Depth | "True and False" Diamond War

150 years after the strict monopoly of the diamond industry, the world's largest diamond supplier, De Beers De Beers Group, which is a cluster of natural diamonds, faced an external threat for the first time. As the technology of synthetic diamonds matures, the artificial diamonds that are expected to be mass-produced are disrupting the market rhythm that has been calm for a long time.

In September this year, De Beers Group (hereinafter referred to as De Beers) will launch the new artificial diamond brand Lightbox in the United States, the world's largest jewelry market. The announcement of the news has caused the industry to be in turmoil. The group said the collection will bring breakthrough innovations to the jewellery industry, featuring laboratory-inspired pink, blue and white diamonds, featuring a range of inexpensive earrings and necklace designs.

Artificial diamonds and natural diamonds were in the opposite position of the market. Prior to this, De Beers had firmly defended the status of natural diamonds, emphasizing that natural diamonds are “real” diamonds. The company’s top executives have vowed to insist that they will never sell laboratory-synthesized diamonds, or even invent an instrument that can identify laboratory synthetic diamonds.

In 2015, De Beers also joined the other six world-class diamond companies to establish the Diamond Manufacturers Association DPA, launching the promotion project “Real is Rare” (Real is Diamond). This slogan officially replaced De Beers's slogan from the history of advertising in 1948, "Diamond is forever."

DPA Association CEO Jean-Marc Lieberherr said at the time that the reason for the revision of the slogan was that the original statement was not suitable for today's situation. For the new generation, diamonds need to be injected with new symbolic and emotional meanings to continue their place in people's lives. However, the more De Beers emphasizes the “reality” of diamonds, the more proof that synthetic diamonds pose a real threat to natural diamonds.

It should be emphasized that synthetic diamonds are not an emerging technology. In 1954, GE first produced synthetic diamonds, but due to poor color and high cost, synthetic diamonds were used only for industrial purposes for a long time. Until recently, a large number of synthetic diamonds have been manufactured, especially under the impetus of efficient Chinese companies, and synthetic diamonds have become popular.

Stanford graduated Martin Roscheisen founded the founding company Diamond Foundry in 2012, hoping to produce real diamonds in the lab. Unlike synthetic diamonds, these diamonds are grown from naturally mined diamonds.

It is worth noting that the difference between synthetic diamonds and natural diamonds is only the difference in manufacturing methods. The composition and structure are exactly the same. The artificial diamonds are even higher in quality than natural diamonds, and the cost is reduced with the continuous improvement of technology, resulting in artificial The price of diamonds is lower.

As a natural diamond giant, De Beers's "hostile camp" is considered to be in the name of expanding business, interfering with the growing artificial diamond market through low-cost strategies, and ultimately achieving control of this market. The retail price of diamonds produced by Lightbox Labs is indeed extremely low. According to Bloomberg, the average price per karat of synthetic diamonds on the market is $4,000, the average price of one carat of natural diamonds is $8,000, and the price of Lightbox is about 0.25 carats or $200. Carats are $800, less than one-tenth of high-quality natural diamonds.

Industry analysis almost universally believes that this is a containment of De Beers's artificial diamonds that have spoiled the natural diamond market in recent years.

When De Beers executives clarified to the media, synthetic diamonds are a potential profitable business, and the establishment of Lightbox is by no means retaliatory or defensive. Group CEO Bruce Cleaver said that people buy artificial diamonds is not the greatest moment to celebrate life, just for fun and fashion, stylish synthetic diamonds will not impact the natural diamond business, the two services are very different.

However, industry analysis almost universally believes that this is a peacekeeping war initiated by De Beers and is a containment of synthetic diamonds that have spoiled the natural diamond market in recent years. De Beers is fully aware that the development of the synthetic diamond market is unstoppable, so from the initial containment of the artificial diamond market, it is finally decided to enter the market as soon as possible.

In fact, De Beers has long been involved in the manufacture of synthetic diamonds, but has always kept artificial diamonds away from natural diamonds. Its Element Six is ​​a 50-year-old industry-leading manufacturer of synthetic industrial diamonds, and Lightbox will be the only brand that uses Element Six synthetic diamonds to make jewelry. To ensure that synthetic diamonds without resale value are not to be confused with natural diamonds, the group stated that the synthetic diamonds used in Lightbox brand jewellery will contain a small mark indicating that they were made by Element Six.

In the face of tricky synthetic diamonds, De Beers is in a dilemma. On the one hand, the popularity of synthetic diamonds will inevitably pose a threat to De Beers' core natural diamond business, so De Beers will do everything possible to divide the boundaries between natural and synthetic diamonds to maintain the former. On the other hand, synthetic diamonds are becoming an unstoppable trend, and De Beers is afraid to miss the future.

The core of this business is the price control of diamonds. De Beers’ manipulation of diamond prices has always been a classic case study of monopoly in economics textbooks.

What surprised many people is that the diamonds, which are synonymous with "eternal", are actually very short-lived as the "king of gems". Although humans have discovered that the history of diamonds can be traced back to ancient India in 2500 BC, and the colorless crystals composed of diamonds are the hardest substances that are currently known to exist naturally, they have the properties of fine gemstones themselves, but Before the 18th century, diamonds did not stand out among the many gems.

For a long time, the production of diamonds remained at a low level until 1870 when a large number of diamond deposits were discovered in Orange River, South Africa. British capitalists at the time quickly realized that the rapid increase in production would saturate the diamond market. In order to prevent the price of diamonds from falling, in 1888, De Beers United Minerals Co., Ltd., a group of British capitalists, was established to monopolize the global supply of diamonds, including mining, processing and sales, and through its international diamond promotion center, Diamond Trading Company. Global promotion work.

From the supply side, De Beers controls the price of diamonds at the source by strictly controlling the production of diamonds. At its peak, De Beers' mining operations accounted for nearly 80% of the industry's total, and it has become the industry's standards setters. In 1939, De Beers introduced the 4C standard to consumers. The rough diamonds are all sold by De Beers' central London-based retail agency, allowing only 125 jewelry cutting companies to purchase diamond rough directly from them. The agency sells the original stone to the cutting company through an annual diamond appreciation event.

For a long time, De Beers strictly controlled the price of diamonds. Once a small diamond dealer tried to mine the rough stone, De Beers asked its central unified retail organization to release a large amount of diamond reserves in a short period of time. The price of diamonds immediately fell, allowing small diamonds. The business was destroyed in the price war.

From the demand side, diamonds began to stand out from the many gems and formed a huge financial value chain, which is inseparable from the rise of marketing in the 20th century. In 1938, De Beers found the American advertising company NW Ayer, which studied the consumer demand and hid the investment property of diamonds under the emotional attribute, aiming at the universal yearning of human nature for true love and marriage. In today's words, I cut the scene of marriage, and the pain of consumers who want to love the eternal.

In 2015, De Beers officially replaced the “Diamond is forever” in the slogan “Diamond is forever”, which was used in 1948.

With the express train of the 20th century marketing culture, the diamond industry ushered in a high-light moment in the mid-20th century with a slogan "Diamonds are long-lasting, a eternal rumor". By being given a deeper meaning, diamonds have created a strong moat for their status, which has become the basis for diamond pricing. As the initiator of the bond between diamonds and emotions, De Beers became the biggest beneficiary and established its status as a top luxury.

In 2001, the Group followed the trend to establish De Beers Jewellers, a joint venture with luxury goods group LVMH, which each had half of the shares, mainly selling diamond jewelry products. The first franchise store was used as a flagship store in Old Bonds Street in London in 2002. Open. With the huge funds and resources of LVMH, the brand has grown rapidly and gained recognition from a large number of consumers. In view of the luxury positioning of De Beers Jewelry, it has also become a member of the French Haute Couture Fashion Union. Since 2015, it has exhibited its fine jewelry collection at the Paris High Time Week.

However, in March last year, De Beers ended its partnership with LVMH and recovered the remaining 50%. The group now owns the Namdeb Diamond Company with the Government of Botswana and the Namibian government, and holds a 70% stake in De Beers Marine Namibia, which controls about one-third of the world's natural diamond resources.

As long as people's longing for true love and marriage is still firm, De Beers' dream of creating diamonds through consumers is solid enough. In recent years, however, this moat has been challenged because the reasons for people buying diamonds have changed. With the change of people's attitude towards marriage, the demand for diamonds from consumers has gradually upgraded from the initial wedding diamond ring to the overall image matching stage. The connotation of diamonds has gradually evolved from love to fashion and self-reward.

In the interview, Francois Delage, CEO of De Beers Jewelry, revealed to the fashion headline that diamond jewelry is no longer limited to important moments to commemorate family or lover relationships, but also to remember the joy and sense of accomplishment at any moment, for example, to find new Work, or get promoted. Greater economic participation and higher incomes encourage women to buy jewelry and other luxury goods for themselves. According to a report released by De Beers in September last year, changes in the role of women have spawned new demand for diamond jewellery. In China, 26% of diamond jewellery is purchased by female consumers, a figure that is growing at a rate of 12% per year.

Group CEO Bruce Cleaver believes that although most of the jewellery purchase motives are to give diamonds as a symbol of love and commitment, women's self-purchased consumer demand will become the mainstream trend in the future diamond industry.

Millennials have also become important consumer groups, and they have proposed new consumer demand. According to the 2018 Diamond Industry Insight Report released by De Beers, the demand for diamond jewellery in 2017 reached US$82 billion, a record high, and Millennials and Generation Z consumers accounted for two-thirds of the total global sales. In China, this ratio is close to 80%. Generation Z is a larger consumer group, accounting for 35% of the world's total population, and will become a new force in diamond consumption in the next decade or two.

According to another data, 70% of China's diamond consumption comes from young women between the ages of 18 and 34, far higher than other major diamond consumer markets such as the US, Japan and India. Compared with the previous generation's love for jade and gold, young consumers prefer diamond jewelry with personality.

The changes are confirming what the DPA Association CEO Jean-Marc Lieberherr said, "The original slogan is no longer suitable for today's situation." The bigger panic comes from the appeal of synthetic diamonds to young and female consumers. The data shows that although the market for synthetic diamonds is now only $150 million, about 2% of the entire diamond market, according to Citibank's forecast, the share of synthetic diamonds in the diamond market will reach 10% in 2030.

China's rapid advancement in manufacturing technology has also played a role in the expansion of synthetic diamonds.

Earlier, China had hatched a number of artificial diamond enterprises based on industrial use, represented by Yu Diamond, Yellow River Cyclone, and Zhongnan Diamond. It is reported that more than 90% of the synthetic diamond production capacity that has been tendered and under construction in the world is concentrated in Henan Diamond, Yellow River Cyclone, and Zhongnan Diamond. At present, Yu Diamond, the largest artificial diamond manufacturer in China, produces 2 to 3 million carats of gem-quality diamonds, of which consumer rhinestones account for more than 50%. More and more artificial diamond companies are also targeting the diamond business for jewelry use. In March of this year, Huajing Diamond launched a corporate asset restructuring, ready to expand into the consumer industry chain business.

Made in China, artificial diamonds have attracted global attention, and these companies are also backed by the most promising diamond market, China. According to the latest data from the global diamond industry released by De Beers on May 17, global diamond jewelry consumption demand increased by 2% to US$82 billion in 2017. Mainland China is the world's second largest diamond jewelry consumer market, in US dollars. It increased by 3% year-on-year to reach 10 billion US dollars.

Compared with the ever-expanding scale of synthetic diamonds, De Beers's rough mining business has fallen sharply from the two-thirds of the industry to 30% in the past 30 years. According to the latest data in September this year, De Beers' global diamond raw embryo sales decreased by 5.5% in the seventh sales cycle this year. It is the worst data since statistics in 2016. The industry has speculated that the traditional diamond industry has entered the winter. . In addition, the company is no longer packaged to sell the original diamond, coupled with the launch of the Lightbox series, the market is worried that diamond prices will fall.

In addition to environmental issues and the problem of child labor for miners, natural diamonds have been sold at high prices for a long time.

On the other hand, consumers seem to be more and more disregarding the difference between artificial diamonds and natural diamonds. The quality of artificial diamonds is even increasing, because artificial diamonds are cheaper, better in color and more environmentally friendly. This is closely related to the moral controversy of natural diamonds. In addition to environmental issues and the problem of child labor for miners, the phenomenon of natural diamonds being sold at high prices has been around for a long time. This phenomenon has also been made into the movie Blood Diamond. In contrast, artificial diamonds are low-cost, inexpensive, and environmentally friendly, while avoiding moral controversy.

Natural diamonds are squeezed by synthetic diamonds, both on the supply side and on the demand side. What people are most worried about is that the price of natural diamonds is affected, and the price is the bottom line of De Beers. Today, De Beers lays out the artificial diamond business in order to pressure the artificial diamond dealers through the price gap, while strengthening the artificial diamond parity, which is only suitable for daily scenes, and does not have special emotional connotations, even consumers who are not “true” diamonds. Impression, thus maintaining the luxury image of the product.

Earlier this year, De Beers announced the launch of the diamond industry's first blockchain platform, Tracr. The platform will allow consumers to track every flow of diamonds. Tracr will create a digital certificate for each diamond, and each certificate will be registered on the platform and contain key attributes and transaction attributes to verify the authenticity of the diamond, ensuring that the diamond is natural and the origin is not from the conflict zone.

At the same time, De Beers also sought to further deepen the impression of diamonds as a luxury lifestyle. Group CEO Bruce Cleaver said last year that Chinese consumers' spending on luxury travel has become the main competitor of China's diamond industry sales. In order to win more diamond sales, De Beers decided to actively participate in the tourism market, hoping to get a piece of it, De Beers is looking for the possibility of linking luxury tourism and diamond origin to Africa.

Rubies, diamonds, sapphires and emeralds are known as the world's four major gems. Even though the price of ruby ​​has risen more than diamonds, diamonds are still the most popular among most people. This is due to the careful maintenance of the image and value of De Beers for a century. Nowadays, the incoming artificial diamond is not only the active defense of De Beers, but also the first step to compromise. Whether the diamond giant will fall into a situation of mutual struggle will still be unknown.

Some insiders bluntly said that De Beers held the market and did not let the price of diamonds collapse, but the price collapse may come sooner or later.

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