Are Diamonds Forever?

I grew up under the influence of marketing hype insisting that buying a diamond was a commitment and an investment … Mother Nature was not making any more, and I was buying a rare treasure that was hard to find, cut, and polish. The natural sparkle was discernably different than cubic zirconium, and your jeweler could prove authenticity. That was then …

Artificial diamonds have gained mainstream acceptance, and value-seeking buyers are increasingly rejecting marketing claims by De Beers and others that true love requires mined diamonds. The pace of transition to artificial diamonds is staggering, but facing the facts seems elusive for De Beers. See for yourself: De Beers faces an uncertain future on natural diamonds

The industry survived the blood diamonds disclosures that exposed their practice of mining in war zones, often with children, with profits used to fund insurgencies. But this latest threat may be the final nail in the coffin. And much like the tobacco companies, De Beers is now doubling down on marketing strategies, maligning anything but a natural diamond as having real value, rather than planning for a portfolio approach to their evolution.

A successful approach might be to keep the dominance of the diamond business by offering a range of stone categories, from cubic zirconia to artificial diamonds to natural ones for those who can afford them. Consumer choice also changes over time, and therefore it would be better to keep your brand recognition. But, no … De Beers seems hell bent on doubling down on their historic perspective.

Times they are a changin’ … many underlying factors are driving the transition beyond price. Technology will make the process of manufacturing diamonds less expensive over time, and this also deteriorates the intrinsic value question of a natural diamond.

I remember trying to impress my father with the Porsche brand, explaining how much of the car was hand-built. My father reminded me that anyone still building anything by hand was facing economic failure. At the time, I thought he was wrong … I was a romantic, I guess. There was something precious in my mind for anything that was handmade.

I also recall advising utility executives 20 years ago that the Blockbuster business model needed a makeover.  I predicted that renting a physical memory image would go the way of streaming.  I was ridiculed. They topped the video rental industry with thousands of retail stores and millions of customers. Still, they were unable to pivot fast enough into streaming to avoid filing for bankruptcy in 2010, just five years later.

The harsh reality today is that any commodity is subject to supply and demand volatility and the existential questions about sources of what we thought were limited raw materials. Let’s just suppose nothing thwarts the artificial diamond production process. In that case, it is only a matter of time until the diamond setting will cost more than the diamond itself … after all, you cannot make artificial silver or gold, can you?

Can you see the logical flaws in what I am saying? This whole area is a house of cards when you really think about it. We have a romantic framework of value that is under attack. The only foundation block is that gold and silver are still thought of as rare commodities here on earth.

I once thought that oceanfront real estate was the ultimate investment, albeit far from my reach. Now I read that coastal areas in California and Florida are plummeting in value. Who could have forecast that the insurance industry would shift the economics of property and boat ownership in Florida … but it has. Who would have guessed that red tides driven by multiple environmental bad actors in central Florida would destroy home values?

We live in an increasingly complex and interconnected world. Natural diamonds are facing competition from artificial stones, as well as consumer attitudes about lavish gifts and even marriage itself.

Watch the diamond transition for clues about business and life choices. This is going to be a rapid transition, and the floor is going to be littered with companies that ignore current events.