Looking back at the year just past in a newly released report, noted industry analyst Paul Zimnisky has pointed to developments in the synthetic diamond market as the factor for which 2018 is most likely to be remembered.
Overshadowed by the announcement by De Beers at the end of May that it would be taking a significant position in the gem-quality synthetic diamonds market as a producer, through its branded Lightbox Jewelry line, Zimnisky noted that the year saw the average price of a 1-carat lab-created stone falling by almost falling to half of that of a comparable natural diamond, with the discount in late-November being 42 percent off the price of the natural product, up from 29 percent in January.
Two rings on offer by Lightbox Jewelry, featuring pink and blue synthetic diamonds produced by De Beers.
An artist’s rendering of the Lightbox synthetics diamond factory in Portland, Oregon, which will have a production of about 200,000 per year early in the next decade.
When De Beers-produced synthetic diamond jewelry became available to consumers exclusively through the company’s website at the beginning of September, Zimnisky noted, a 1-carat solitaire pendant that was being offered by Lightbox for $800 plus a nominal setting fee undercut the equivalent-quality 1-carat generic lab-created diamond by more than 78 percent. The latter was selling for around $3,700 at the time.
LIGHTBOX STRUGGLES TO KEEP UP WITH DEMAND
Public demand for the new De Beers product was massive, Zimnsiky reported, with almost all the 1-carat solitaire pieces selling out within a week after being launched. Although De Beers reassured customers that resupply could be achieved with relative ease, two months later, out of 43 Lightbox items offered, five were still sold out.
The bottleneck will be eased with the opening of a U.S. production facility outside of Portland Oregon, Zimnisky noted. Reaching full production early in the next decade, the factory will produce about 200,000 polished carats of synthetic diamonds a year.
With De Beers’ linear pricing structure of the diamonds, it is estimated that Lightbox will become about a $175 million per annum enterprise for De Beers, Zimnsiky wrote. But this is still just a small part of De Beers core natural diamond business, which reportedly was worth more than $5.8 billion in revenue in 2017.
OTHER PRODUCERS ATTEMPT AN ALTERNATIVE STRATEGY
De Beers is not the only major player getting its feet wet in the gem-quality synthetic diamond industry, Zimnisky noted. Richline, a jewelry manufacturer owned by Warren Buffet’s Berkshire Hathaway Group, announced that it would be a launching a synthetic diamond line called “Grown with Love” in time for the holiday season. It would be sold in the United States at Macy’s and JCPenney department stores, and would include engagement rings set with diamonds as large as 3-carats in size.
Richline is a hoping to overcome De Beers’ efforts to drive down the average price of synthetic diamond jewelry by selling its new line at price points that were more familiar before the launch of Lightbox Jewelry. A 1-carat “Grown with Love” solitaire ring will sell for $3,750, compared to slightly more than $800 for a ring by Lightbox, and a 1.5-carat ring will be selling for a $6,500, which is considerably more than the $1,200 being asked by Lightbox Jewelry.
“Most of the new entrants are attempting to maintain price points that are symbiotic with natural diamond pricing instead of using a Lightbox low-cost producer, linear pricing model,” Zimnisky wrote in his report. “The former pricing strategy is typical in luxury, where higher price points can provide the perception of worth, rarity and hopefully greater desirability.”
But the analyst seems skeptical whether Richline’s strategy can successful, noting that competition from low cost producers is inevitable. There are currently producers in China selling 2-carat, near-colorless rough in SI clarity for $300, he noted, with a 0.80-carat polished stone being offered for $425. This, stated Zimnisky, is even below that of the Lightbox retail price, which listing a similar sized stone for $640.
“Some of the CVD start-ups appear to have operating profits approaching 50 percent using the higher price points mentioned above in the above 1-carat polished items, the size-category that at the moment is protected from Lightbox and the low-cost producers in the East,” Zimnisky wrote. “The question is how long will this window last?”
Jewelry from Richline’s ‘Grown with Love’ jewelry line, which the company is betting can be sold at considerably higher prices that those being asked by Lightbox Jewelry.