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The natural diamond industry is facing disruption in every aspect

We work in a unique industry, one that makes it possible for our customers to express and capture their real feelings and emotions, and celebrate achievements in their life. At the same time, the unique nature of diamonds underlies the unique challenges we are facing today.

Key points

• Lab-grown diamonds and natural diamonds are separate products with their own niches in the market

• It is critical for natural diamond companies to differentiate their product and collaborate on marketing initiatives

• Consumers want to know the ‘story’ of their diamond and this offers great potential for natural diamond companies

We are living in the modern world, which is changing and developing lightning fast.

As has been widely noted, the diamond industry has been challenged by disruptions: global financial and economic instability, geopolitics, technological advancement and, of course, the evolving perceptions of the new generation of consumers.

I would like to touch upon some of those in more detail.

Firstly, the current situation in the natural diamond market – this factor was formed early last year, due to overly optimistic expectations of retailers and manufacturers against the backdrop of strong seasonal demand in 2017.

Unfortunately, the next holiday season saw the sales of diamond jewellery stagnate due to the plunge of the US equities market the fourth quarter of 2018, and the breakout of the US-China trade war, which is affecting Chinese jewellery manufacturing.

The second factor relates to the strengthening of Indian banking regulations, with stricter requirements to obtain credit funding, unfortunately, as a result of fraud.

The Indian banking sector is currently undergoing transformation – and this is an important step forward to bring more transparency and financial discipline to the market. However, it will also lead to higher funding costs and will limit access to finance.

The third factor is the structural change of wholesale product purchasing in the US, which is the largest diamond jewellery market.

The sales of polished diamonds haven’t fallen – however, we are seeing the retailers’ approach to purchasing diamond jewellery changing dramatically.

"In the more competitive luxury market, we also must think of reinventing the way we promote and advertise diamonds. That is, because of disruptions, many traditional ways of marketing are no longer effective."

Large retailers seek to minimise their stock through different mechanisms. Thanks to advanced IT systems and high-quality visualisation of jewellery, retailers can offer consumers diamond jewellery that is physically located in other stores or has not yet been purchased by the retailer.

Diamond jewellery retailers generally avoid purchasing high-cost items unless they are confident of a consumer sale.

However, the sales of diamond jewellery remain stable and we expect that the situation will turn around and – though quite painful – consider this crisis to be healthy, as it will help to remedy the current imbalances and inefficiencies in the system.

Marketing in the new era

In the more competitive luxury market, we also must think of reinventing the way we promote and advertise diamonds. That is, because of disruptions, many traditional ways of marketing are no longer effective.

The long overdue re-launch of generic marketing to modern consumers by the Diamond Producers Association (DPA) is an important step.

However we all should contribute to it with our innovative ideas; specific campaigns, regional campaigns, rethinking other ‘4Cs’ and properties of diamonds like provenance and sustainability – there are many examples of how we can all work to find new marketing approaches.

Creation of innovative tracks of promotion is one of the ways to keep up with the realities of the 21st Century.

Long-term thinking

Many people view lab-grown diamonds as another disruptive factor for the global diamond industry.

Though we believe it will not affect our product in the long-term – to eventually find its own niche – it’s crucially important to take action aimed at clear differentiation between diamonds and their man-made analogues.

This has been in the focus of the DPA this year, with work being done together with our long-standing industry partners.

Collaboration in this area is key to success. Failure to ensure differentiation undermines not only the diamond industry, but also the jewellery industry; leading to loss of business in many traditional centres of the world.

A clear challenge also lies in unsubstantiated claims that natural diamonds are not ethical. The DPA commissioned the first-ever report on the impact of diamond mining on regional economies. The report shows the exact opposite of what many people have been told.

"Lab-grown diamonds will not affect our product in the long-term... Yet it’s crucially important to take action aimed at clear differentiation"

Not every mining industry can boast of a net-positive social, economic and environmental impact of $US16 billion annually.

We suggest that the promotion of the ‘Diamonds do good’ story should also be a joint diamond industry effort, not limited to its mining community.

We need united efforts to successfully implement industry initiatives on responsible business practices, protection of diamond equity, and consumer rights.

Here, the reform of industry regulation and self-regulation systems is vital for our product to continue to build a relationship with new consumers.

The success of the current Kimberley Process review cycle, the universal implementation of a renewed system of warranties of the World Diamond Council, and promotion of the updated Code of Practices of the Responsible Jewellery Council are not ‘nice to have’ but ’must have’ issues.

We must embrace this change together.

Consumers want to know more about the diamonds in their jewellery so they can be sure they are of a non-conflict origin, responsibly sourced and benefit the communities where they are mined; that human rights, at every stage of the pipeline, were duly respected and the environment was protected.

And this applies to all sectors of the pipeline – again, not merely being a ‘mining issue’.

The traceability opportunity

Traceability programs are also very important to show consumers the whole journey of the diamond.

For example, our in-house Alrosa Diamond Digital Passport and Digital Certificates allow our customers to get a 100 per cent guaranteed assurance of the origin of the stone – the mine where it was extracted, and where it was polished.

"The diamond industry is facing disruption in almost every aspect of the business – but that is both a challenge and an opportunity for all of us."

With this in mind I assume that the next main disruption in the industry will occur because diamonds will no longer be, if I may put it, a ‘faceless, unknown mass of stones’, but rather each stone will be a unique product, with its own characteristics that were inherently attributed to it by nature.

Previously, only exclusive, special stones were considered to be unique but this concept has now entered the mass segment as well.

You see it every day: everyone wants to know the ‘story’ behind each diamond, not just to buy a single piece of rough or polished diamond.

The diamond industry needs to adapt to this.

Imagine, for example, Alrosa production reports saying that we haven’t just produced 39 million carats of diamonds, but we produced 25 million different stones with 25 million different ‘stories’!

The diamond industry is facing disruption in almost every aspect of the business – but that is both a challenge and an opportunity for all of us.

In order to grasp this opportunity, the industry needs to embrace new realities and accept them rather than trying to walk away from them in the hope that someone else will come and fix the problem.

“If you always do what you always did, you will always get what you always got.”

That’s Albert Einstein’s quote, and this clearly depicts the situation the diamond industry must avoid now, more than ever before.


'The Great Diamond Debate' Contents » 

Don’t blame synthetic diamonds for the natural industry’s woes
Garry Holloway, founder of Melbourne’s Holloway Diamonds
Both sides of the diamond debate should verify their claims
Danielle Max, editor in chief IDEX Online



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Sergey Ivanov

Sergey Ivanov is CEO of Alrosa, a Russian group of companies specialising in the exploration, mining, manufacture, and sale of diamonds. It is the world’s largest diamond producer by volume.

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