Session at Antwerp’s Facets 2024 conference tackles how to unlock the value of natural stones.
If there was one session at last week’s Facets 2024 conference that summed up the focus and atmosphere of the event, it was the panel on “Unlocking the Value of Natural Diamonds.” Five participants joined moderator and industry analyst Edahn Golan to discuss the topic that dominated conversations inside the Antwerp Handelsbeurs: how to reinvigorate demand for the product.
This was firmly a natural-diamond conference, so the emphasis was on telling consumers the story of how the precious stones emerge from the earth, and whether commodity investors could be the industry’s savior.
One point of agreement was that many things need to change if the industry is going to sell more diamonds.
Origin: Texas?
There are few better ways to assess the current flaws than to send secret shoppers into jewelry stores (something we have done ourselves). The Natural Diamond Council (NDC) did just this, and some of the results were concerning.
One of them went into a shop on the US west coast and asked where a particular diamond was from, said David Kellie, CEO of the category-marketing organization. “The sales professional selling it said, ‘Well, from Texas,’” Kellie reported. “If someone [asked me that], I would give them the five-minute story about the origins of diamonds…what they stand for, what they mean, the positive impact.”
Golan backed this up with his experience walking into stores that sell $15 million to $20 million per door each year. “What I found was that all of them spend a lot of time with each person that walks into the store”, he said. “They have a whole spiel ready…. They know how to capture these people’s imagination and, eventually, their dollar.”
Many retailers deny that consumers question them about sustainability and traceability, yet research shows shoppers do care about it, Kellie observed. “Just because the consumer doesn’t ask for it, doesn’t mean to say it’s not important [to them]”, he said.
Buying a diamond at retail is not enjoyable enough, Kellie asserted. In most retail stores, especially in the US, “I don’t think there’s another product that a consumer buys in that $3,000 to $5,000 price point where they get a worse experience”, he claimed. “This is the most beautiful product in the world, and my opinion is it’s the worst experience in the world.”
Another NDC mystery shopper entered a store in New York that stocked natural and lab-grown and asked what the difference was. “The answer was ‘the price’”, Kellie related. “At that point, we’ve lost it.”
He agreed with Golan that it’s sensible for suppliers from the trade to send representatives to retailers to train them on how to educate consumers.
William Lamb, CEO of Lucara Diamond Corp., which owns the high-value Karowe mine in Botswana, echoed the sentiment that financial value cannot be the only sell.
The industry must educate people about diamonds’ provenance and the good they do, using marketing to differentiate natural diamonds — “but we don’t”, Lamb observed. “We start at ‘How much money are we going to make on the stone?’ But if you don’t understand the story of what that diamond does, how can you create an experience when someone buys a diamond from you?”
Hidden asset
The sector should focus on eight specific features of luxury products that appeal to consumers, from quality of craftmanship to status to investment value, said Olya Linde, partner at consultancy firm Bain & Company. The other five are design and aesthetics, the entertainment that comes from buying and using it, potential for self-expression, heritage, and sustainability.
In any industry, companies that focus on more of these elements are successful, Linde noted.
As for investment potential, the best segment for this is fancy-color diamonds, said Sahag Arslanian, director of Arslanian Group, an Antwerp-based diamond-manufacturing and trading company. As well as being exceedingly rare, they are “fail-proof” against synthetics in the same way that gemstones are, he reasoned.
Consumers can easily identify a synthetic ruby, emerald or sapphire by its high clarity, Arslanian said. The same applies to colored diamonds. “This is how fancy-color diamonds as an investment class is really the crème de la crème, but not for the average consumer within the diamond world”, he observed.
Further support for promoting the investment value of diamonds came from Cormac Kinney, CEO of Diamond Standard, which has developed an exchange-traded diamond commodity. But this was only after he gave the audience some tough words.
At Facets and the recent Dubai Diamond Conference, “I’ve heard spontaneous [clapping] eight times”,said Kinney. “Each time, it’s when someone says something supportive about how special natural diamonds are, how they’re going to bounce back against the threat of synthetic. People are cherry-picking positive points of data. This is self-delusion. Prices are down 50%. They’re still going down.”
(The RapNet Diamond Index (RAPI™) for 1-carat diamonds — reflecting round, D to H, IF to VS2 polished goods — has fallen 52% since March 1, 2022.)
The gold-mining sector endured a similar crisis in the 1990s, when it lost its reputation as a hedge against inflation, said Kinney. It solved this by creating exchange-traded funds (ETFs), which enable investors to purchase and trade gold-related assets. This nonseasonal demand has supported the gold industry’s growth, he explained.
Investment demand is the best solution to the diamond industry’s problems, because it capitalizes on the natural product’s rarity, “economic substance”, and acceptance among investors as an asset, Kinney argued. Spending lots of money on marketing to consumers might not work.
Carats vs. karats
Kellie and Golan both pushed back at Kinney, claiming that gold was a bad comparison because it was equivalent to money, with governments keeping it in reserve.
“There’s no other consumer-desirable brand in the world that doesn’t do it through marketing”, Kellie said, noting that he supported what Diamond Standard was doing. “Look at the likes of LVMH, Richemont, Kering, any other brand in the world…. No one sees the value of marketing until you take it away and you see the impact of it. That’s what we’re doing now.”
It’s a known fact that 50% of marketing investment is “wasted,” said Linde. “But you don’t know which one, because the other 50% gets you where you need to go.”
Image (left to right): Edahn Golan, David Kellie, Olya Linde, Sahag Arslanian, Cormac Kinney and William Lamb. (Antwerp World Diamond Centre)
Source : Rapaport
