Diamonds may be forever, but the market for diamonds surely isn't.
That is the news in the latest Global Diamond Report 2019 from Bain & Company in association with the Antwerp World Diamond Centre. While the mined-diamond supply chain, sales are falling, with rough diamonds sales expected to decline by 25% and polished diamond sales to be off 10% by the end of the year.
So far, the jewelry side of the business hasn't felt what Bain describes as a “diamond industry recession” as sharply. Global diamond jewelry retail sales will decline by about 2% this year, but sales in China, the world's second largest diamond jewelry market, will drop further by 5%.
The only bright spot in diamond jewelry is the branded luxury sector, which is expected to advance in the high-single digits. Overall, luxury diamond jewelry accounts for about 15% of the diamond retail market.
As for the future, Bain predicts that 2020 will be another tough year for the industry with flat retail growth. “Learning from past diamond industry recessions, we foresee a resolution in the next two years,” the report states. The report details industry recessions occurred in the late 1970s, 1985, 2008-2009 and 2015.
But then, during none of those past four recessions has the industry faced the kind of disruptions that it does today. As a result, the past is no predictor of the future.
Mined-diamond industry disrupted
The Bain report identifies the three greatest disruptors in the mined-diamond market: Online sales, lab-grown diamonds, and consumers’ growing demand for environmental and social responsibility.
The online sales model requires less inventory in both polished diamonds and diamond jewelry than the traditional brick-and-mortar jewelry business. The diamond supply chain could adjust to support both online and traditional jewelry stores with products profitably. Bain estimates online sales represent between 5% and 10% of total jewelry industry sales.
As for the other two disruptive trends, which go hand-in-hand, the mined diamond industry is caught literally between a rock and a hard place. Consumers today demand environmental and social responsibility from the industry, most especially the Millennials and GenZ consumers who are the primary target market for engagement diamonds.
Despite the Diamond Producers Association’s efforts to communicate its responsible environmental approach and positive social impacts, the consumers aren’t necessarily buying it.
A recent Netflix Explained episode digs under the surface to reveal the reputed dirty tricks DeBeers and its cohorts have played historically to keep the diamond industry profitable at great human and environmental costs. The episode was produced by news website Vox, a property of Vox Media.
The industry is described as an “incredibly opaque supply chain,” with no one really certain how effective the Kimberley Process has been keeping so-called “blood diamonds” out of the market.
No matter how responsibly the industry operates, and I believe it has made great strides, the process of mining diamonds is destructive nonetheless.
However, the mined diamond industry faces an even bigger threat from a genuinely sustainable, environmentally-responsible alternative: lab-grown diamonds.
The Bain report pegs the lab-grown diamond market’s growth between 15% to 20% in 2019 and given that traditional jewelers have only recently begun to sell lab-growns, their market share in the jewelry industry is only going to grow and grow fast.
“The efforts of DeBeers to price Lightbox diamonds at such a low price point are a very clear effort to denigrate the product,” says Jason Payne, CEO of Ada Diamonds, a direct-to-consumer online lab-grown diamond company, in the Netflix documentary. “Laboratory grown diamonds are superior to ‘dirt’ diamonds or mined diamonds that have come out of the earth.”