Podcast Episode: Rob Bates
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Paul Zimnisky: And we are recording…
Rob Bates: Okay, great.
Paul Zimnisky: So, Rob, how's it going?
Rob Bates: It's good, and I thank you for inviting me on your podcast. You were the first guest (on JCK's podcast), so I'm happy to be...am I your first guest, or...
Paul Zimnisky: You are going to be my first guest.
Rob Bates: All right!
Paul Zimnisky: So, it worked out well.
Podcast intro: ♬ Welcome to the Paul Zimnisky Diamond Analytics podcast. Today's guest. Diamond and jewelry industry journalist Rob Bates from JCK Magazine.
Paul Zimnisky: So, Rob is a diamond and jewelry industry journalist who's been in the business for about 20 years. He's currently the news director for JCK Magazine. He's also been a senior editor there. I think a lot of people consider him to be the number one journalist in the industry. He has an amazing talent for picking up on trends early and looking at them from a very thought-provoking angle. Everyone I know in the industry loves Rob and they very much respect him. So, it's really a privilege to know him...
Rob, thanks so much for doing this. So, I guess just to cut right to the chase here, given that you've been covering the industry so closely for so many years, how bad are things in the diamond industry right now? Have you ever seen sentiment this low? And I guess I'm referring to concern over future diamond demand and natural diamond prices, midstream bankruptcies, changing consumer spending habits, declining marriage rates, closing of independent retailers and of course love created diamonds. You know, a lot of diamond mining stocks are currently at historic lows. Signet, the largest jeweler in the U.S., is under significant pressure. Have you ever seen at this negative or is there hope?
Rob Bates: Yeah, I probably have. I mean, you know, the financial crisis and the aftermath of that, I mean, there was incredible fear...everything was just frozen. Like people couldn't sell, they couldn't buy. It was just everything was just kind of frozen. So, I think that was a that was a real bad time. And I can't remember if it was 2015 to 2016 when there was a lot of concerns about profitability. And, De Beers in particular was squeezing the manufacturers really hard. I think the sentiment was extremely, extremely negative. I don't think sentiment's very good right now. And, you know, a lot of it's because of a lot of the factors that you mentioned, I think lab-created is possibly, you know, causing a little uncertainty about the future. I think in a lot of ways these are kind of the same issues that the industry's kind of been dealing with for years. But, you know, there are a lot of them coming home to roost. Issues of liquidity, issues of margins, issues of consumer demand, a lot of the big players being overextended.
So, I think that a lot of these issues have been percolating under the surface for a while, and they're just kind of right now coming home to roost. There’s not necessarily anything major external, as far as the economy that seems to be driving this. The economy in the United States is still, at least for the moment, it's reasonably healthy. But, you know, every retail sector is having a lot of issues. And it's not just Signet, it's basically every retailer, you know, I wouldn't say every retailer, but most retailers are having substantial issues and it's very tough to be a brick and mortar retailer these days. So, there's a lot of x-factors. You know, the world is undergoing a lot of change, we're constantly getting disrupted. Things just don't feel as perhaps stable as they as they used to.
So, I think we're in this kind of period of constant upheaval and turmoil and instability and worse, and the diamond industry starting to feel that, especially because, you know, the diamond business is typically full of long-term players who don't necessarily... –it's not necessarily about what you do every quarter, but it's about your long-term view –do you eventually make money? That's how you stay in business. And I think that, you know, things are so erratic and uncertain these days that it's a little tougher to kind of have that traditional long-term view.
Paul Zimnisky: Yeah. So, I think you make an interesting point when you say, you know, the economy's in pretty good shape and we kind of still have these problems. I think that's kind of the concern in itself. During the global financial crisis, kind of you know, pretty much every industry was having difficulty. We knew it was credit related. I think everybody knew it would probably eventually get better. But like you said, I think we have –the U.S. is probably in the best shape it's been in my life right now, and then we kind of still have these problems for a consumer discretionary product, which tends to do best in times when the economy is strong. So, I think you kind of look and see what's kind of the root of the problem. And everybody loves to talk about lab created and how that's going to cannibalize the industry. I don't really see that as the biggest problem. I think it's just the industry needs to drive demand for its product. And it's not just competing with lab created, but it's competing with, you know, luxury in general.
And I think you look at diamonds and what was unique about diamonds, as you know, it was one luxury item that most women in the U.S. would be given in their life. Every woman wouldn't get a say, a Louis Vuitton bag or a pair of Christian Louboutin pumps. But, you know, the diamond industry was kind of unique where the penetration was so high. And I think the diamond industry was kind of the envy of the luxury industry. But I think it's just it's challenging to retain that that market share without a "A Diamond is Forever" marketing campaign. I mean, do you think that this industry can maintain its market share without a two hundred fifty-million-dollar annual marketing budget targeting generic diamonds?
Rob Bates: I mean, I don't think you necessarily need the same level because social media is more efficient, et cetera, et cetera. But I think there's a couple of issues. You know, way back when I graduated high school, if you got married, you would go –I live in New York, but let's say if you live in a small town, there's like maybe five jewelers in town where you would go to get a diamond. Now, people can buy anything. Right? So, there's, you know, there's a lot more options for people and, you know, there's a lot of talk about a lot more options. So, it's not just kind of the cookie cutter: you get engaged, you get a diamond; people are hearing about a wide range of options and have a wide range of options that they didn't before. Now, you can buy stuff from any place in the world, it's not just three jewelers in town, you have access to literally millions of jewelers if you if you really want. So, you know, people have a wide range of choices.
Now, about the marketing: is very interesting, I think we're going to talk a little bit about the Diamond Producers Association (later), but, you know, I think a lot of people expected it to be the second coming of De Beers and it's going to stimulate demand and there's definitely –look, there's a huge need for it because the industry is traditionally run on a generic campaign for diamonds. So obviously there's a need for it, but I don't think you can ever really get back to what we had with De Beers. We had one big advertiser that really stimulated demand for diamonds. I mean, you look at what's happening with lab created, that's a much smaller sector, but it's making so much more noise. And one of the reasons it's making noise is because they don't expect a big company to come in and market everything. It's all these companies doing it for themselves. And they're buying Facebook ads and they're, you know, putting out press releases. So, they're making a lot of noise on their own. Right? And I think in a way, that's probably a healthier model because there's competition and there's the ability to differentiate yourself.
So, you know, if you think about it, it's amazing that the diamond industry did no advertising, or very little advertising, for ten years. Right? And still, there's still huge, healthy and pretty much growing demand for the product. So obviously, you know, there is a demand out there. People look at the product reasonably favorably despite all the negative publicity. But, yes, I think the industry has to get out and promote itself. I mean, you can't just rely on this tradition always going to be there. You have to go out and promote yourself and respond to negative publicity and be thinking about ways to make your case to the to the public.
Paul Zimnisky: You actually just you mentioned something that kind of reminded me of something you brought up when I did your podcast...but just a quick plug -so JCK, as you mentioned, launched a podcast of their own in March. They actually they have a podcast studio in their building. Rob is based in the new World Trade Center in lower Manhattan. It's a beautiful state of the art building. They literally have their own podcast studio, so it’s really cool, it’s really impressive. And you can find that show on iTunes or on their website, JCK online. Rob is the host. He does a great job. I think there's two episodes up right now, so I highly recommend you check that out.
But when I did your show, I remember bringing up a point that independent jewelers are incentivized to carry lab-created diamonds because, you know, the margins are high right now, but also because it’s an opportunity to carry a product that the largest jewelers don't carry. You know, you can't buy a lab-created diamond at Kay or at Zales or Blue Nile or James Allen, at least yet. But if you're an independent jeweler, many of which are struggling, I think they see maybe lab-created diamonds as a potential lifeline for the business -you know, something new. And everybody's craving something new in this industry, because I think it's been so long since there's been something to get everybody excited about. What are your thoughts on newness? I mean, when's the last time this industry did something that was, like, really exciting? I mean, I guess if you're talking about natural diamonds in particular?
Rob Bates: It's definitely been a while. I mean, there's been a lot of interesting ...you know, there's been some good ideas. But, yes, for I think, for a lot of people, it's price. I mean, you look at a business like Blue Nile or James Allen, these are, for the most part, priced based businesses. Right? And I think there's been a few interesting ideas and a few interesting brands, but really not, not a lot. I mean, nothing's really coming to mind. So, yes, I think it is a matter of doing something exciting and interesting. And we definitely see ...whatever you want to say about some of these companies that there's a lot of creativity there. And De Beers is showing tons of creativity with Lightbox. You know, this whole thing where they drill the stones. I mean, there's ...It's kind of like by going into this new area, it's opened up this huge amount of creativity and thinking in different ways than perhaps people thought before.
So, yeah, people need to think what's new? What are new ways to attract consumers? What do they want? Let's freshen things up. And, you know, I would think only one ...the one brand that I think has done a pretty good job of that is Tiffany. I think they're definitely out there and they're hustling and they've done a lot of new things. And it seems to be working pretty well for them. But most of the industry... It seems very stagnant. And, you know, when I think about -I wrote a blog a little while ago, and one of the things I was thinking about is like, why am I not writing more about natural diamonds? Why do I constantly write about lab-grown diamonds?
And I think one of the reasons is: because I hear from those guys all the time. They're always doing a press release or have a new idea. There's just a lot to write about, and they're out there hustling and promoting themselves and they reach out to me all the time. And, you know, that's really what you have to do. And you look at some of the things like what built Pandora, what built some of these brands, (like) Alex and Ani, the people there really had tons of passion for them. And you feel that in, at least some of these, lab-grown companies that there's a lot of passion there.
Paul Zimnisky: That's true. The lab-created industry is doing a fantastic job from a PR standpoint. I don't think they've been spending that much money marketing, but they've done a great job on social media. They've done a great job getting the media to write ups on them. You're right. I mean, they've done a much better job than the natural industry, I would say, in the last little while with regard to that.
Rob Bates: You know, social media advertising, it's not cheap, those Facebook ads, those Google ads.
Paul Zimnisky: Oh, and just preferential treatment… Google AdWords. It's not cheap.
Rob Bates: It's not cheap. And every time you go on Google, there's four or five of those companies there. All the Google ads and the AdWords and all that stuff that I you know, the targeting-stuff, I always get a lot more from the lab companies than I do (the natural).
Paul Zimnisky: I think part of it is just...you look at the lab-created entrepreneurs and a lot of them have a tech background or they're younger. And I think it kind of ties in well. I mean, they definitely have the experience and know how to really leverage that technology. And that's something that doesn't really get talked about a whole lot. But I think that has a lot to do with it as well. And the natural industry...I would say, if you were to take the average age of the someone in the lab-created industry versus the nature, I'd bet there's a pretty wide separation in age. I bet you that has a lot to do with it.
Rob Bates: Right, and I think also, a lot of these people are being funded. Right? But, (these same people) wouldn't necessarily fund a (traditional) diamond company because they're already (an established) business(/industry). So, they're getting funding and they're able to invest in the businesses where I think, like a lot of the old school diamond companies feel they're (already) going to attract a certain margin and they don't necessarily want to want to jeopardize that (with additional costs).
Paul Zimnisky: It's more like preservation, slow and steady, preserving what you have, you're generating cash, versus lab-created, they have to get to the point where they're profitable and they have venture capital investors to speak to. So, there's almost at that other level of incentive.
But what I wanted to ask you...I kind of think about new product innovation and "newness" and what creates excitement for customers. You look at the success that LeVian had with branding "chocolate diamonds." I'm just wondering...right now, I would say one of the biggest problems with the natural industry is an oversupply of smaller goods. And that's because some of the new mines that came on-stream produce smaller goods. But it's also because recovery technologies have improved; so, smaller diamonds that typically in the past would have gotten put in a tailings pile are now getting recovered. So right now, we have an oversupply of smaller goods. And I'm wondering if designers or manufacturers are going to come in and see value in smaller goods, given that the prices have come down so much in the last couple of years. I wonder if they'll come up with a way to manufacture a new piece of jewelry or kind of take advantage of that? Do you have any ideas of ways the industry can create demand for the smaller diamond categories?
Rob Bates: It's tough because those are the categories that are conceivably jeopardized the most by lab-created. Right? Because especially when you're dealing with small diamonds like that and you're dealing with a whole bunch of them in a in a bracelet or something like that, people don't necessarily...there's not necessarily the differentiation. I don't necessarily have any great ideas, I think that about 10 years ago, or maybe even more, when "Supplier of Choice" was being (considered), I think there was a lot of movement to get established, jewelry companies to hook up with established brands (and) to come up with a lot of different brands. And I think that was an exciting time. And I think that's still an under-explored territory.
Like, how do you get some of these big, well-known fashion brands to do jewelry at attractive price points? I know it's been tried a lot, but I still see potential there. I'm a little curious why it hasn't been done. You know, I don't necessarily have any great ideas. I think at some point, especially with the lab-created, you get a mix of small lab-created for the same price (as natural) diamonds, and in some cases, you'll definitely see that the lab-created looks nicer. And at that level, it's really all about the look. So, I think that's definitely an area that's jeopardized by the by the rise of lab-created. As you mentioned, there's already an oversupply. So, it's going to definitely be a challenging area. And I think that's something that's that the industry is definitely going to have to grapple with. So, you could argue that's a relatively new industry in lot of ways, because for years people didn't even sell those (small) diamonds as gemstones. Yes, I think it's a huge challenge and, you know, I wish I had better ideas, except that I think people need to think in terms of marketing and in terms of the consumer in ways that they don't. People need to think about what does the consumer want and come back from there.
One of the challenges is that with diamonds, your kind of limited to what comes out of the mine, but really you have to think about what does the consumer want and how can I meet those consumer needs. And that is the challenge the industry faces... We're very set on specific ways to sell, but those aren't necessarily consumer ways to sell. And then you get into this kind of downward spiral that we've seen: that it's all based on (the lowest) price.
Paul Zimnisky: I guess I'm wondering if since the market price for those goods has come down so much, I wonder if that in itself would create enough incentive for one of these larger manufacturers to say, "hey, you know, let's come up with an idea for these goods…we can buy them relatively cheaply, and if we can create some kind of product and brand and market it the right way, we (can) kind of create a new segment of demand for this product.” And, it would be nice to see something like that happen.
Then look at the DPA --we're talking about the Diamond Producers Association, the organization (formed to) band together to try to reinstate generic diamond marketing. The question is, could they possibly do something here? Again, find some way of strategically sparking demand for goods in the market that are oversupplied? I think that would that would go a long way.
Rob Bates: And that was the classic, kind of, De Beers formula: they would get a lot of "smalls," i.e. small diamonds, from the mines, then all of a sudden, they would have a campaign about "smalls." Then they would get large diamonds and they'd say "bigger is better." It was kind of marketing what came out of their mines. It was kind of the classic formula.
Paul Zimnisky: Exactly. And, it's like the industry is missing that now, and you can you can feel it. There is this volatility in the different categories of diamonds, and I think that's exactly the reason why.
I wanted to ask you, you look at the DPA and you look at their new campaigns focused on self-purchasing women, and I think it's interesting because I think this market accounts for maybe a third of global diamond demand. But if you look at Japan, I've seen estimates where self-purchasing accounts for 75% to 80% of demand there. I don't know if you've heard those figures, but you think of Japan as probably the most economically developed market I can think of. So, I kind of wonder if the U.S. Is actually headed there too? -And what your thoughts are on that? And, if maybe, the DPA isn't doing enough to kind of preserve the engagement market, maybe that should be the number one priority?
Rob Bates: You know, I think it's... Obviously the engagement market is the backbone. It's still amazingly strong after all these years. And, I think that's something that's very vulnerable to encroachment from lab-grown. I think there is... It's mostly anecdotal evidence, but I do think there is some cannibalization as far as lab-grown, taking over a little bit of the market share from the from the mined diamonds. I mean, I've heard of companies that now 80% of their sales are lab-diamond. And those clearly would be selling natural diamonds if there were not that other product on the market.
So, I think there's definitely been some cannibalization. So, I think obviously you have to kind of protect your base, your strength. It’s kind of like... I know Pandora, this seems to be the issue they're having: Charms are their base, and they're still strong in a way, but do you try to reinvigorate charms and protect your charms or do you go out to other areas?
I think female self-purchase is a great area to focus on. I'm glad the DPA is focusing on it. I think it possibly has a "halo effect" in the empowerment messaging that can get out: the idea that you can buy something and buying a diamond for yourself it’s a form of empowerment. I think that could maybe even help engagement sales, just because with some of the traditional roles being rethought you (can now look at the engagement ring purchase as a form of self-expression, rather than just the man buying something for you). (The engagement ring purchase is now) a form of self-expression in a way. So, yeah, I think it's a growing category. it's important category, it’s not 100% there yet, but I think that it clearly has huge potential.
Don't get me wrong, it's also a huge amount of money to spend on yourself. Like, when you talk about like a thousand-dollar piece, it's a lot. So, it's not necessarily the thing that the average person on the street can necessarily afford -to buy a bunch of diamonds for themselves. But I actually like a lot of what Lightbox is doing as far as female self-purchase, keeping it light and fun, keeping it accessible, and I think that has tremendous promise. We'll just have to see. And, I think Lightbox, you know...it's something you could say, okay, here's lab-diamonds (but) at some point it will create interest in the category that could possibly spread to natural diamonds; at some point when they get more money or get older.
Paul Zimnisky: I think De Beers is certainly kind of seeing that as one of the potential benefits of Lightbox. So, I guess just to be clear, Lightbox is the lab-created diamond jewelry line that De Beers launched, I think it was May 30th they issued a press release. It was covered in The New York Times and they actually launched the product in the fall. But speaking of Lightbox, it's been about a year now, do you think De Beers is satisfied with the results so far?
Rob Bates: They're not backing down from it. I don't know, it's a good question. Somebody told me a while ago that the response was actually better than they'd hoped for, which I think there's definitely an ambivalence from De Beers towards the product. I think it's a long-term play. I went to their factory in Oregon, and it's going to be a huge factory. And you look at this, you think, okay, they're going to be doing more than just producing $500 necklaces. I think the ambition of it goes beyond just what we're seeing right now. It depends on how you really consider what Lightbox was meant to do. I don't think it's just a ploy, I think it’s meant to be a real brand that appeals to real people. (They are) spending a lot of money on advertising. (Its) as well thought out as probably anything that De Beers has done a long time. It's extremely well thought out. I think the marketing is very clever and sharp.
I have to believe that it probably fueled the lab-grown diamond boom that in a certain way probably "legitimized" the product in ways that they probably didn't want. I think they were hoping that it would kind of drive all the prices down to this $800 per carat level, which would (make it) pretty difficult for a lot of the companies, at this point, to make money, if you're selling everything at retail at $800 a carat. And, I think that hasn't necessarily happened because they just don't have that much product, they don’t have the one-carat diamonds at $800 on the site that often, so it hasn’t necessarily affected retail that much.
I heard, though... The talk is that in Hong Kong prices of HPHT, definitely in the smaller sizes, have definitely been dramatically falling. But I think a lot of people attribute that to what's going on in China. Some of the talk you hear about China is that they are really starting to ramp up (HPHT diamond production). I think at some point they could (even) undercut Lightbox. I don't necessarily know if it would be economic for Lightbox to produce in Oregon if things keep progressing the way it is. So, I think it's a very rapidly evolving market.
I think they just thought they needed... Obviously (De Beers was) going to do it at some point. It was something kind of always on the drawing board. And, I think they probably just figured they're going to jump into it now and try to perhaps control the conversation in a way that they haven't been doing before. And, I don't think they're they've been completely successful with that. I mean, I think that the conversation has definitely gotten away from the natural industry in ways that I know that they find themselves a little frustrated by. And, yeah, I don't think they're they've been completely successful with that. I mean, I think that the conversation has definitely gotten away from the natural industry in ways that I know that they find themselves a little frustrated by. But if you think about it, just about every story on lab-grown diamonds contains at least some mention of Lightbox.
And, from that (standpoint) it's a plus because before the natural industry wasn't being heard at all. So now at least they're getting a chance to give their say a little bit. So, I think it's interesting. I know that not everybody at De Beers was 100% on board with it, but it was a nervy, interesting, risky move. And we'll just see how it how it goes. I think for now, the results have probably been pretty mixed in that they've probably helped fuel this boom (in lab-created diamonds). Now would this boom have taken place without Lightbox? It's impossible to say, but it was definitely going that way anyway. This just accelerated it. One of the reasons why this has been a fascinating story for me is that you don't you really don't know how it's going to play out. I mean, I think a lot of people have ideas how it's going to play out, but I don't think anybody knows for sure where this is really going. So, it's been a crazy couple of years with this with this issue. And we'll just have to see, I guess.
Paul Zimnisky: Yeah, I agree with all that sentiment. And, you mentioned the launch of the product, (and how that) kind of created some PR attention and demand for not just Lightbox, but for some of the competing producers as well. I can say some of the lab-created companies I talked to said they saw a definitive boost in demand following the Lightbox launch, but then even maybe more so (after) the announcement in May of last year. And I guess that makes sense, given all of the PR surrounding it. I mean, it was the first-time mass media really covered lab-created diamonds.
But, you know, at the same time, I think it also helped accelerate the price decline of lab-created. Like you mentioned earlier, they just launched a new line of pierced diamonds that are now being offered by Lightbox. -they are essentially drilling a hole in a diamond with a laser and stringing a necklace or a pair of earrings. And of course, that's the kind of thing you would only do with a piece of fashion jewelry. So, I think that makes complete sense regarding the narrative of this product. So, I think it's interesting. It's really strategic. De Beers is so strategic and you kind of think about what they're doing now and what they've done in the past, and I think it makes it kind of hard to bet against them given their given their track record.
But the other thing I wanted to ask you regarding Lightbox, you said the one-carat solitaire items, they're sold out quite regularly on the website -how much of the buying of that item do you think is from consumers and how much is the trade, maybe buying and reselling it given how low the price point is?
Rob Bates: I think it's probably... A lot of it is the trade. You know, from my standpoint, I've only seen it (available on the website) really twice, so you don't really see it that often, so you have to really be on the ball to buy these things. And I assume anybody in the trade who's trying it is probably doing it. I mean, on Twitter today, Edahn Golan, the industry analyst, was saying that he believes that a lot of that demand has been from the trade and possibly drilling a hole in it would dissuade people.
There is a forum, Price Scope, which has a long, long thread about lab-grown diamonds, and one of the people who contributes to it, is seemingly a consumer, I assume a consumer, and she did what De Beers maybe feared, she took it out of the mounting and reset it as her engagement ring. And she's extremely happy with the value she got. She got a much nicer diamond than she ever expected.
Paul Zimnisky: Yeah, GIA said I think they are a VVS (clarity). They said the internal Lightbox insignia might knock it down to a VS, but it's a colorless or near-colorless. So, I mean, that's a very, very high-quality diamond for that price.
Rob Bates: Right. So, you know... De Beers, I think if they wanted to knock the price down, you really have to put out a lot of one-carat $800 diamonds on the market. And that would affect wholesale, it would affect retail. But I don't necessarily think they want to do that because one-carat VS, VVS is kind of like their bread and butter, you know? And do they necessarily want a lot of lab-created at that level out there at such a low price point? So, I think the strategy... I understand the strategy, but I think it's not 100% clear exactly where they're going.
Paul Zimnisky: That's certainly the tricky part of the strategy, what you're saying, it's like how much of the product do they want to get out there versus how much do they want to kind of use the product to leverage their message: that it is a different product from a natural fine diamond jewelry piece. And that's kind of the tricky part that makes maneuvering this whole thing so difficult. But I wanted to say, I see you've just published your editorial on the environmental impact.
Rob Bates: You’re in there too…
Paul Zimnisky: Yeah. The impact on lab-created and carbon emissions. I know you've been working on this for a while, so I just saw it, I can't wait to read it. It can be found on JCK Online. The title is "Just How Eco Friendly Are Lab-created Diamonds?" Could you give maybe a brief synopsis of what you found?
Rob Bates: You know, I think from talking to people, there's pretty much consensus that lab-diamonds are a little bit more eco-friendly. The energy... I mean, they're not necessarily an eco -friendly product, even if they are more eco-friendly product than what's out there. Right? Because they consume tons of energy. The generators have to be on 24 hours a day, so it's not a 100%... You could make the case that it's more eco-friendly than mined diamonds, but to say it's eco-friendly, you really have to go on a case-by-case basis. The energy use in some cases... It's really in the numbers, (and) I got kind of lost in the in the vortex of trying to figure out which number, kilo-hertz or? It really just drove me crazy.
It's like you see one number and you don't what factors into that... It's not necessarily my expertise. So, in some ways, the energy use is basically equal. Because these are high energy processes to grow these diamonds. So, in some cases, the lab and the mined are equal as far as energy use. In some cases, the mined does better and probably in most cases probably the lab does better. But it varies. And I think one of the conclusions I got out of this whole thing is that it's really all about transparency. And, you know, some of the lab companies put out this line that because it's, you know, it's grown, that they're more transparent. But it's not true. I mean, you have to really be a transparent company and to really say, okay, my product is good for the environment. You really should tell people: this is its impact... This is the electricity we use if it's carbon neutral. Here's how we figure that out…
Paul Zimnisky: They want to differentiate themselves with regard to all of these positive attributes, so that should be the first and foremost thing that they advocate.
Rob Bates: And you have to assume that one of the reasons they don't do that is because they feel that the message is strong enough without that. And I think some of the numbers wouldn't necessarily be flattering. Somebody told me that the area... So they're produced, a lot of them, in this area in China, which has tons of factories and because it has tons of factories, it's one of the most polluted areas on earth. Because it's all coal and oil. So, you know, is it an eco-friendlier product? Yes. In a broad way. Yes, it probably is. But you shouldn't necessarily look at these things in a broad way. If you're buying eco-friendly products, you should know how much energy, how much sustainable energy... Like a lot of these are produced without renewable energy (and are produced with) coal.
In a way, I think it's extremely misleading to say, okay, "this is an eco-friendly product" and it's produced with huge amounts of non-renewable energy. Now, you know, the mined diamond industry has tons of issues. And I don't want to sweep them aside, but it also has a positive impact (as) millions of people depend on it. So, in that way, I think the mined diamond industry has a case to make for itself. As somebody who's been in the industry for a while, you (get) influenced by the industry, but when I talk to NGOs, when I talk to environmental activists and professors, I mean, the idea is that because (diamond mining) has such a huge social impact, that is something that is as important as the environmental impact... Obviously, the environment is a huge issue and it's a huge threat to all of us.
And climate change is hugely important. I think that's why this issue is has kind of resonated with a lot of millennials. But you have to think, okay, you have people who really depend on this industry and they're working for a dollar a day. There’s millions of people who depend on this industry, and you have to think, well, what would be the effect of diamond mining... ending? And I think the effects, in a lot of ways, would be calamitous. I mean, even if you look at what happened in some of these coal mining towns, you know... And It's not like I like coal mining or coal power or think that some of these companies are great. I don't. Some of them are terrible. But you look at what happened: you have all these economically depressed towns and problems with drug addiction and some of these things.
So, the idea is how can we... First of all, I think all sectors of the industry have to be made more transparent. But it's like not just looking at these specific numbers and saying, okay, "this might be good for the environment," but, what is more positive for the world overall? And what I feel is more positive is using diamonds as an engine for development in economically depressed nations. (But) I mean, you (also) can't just say: "okay, people depend on this industry and so we have to keep buying diamonds and that's the end of it.” I mean, you do have a moral responsibility to the people who are part of this chain to improve their lot, to provide a livelihood and to make sure that they do these things in safe conditions and that the mining does not hurt the environment. I mean, I think that's all important.
And, I'm not trying to let the diamond mining industry off the hook because I think it needs to be held accountable. People talk about an ecosystem. What happens when a mining company goes into the ecosystem and they disrupt it? In a way, the economy (dependent on mining) in some of these countries is itself an ecosystem. And just like when you disrupt an ecosystem (with) mining, you have a moral responsibility; in some cases, you have an actual corporate responsibility. And, what is the moral responsibility for people who disrupt these economic (mining) ecosystems? And, I think that's the issue here.
So, it's a really complex topic. And I think it's one will definitely be talking about a lot. I do get a little frustrated with some of the messaging from the lab-grown people... I actually had some of that stuff in my article and I was like, it's kind of like a "cheap shot," so I took it out. But, there are people that say things like "we have no environmental or social impact" or somebody said "it has no impact because it's man-made..." (But) plastic is manmade. So, it's just kind of ridiculous. So, you know, it's definitely an evolving thing, and it's something I've been looking at for a while and I'm still working on it and I have a lot of information on it. It's tough. But, you hope that, just like conflict diamonds got a lot of people to think about what the industry was doing and what its moral responsibilities were and what constitutes ethics today, you hope that the pressure and the idea that millennials are turning away from traditional diamonds, you hope that will spur more of a sense of transparency and ethics in the mined diamond sector. But I think the lab-grown sector certainly has a responsibility (too), certainly because they talk a lot about that stuff.
Paul Zimnisky: Yeah, that's one of the main selling points. And then the other thing that comes up, at the end of the day do you think the environmental aspects actually impact customer purchasing decisions or do you think it's really just all about price? That's the other question that comes up. Again, I think it’s kind of fun to talk about it, the media likes talking about it and it kind of makes you feel good to say that you are on board with all the environmental and the social benefits that come from this product. But at the end of the day, is it still just the lower price point that's the primary attractive characteristic?
Rob Bates: I don't think it would be doing as well as it is if it wasn't for the lower price point. Environmental benefits are fine, but I'm not 100% sure that it’s something that can always bring people in -but I think it's definitely something. I can't think of one (lab-diamond) company besides Lightbox, which is owned by De Beers, who doesn't bring it up. So, it's clearly a message that's resonating. You look at all this talk about climate change and the Green New Deal. I mean, people are very scared and very frustrated, they feel we have this huge problem that's getting worse and people want to do something about it. And that kind of marketing appeals to this frustration, like "hey, this is a way to do something and save money."
I think mostly you're saving money, you're not saving the Earth by buying a lab-grown diamond. If I had a billion dollars and I was thinking of ways to improve the environment, to improve the climate, I think getting into lab grown diamonds would be probably way, way, way down on my list. I mean, even if you assume it has environmental benefits... It seems like a very odd way to kind of save the world with lab-grown diamonds. It seems like a part of a pitch in that I think there's a lot of sensitivity about people saying, well, you got a "cheap diamond," you got a "discount diamond." I think (with) the kind of traditional man-is-hero narrative, people don't necessarily want to think, "oh you skimped on your engagement ring." That's why by buying a lab-grown diamond, in a way, it kind of gives certain permission to the buyer to buy it because like, "hey, you're not being cheap, you're helping humanity, you’re not just saving money.”
Paul Zimnisky: It works extremely conveniently for the lab-created industry. And it works perfect. The timing's perfect. The messaging is perfect. But then you start to think about the psychology of a consumer and luxury purchasing, and if it's mostly about the price and say the consumer is looking to spend under $1,000 for an engagement ring, you know, at what point why not just buy a diamond simulant: buy a white sapphire, buy a moissanite, buy even a CZ if it's all about the price? Because the next question is for luxury to be luxury, does it have to be rare and valuable? Because, I mean, if it's all about the price, then it becomes a practical purchase and luxury really isn't practical. That's the point.
Rob Bates: I mean, the luxury mindset is something I've never completely understood. I think people...when talking about millennials in particular, I mean, all the statistics say that they're saddled down with debt. A lot of them are living at home. A lot of them are having trouble making ends meet. So I don't think necessarily saving a lot of money on a diamond because it's lab-grown versus natural is considered taboo. Right? Even though it's not a "luxury item," I think people are okay with that, because if you have huge crushing student loans, you don't necessarily think "I feel so terrible I'm not spending a few extra thousand dollars on my diamond."
You look at the basic sales pitch, that is the most effective sales pitch ever in a way: this is the same item for less. That's why you always take 20% off, 30% off. That's kind of like the basic sales pitch. So, in that way, it's very potent. I think that you're right in that by saying, okay, "don't get a diamond and go for this," you are possibly opening it up to things like moissanite and things like white sapphires and just anything... There's still at this point, no law mandating that everyone gets a diamond engagement ring. So, I think in a way, by getting people to think outside the box, you are perhaps making (lab-diamonds) a little bit vulnerable to some of these other things (i.e. diamond alternatives). But, again, it's really all about money and funding. And I think this idea of lab-created diamonds, the same diamond just produced in a different way, has captured more of the imagination of consumers and funders than some of these other things -which some of them (i.e. diamond alternatives) are perfectly nice and could certainly produce an extremely beautiful engagement ring.
Paul Zimnisky: All right, with that said, thanks so much, Rob. All right, with that said, thanks so much, Rob. Thank you. So Rob can be found at JCKOnline.com. His new JCK podcast, it's called the Jewelry District. It can be found there, it can also be found on iTunes. Follow him on Twitter @RobbatesJCK. Did I miss anything?
Rob Bates: I think that’s it. JCK Online and just this year its celebrating its 150th anniversary. There's not a lot of magazines that have lasted 150 years. So we're very proud of that and we appreciate you reading and you having me on.
Paul Zimnisky: Great, thanks so much, Rob. This was fun.
Podcast outro and disclosure: ♬ Thank you for listening. Please note that the contents of this podcast includes observations and opinions and the information should not be considered investment or financial advice. Consult your investment professional before making any investment decisions. Paul Zimnisky and the guest does not accept culpability for losses and/ or damages arising from the use of this content. Third party use of the content is only permitted with permission. This has been a Paul Zimnisky Diamond Analytics production. More information can be found at www.paulzimnisky.com. At the time of recording Paul Zimnisky held a long equity position in Signet Jewelers, Lucara Diamond Corp, Stornoway Diamond Corp, Mountain Province Diamonds Inc, Diamcor Mining and North Arrow Minerals.