With New Lab-Grown Line, Is De Beers Embracing Self-Cannibalization?

When Swarovski announced it was entering the lab-grown diamond business in 2016, some in the natural industry seemed surprisingly happy about it. Swarovksi was just the kind of established fashion-oriented company that the trade wanted in that space.

For one, Swarovski knows how to sell “things that sparkle,” as Swarovski board member Daniel Cohen told me. “Consumers,” he noted, “make choices based on product design and price point.” The stones in those products could be crystals, lab-grown, flux-grown, or moissanite. It doesn’t matter. If the look and price is right, you don’t have to engage in endless arguments about whether the diamonds are “real” or “eco-friendly” or all the rest. The pieces just sell. That’s pretty much Mass-Market Jewelry 101. Yet, it sometimes seems like many of the companies in the lab-grown space are so enamored with being disruptive, that they fall down their own rabbit hole.

One of the companies that reportedly was talking to Swarovski about supplying diamonds to this initiative was De Beers. That didn’t happen. But in many ways, De Beers’ plan for its Lightbox Jewelry line is similar to the what the industry considered the ideal Swarovski template. With Lightbox, De Beers is selling man-made diamonds the way the natural industry wants them to be sold.

One would think that the lab-grown producers would see De Beers’ decision to enter the industry as a great victory, but they seem pretty wary. For one, with this announcement, De Beers is “disrupting the disrupters,” as industry analyst Edahn Golan put it, and undercutting them significantly on price. Each diamond will sell for $800 per ct., and then De Beers will add on $100 for a silver mounting or $200 for a gold mounting. So even its top-end product—a 1 ct. diamond in a gold necklace—will sell for only $1,000. That’s a lot less than most lab-grown product is selling for. It’s just a shade more expensive than the prices charged for top-end moissanite.

This will likely cause competing growers to lower their prices, which would inadvertently prove the natural industry’s central thesis: Lab stones don’t hold their value. And yet, De Beers executives stressed to me yesterday that they consider this a potentially profitable business, not a retaliatory or defensive exercise. And the fact is, the lab-grown market is very much wide open. For all the promise of man-made gems, the business is full of small companies with small ad budgets, and it’s hard to truly build a brand or product that way. There are only a few companies with the potential marketing muscle to truly promote a real lab-grown jewelry line, and De Beers is one of them.

Lightbox jewelry

Lab-grown stones from De Beers’ Lightbox Jewelry

What De Beers is doing is in many ways the path recommended by Clayton Christensen, the guru of disruptive innovation. Christensen, a Harvard Business School professor, is known for his theory about how big companies are felled by cheaper alternatives.

At first, the theory says, the big companies scoff at these new entrants, arguing they are lower quality. And yet, these big companies are in a bind: They can’t embrace these new products even if they wanted to, as that would hurt their core business. It’s only when these lower-cost items have gobbled up a significant part of their market share that they launch their own competing products, and by then it’s too late.

But there is hope, writes Larissa MacFarquhar in The New Yorker:

After studying a few exceptions to the pattern of disruption, Christensen concluded that the only way a big company could avoid being disrupted was to set up a small spinoff company, somewhere far away from headquarters, that would function as a start-up, make the new low-end product, and be independent enough to ignore what counted as sensible for the mother ship.

Which is pretty much what De Beers is doing.

This new initiative could also be seen as De Beers embracing the doctrine of self-cannibalization. Says Harvard Business Review: “Forward-looking incumbents recognize the need to cannibalize their own products, rather than leaving it to other startups, who are more than happy to take on the challenge.”

Perhaps the most famous example of this is Apple killing iPod sales when it included a music app in the iPhone. As Apple CEO Steve Jobs put it, “If you don’t cannibalize yourself, someone else will.” Self-cannibalization has since become a tenet of the new economy; Signet arguably did it when it bought James Allen, though established retailers buying dot-coms has become so common no one bats an eye about it anymore.

All this said, executives told me yesterday that they view Lightbox as “additive” and potentially attracting a new consumer to the industry. It is also a deliberately limited form of self-cannibalization. Lightbox is being pitched for the fashion arena, not for bridal. Execs say this is dictated by its consumer research. But it would be truly shocking—more shocking, even, than yesterday’s announcement—if De Beers ever sold lab-grown bridal. Engagement rings are the heart of the diamond business. So even though De Beers doesn’t like it when lab-grown companies target the engagement market, this may force them to do so more than ever.

That’s not the only risk. Lightbox could potentially hurt the market for low-end Indian goods, which are mostly used in fashion price-point items. A lot of cheaper material is, plainly put, of poor quality. Why would anyone use it for fashion jewelry, when De Beers is now producing an arguably better alternative?

Finally, Lightbox also gives the lab-grown category a lot more industry cred. Lab-grown companies always complain that consumers have embraced the product faster than the industry. Yet from where I sit, the product has won a tremendous amount of trade acceptance in a short time. Signet isn’t on board yet—and high-end companies like Tiffany and Cartier may never be. But Stuller and Helzberg and even Rolls-Royce have climbed on the bandwagon. De Beers’ announcement may give lab-grown diamonds the final push toward complete industry acceptance. But that’s just bowing to the inevitable. It was headed that way anyway.

De Beers’ decision to start a lab-grown line is, all in all, a fascinating, bold, though clearly risky development. The leading diamond associations all weighed in with surprisingly positive spins, hoping De Beers will help lead this new sector into the mainstream industry. The thinking seems to be, “If you can’t kill it, join it.”

Yesterday, Lightbox told me it would be open to joining the International Grown Diamond Association (IDGA). That probably won’t happen. De Beers doesn’t like the IGDA’s pitch, and vice versa. But it might be a good thing to have a natural diamond company in a lab-grown association, just as it’s now good to have a diamond grower in the Diamond Producers Association.

Right now, the battle between lab-grown and natural companies has gotten surprisingly nasty. Yet, both categories are here to stay; neither seems poised to disrupt the other out of business. The two types of diamonds need to figure out how to work together better. Unfortunately, some hostility is probably inevitable. But it doesn’t have to be this bad. And now it may fall to De Beers, the company that invented the modern diamond industry, to help bridge the gap.

Images courtesy of Lightbox Jewelry

 

JCK News Director

29 responses to “With New Lab-Grown Line, Is De Beers Embracing Self-Cannibalization?”

  1. No. It’s quite obvious they’re trying to put it in a box; one of lesser importance is the not so subliminal message they’re putting forth.
    Whether it will stay there will be interesting to watch…

    • The way I see it DeBeers is trying to drive the other lab grown folks to be non profitable or out of biz and then DeBeers can set the narrative about synthetics. Could be a smart move with marginalizing the lab grown OR it could backfire.

    • Exactly. Fashion jewelry itself was disruptive (in the exact, classic, Christensen sense). Adding a type of diamond (synthetics) to it is not that disruptive anymore. You could view it as part of the movement upwards of fashion jewelry into higher segments. And that’s classic Christensen. In that sense deBeers isn’t disruptive. Only if their “startup” would target engagement rings would that change. That said, they may have opened the door for other VC-backed startups to do exactly that.

  2. One observation of what I personally consider ‘fake news’ on the Lightbox launch: De Beers is *not* selling 1 ct lab diamonds for $800. They are selling 1 CTW pieces for $900-1000.

    One quick look at their launch pieces verifies that the pieces are not studs or solitaires, but instead smaller stones with melee: https://lightboxjewelry.com/collections/jewelry-preview

    In fact, you can already buy lab-grown diamonds, as well as mined diamonds, at a *lower* price point than Lightbox:

    https://vraiandoro.com/collections/earrings/products/trillion-diamond-earrings-yellow-gold?variant=37643023563
    https://www.macys.com/shop/product/trumiracle-diamond-pendant-18-necklace-in-14k-gold-rose-gold-or-white-gold-1-2-ct.-t.w.?ID=1747769
    https://www.walmart.com/ip/Genuine-1-2-Carat-Natural-Solitaire-Round-Cut-Diamond-4-Prong-Pendant-Necklace-In-14K-White-Gold/164593687

    I think as a trade publication it’s worth JCK clarifying CTW vs stone weight and fact-checking the claim that De Beers is undercutting competitors by 75%.

  3. A diamond is a diamond if it has not gone through the process of natural diamonds than it isn’t.
    Lab-grown doesn’t really hold value and will only go further down as competition gets bigger. This really causes a huge confusion to the buyer. Its ok to be p.c. correct in offering non-conflict product but when you’re looking at spending 800 per carat and more, I cant see selling to my clients’ lab grown. I know budgets get in play here for the younger crowd but I’d rather sell them smaller natural diamonds or semi-precious. I’m currently not in the costume jewelry business. Yes, I left that open.
    Who can stock these in a fine jewelry store without combatting your diamonds? The only positive is to upsell with your natural diamond stock. And another problem is with lab-grown melee added into semi-mounts. a growing problem, no pun intended. I can only see these as a gifty little item rather than a replacement for an important piece of jewelry like a wedding set. Seems like the thing to do these days. Just not quite a fan yet.

  4. Along with the disrupter analysis [which has been going on forever] … what DeBeers is doing with Lightbox is an attempt to define what MMD is for the consumer for it’s own benefit … no rings? Next, it’s maybe dumping? Dumping on many in the business of producing any product that emulates diamond. Why? Because they can … to protect their core business and look to control MMD as there may be a day when it’s the prize or co-prize business. Where’s the money in MMD? Seems it’s solid in the melee and we haven’t heard that story yet except to wonder what will happen to Indian goods. Today it’s a game of chicken or as a famous American has put it many times, “we’ll see.” In any case this would have been an interesting exercise to work on. I’m thinking of buying a one carat LIGHTBOX MMD pendant to remove the diamond and drop into a engagement ring, then, mount a CZ in the pendant for my kid (pls don’t tell anyone). So, for the MMD consumer it’s definitely a win, if, LIGHTBOX can pull it off. For the affected; like the Indian melee cutters, I suppose they’ll just be cutting more MMD … the others; wait it out or get crakin’. It’s surely one thing at it’s heart; a little ol’ pea pickin’ veiled threat to many in the industry.

  5. This generation of consumers is accustomed to gaming the Internet continually to get the lowest price on Everything. They will purchase a one carat solitaire set in silver, and reset it in gold. The young impressionable girl doesn’t care, She Got A DIAMOND!

  6. Lab grown diamond should be $20-$50 per carat not $800. No one will by fakes for that price, their greediness will damage their business

  7. I used to produce diamond industry reports. I came across the De Beers story on Bloomberg and was curious to find out how the industry is responding to this. This is huge. Massively huge, in my view.

    I am not sure that there’s much backwards and forwards analysis of what this could mean for the diamond industry….say 5 to 10 years from now.

    I dare say this is the beginning of the end for many diamond traders (middle men).

    Plus it could complicate things for producers of poorer quality diamonds in the market (average price per carat of country’s diamond footprint)…such as Zimbabwe.

    Price points at less than $2,000 could shift to lab diamonds completely. (If it’s beautiful jewelry, the eyetest is good enough and you will still get compliments….and feel good about it.)
    And the high price points could be thoroughly dominated by natural diamonds…in the form of strong diamond brands. (OMG he bought her Tiffany’s)

    Hi Rob, nice to see you are still doing a great job as ever!

    Cheers

  8. As a grower of diamonds for over 25 years, and knowing a lot about the costs of the presses and electronics required, it is not possible to profitably retail a 1 carat diamond for $800/ct. This is an old trick DB has played out many times over; cut your competitors legs off by dumping and/or lowering prices below cost. You can get away with that in India or Africa but not in the USA…it is illegal. Another factor that has not been mentioned is the credible competition already out there. Why do you think GE has stayed out of the gem business? Or Sumitomo Electric? Back room deals are now off. With this move I would guess they are already having internal discussions. Over the last 53 years I have watched these giant companies try to mussel their way into the jewelry business. Union Carbide’s Lindi division with emerald and star sapphires, failed. WR Grace with manufacturing jewelry, failed. Johnson Mathey with gold leases…failed. Not even Walmart can get a handle on jewelry. They are all like bulls in a china shop. I just hope they don’t ruin it for everyone!

    • Tom. this brings up a point that i can’t find an answer to with any googling i do.
      What does it cost (approx) to grow and then have cut into a finished gem a lab diamond that has a finished weight of aprox 1ct?

    • Hi Tom,
      I believe marketing machine made gems based on their natural counterparts values should have been addressed by the industry long ago. Even if a $800 per carat MMD is as you suggest not a profitable option presently, its still far from the $7k – $3.5k range marketers were aiming for (or what is easier known as -20% to -50% from natural diamond prices).
      A year ago I conducted a research for our company, i even purchased actual MMD rough for the research and testing, based on my actual CVD cost prices, a 0.40 carat CVD round brilliant could have been profitable at $320.-, and that was a year ago.
      I am for one happy De Beers made the first step in clearing the value confusion on MMD. Do they have a hidden agenda? I am sure they do, but i also believe someone needed to pull the rug off this erred value marketing scheme.
      This industry is changing faster that we can even think, it will be interesting to see how this evolves. One thing is for certain, transparency Is positive and i believe what De Beers is doing today is a positive as well. Y

  9. DeBeers will continue with the most sophisticated market analytics. Should they discover a growing trend in bridal DB will jump all over it with MMS***. DB is now a competitor in natural diamond bridal category and their “ambassadors” are very good sales people with the most recognized advertising slogan. DB will spin Lighthouse to QVC, recruit top endorsement talent, and operate phantom licensed departments in larger department stores. The costume market will feel the weight of DB far more than top flight fine jewelry retailers. DB’s goal in the short term is to have separation, penetration, presence and then hammer home the brand. They will have bridals. Today they have a halo with a yellow 3.00 Ct. center and 1.00 Ct. of melee. MMS*** polished in India mounted in K gold. Selling price $3700 to the consumer.
    Be mindful MMS*** is marketed as a “diamond”. That’s where DB is going. ALROSA is next and the Chinese will undercut them all using government subsidies. See you at the show.

  10. Intersting article, I like the reference to apple. Do consumers really care? As said a the beginning, the right piece at the right price and you have a market for new product sales. If the value of mined diamonds continues to rise and is seen as a luxury item with investment potential then surely there will still be a market for these too.

  11. What happened to providing jewelry according to consumer demand? Online Lab grown diamond and Moissanite sales are growing exponentially while most brick and mortar stores have single digit increases at best.
    Why not offer price pointed choices of synthetic diamond and diamond simulant, Moissanite, to expand your potential customer base?

  12. Good review, Rob, of the first round for DB as they try to set their future. This move comes as no surprise at all. The issue is far more uncertain than it seems, and is a lot more complicated than trying to “kill” competitors, build a cheap fashion business, and keep “real” diamonds on the high ground. Some of the comments made here touch on some of these issues, and there are many more, but here is one point to think about. Does anyone really think that DB wants to make Lightbox, as it is now presented, a key part of their future? The long term issues are far more important than whatever short term success (ore failure) they may have with Lightbox. What does DB want to build to replace the diamond business in 15-20 years, when existing mines are essentially exhausted? They already know that if world wide growth in jewelry (diamond or not) continues over that many years, there will be supply shortages. Meeting demand will come in part from the trillions of dollars in diamonds already in the hands of people everywhere. But a big hole will have to be filled by LGDs, and that will include the full range of diamond jewelry categories. Lightbox is only the first step towards fulfilling DB’s wish to build a new dominating diamond force. Many, many minefields from here to there.

  13. Great insight as always, Rob. (Hi from a longtime reader, first time commenter).

    Look at the marketing on the Lightbox web site– sweet 16 gift, wear it to the beach, natural diamonds are “more valuable and precious,” etc. (I still wouldn’t wear a $1000 pendant to the beach, but that’s just me.) I saw this primarily as a power play by De Beers to shake things up and move lab-grown diamonds downmarket while protecting the market for naturals, as other commenters have said. If things work out how they want, De Beers will dominate both markets. It’s going to be very interesting to see how this plays out! I wrote a blog post about this geared toward those who aren’t in the industry.

  14. I agree with Jason said it would be good for JCK to establish what precisely Light box is promoting, $800 across the board per ct applies to total weight AND OR single stones?

    Then what does it say about their offering if no 1 ct single stones are on offer? A fuller exploration of what is being proposed is in the best interest of the industry and the consumer.

  15. Hello Rob:
    There seems to be some contradictions in the offering from LightBox…is a one carat stone ONE stone or four .25 ct stones? The web site says both??? If it is four stones they are misleading the trade.
    tom chatham

  16. Thank you DeBeers…you just told the whole world that lab grown diamonds are real diamonds…that will make it easier for me to sell my lab grown. ..as there will no longer be a question if they are real diamonds or not. All of this must be making Rapapport feel like a fool after his cover story a couple of years ago…The Lab Grown Scam! I chastised Rap for that story then and am laughing at him now!! Hahaha.
    I have been happily and successfully selling lab grown for 3 years, and with DeBerrs getting into it…my job just got easier!! Thank you Mr. DeBeers:)

    • From my limited experience, we tried to sell Gemesis many years ago, the price difference from natural was not enough for the consumer to buy the product. I also have yet to prove that the “resale value”, of a lab grown diamond (which is a diamond, though man made/cultured), has any. Most cutters I know will not pay much for this Lab Grown product, because they have not found a fertile secondary market. Would a retailer who “sold a $10,000 lab grown diamond” for example, take it back? Not sure, but we know the natural diamond secondary market is there.
      The lab grown market may well enhance the natural market, but for now, we wait to see a client who “pays $5K, $10K, etc for a lab grown diamond, who does some re-sale research”, still sees the lab grown has a “value”…. or just a so-called “enviromentally friend” alternative, sitting a gold/plat mtg though….
      Craig Horwitz, H. Horwitz Co, Chicago

  17. The real worry is, as DE beers has proposed to retail lab grown diamonds at a price few will be able to.
    Because at today’s prices,maybe 25% might get convinced into buying lab grown diamond jewelry.
    At the new prices, there won’t be a need to convince.! As product is identical!!!
    Once worn nobody can tell the difference except the LaB and except the emotional aspect which is personal – diamonds at the end of the day are worn to flaunt more than it being or coming from a natural source as a reminder of the occasion.
    As earlier pitched, when an engagement ring can be bought for a 2 weeks salary, why would someone spend 2months salary on an engagement ring?

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