO of e-commerce jewelry company Angara, told CNBC in a Tuesday interview.
Prices of the prized gem have collapsed 5.9% this year alone, according to the Zimnisky Global Rough Diamond Price Index, and Daga believes the future is bleak. He expects natural diamond prices to slump an additional 15% to 20% over the next year.
Diamond giant De Beers—the world’s largest diamond producer by value, which coined the phrase, “Diamonds are forever”—had its worst year in two decades, punctuated by its parent company Anglo American announcing plans to divest and demerge from its diamond subsidiary of which it owns 85%. While Anglo American did not provide additional information on how the divestment would be a strategic boon for either it or De Beers, CEO Duncan Wanblad acknowledged the company’s struggles.
“De Beers is a great set of assets and it’s a great business,” Wanblad said in a May media call regarding the restructuring. “It is sitting at the bottom of a cycle. That cycle is more macroeconomic than fundamental.”
The diamond industry has had a swift change of fortune since the beginning of the pandemic, when stuck-inside shoppers filled their time and online shopping carts with luxury items. But as the pandemic waned, so, too, did demand for the gem. Diamond retailers’ woes were compounded by Gen Z’s distaste for marriage, which has cooled the need for engagement rings, as well as a broader luxury slowdown. Those interested in spending big are turning to experiences rather than pricey items. But Daga said the biggest culprit behind the industry’s crisis comes from its own creation: “The core issue is the rapid growth of lab-grown diamonds.”
Synthetic diamonds, real problems
Created in an artificial and tightly controlled high-pressure environment, lab-grown diamonds are 60% to 85% cheaper than their mined equivalent, capturing the attention of Gen Z and millennials looking for more affordable baubles. The cohort is also attuned to the mining industry’s controversial relationship to the environment and labor conditions. Though the technology to produce lab-grown diamonds has been around since the 1950s, it has now become so optimized that the gem can be produced in a matter of hours.
Desire for the product has quickly taken market share from mined diamonds, with 13.5% of diamond jewelry items sold in the U.S., the largest diamond consumer, containing lab-grown gems, per industry analyst Edahn Golan. Jewelry CEO Daga said half of engagement rings sold in the U.S. will be lab grown this year.
For companies like De Beers, the pining for lab-grown diamonds combined with the industry slowdown has taken a bite out of business. Despite selling synthetic stones through its Lightbox brand, the falling demand overall for the gems forced the company to cut prices by more than 40% last September and an additional 10% at the beginning of the year.
In the wake of its break-up with Anglo American and the massive price collapse of diamonds across the industry, De Beers has opted for a refresh. The company will ditch its lab-grown diamond venture to refocus its efforts on mined diamonds, as the wholesale price of synthetic diamonds are lower than what Lightbox can produce.
“We know how to do it and we’re coming back,” CEO Al Cook said in an interview. “All of this comes together under a big theme of differentiating natural diamonds from lab grown.”
De Beers will continue selling its Lightbox stones, which it first began producing six years ago, until inventory runs out in about a year. Cook is instead banking on the ever-sinking costs of lab-grown diamonds to eventually become an unattractive feature of the product, associated with cheapness. Meanwhile, De Beers is betting it can recapture an exclusivity-seeking audience—and its luster.
“We will create value as brilliant as our diamonds,” he said.
This story was originally featured on Fortune.com
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