Diamond dilemma: Where next for De Beers?

This article is part of our Vogue Business Membership package. To enjoy unlimited access to Member-only reporting and insights, our NFT Tracker, Beauty Trend Tracker and TikTok Trend Tracker, weekly Technology, Beauty and Sustainability Edits and exclusive event invitations, sign up for Membership here. Are diamonds still forever? Over the past few weeks, turmoil around the ownership of diamond giant De Beers has grabbed more headlines than any of the sparkling diamonds being presented during the current high jewellery season. The media attention is understandable, considering De Beers is a bellwether of the diamond industry — and what happens to the company has repercussions across the entire jewellery landscape. British mining company Anglo American announced on 14 May that it will sell or demerge its 85 per cent stake in De Beers. The decision was shared shortly after Anglo American had rejected a final £34 billion bid from Australia’s BHP. The drama escalated on 31 May when De Beers Group CEO Al Cook announced a new strategic direction at a breakfast event during Couture, a trade fair in Las Vegas. De Beers will suspend the production of laboratory-grown diamonds for its Lightbox brand, which will continue operating with existing stock. It’s planning to start manufacturing and selling natural polished diamonds as well as rough diamonds, and will implement a strategy titled ‘Origins’ to reinvigorate the marketing of its natural stones. The change in direction raises fundamental questions about the future of De Beers as a company, the market for natural diamonds in general, and the likely impact on luxury groups. The move comes at a time when lab-grown diamonds are making significant inroads in jewellery, aspirational consumers are cutting back on discretionary spending, and brands are ploughing more resources into high jewellery. Now, with a major emphasis on its new marketing strategy, will De Beers seek a tie-up with a luxury conglomerate that can help it revamp the diamond dream? Or could a luxury group spot an opportunity to add the hallowed, historic De Beers to its portfolio? De Beers is underperforming on the financial front. Macroeconomic headwinds have darkened the horizon for a diamond giant that still controls around a third of global diamond supply. In the fiscal year 2023, De Beers Group’s revenues plummeted to $4.3 billion, compared to $6.6 billion in 2022 — a figure in line with 2019 pre-Covid revenues of $4.6 billion. However, the average realised price for De Beers diamonds decreased by 25 per cent to $147 per carat. The figure was previously $197 per carat in 2022 and $171 per carat in 2018. De Beers ascribes this to the significant proportion of lower value rough diamonds being sold. Advances in laboratory-grown diamonds in jewellery further complicate the picture. At this year’s Met Gala, for example, lab-grown diamond specialist Vrai debuted its partnership with Stella McCartney. “Cara Delevingne wore the most sustainable look on the red carpet, a custom-made piece with over 500 carats of hand-set Vrai-created diamonds,” says Martin Roscheisen, founder and CEO of Diamond Foundry, parent company of Vrai. Vrai has also collaborated with Givenchy, while Prada has previously used lab-grown diamonds from stone supplier Snow; other LVMH-owned houses experimenting with manufactured diamonds are Fred jewellery and Tag Heuer. According to a study by Tenoris, Madestones and Bernstein, sales of loose, lab-grown diamonds in the US between January 2021 and September 2023 increased from 20 per cent to over 50 per cent, surpassing sales of natural diamonds, which plummeted from 80 per cent to lower than 50 per cent. “At the risk of stating the obvious, lab-grown diamonds are potentially very bad news for diamond miners,” the report states. In an interview with Vogue Business, Cook of De Beers says, “It is vital that we invest in retail, marketing and technology, just as we invest in mining.” A priority is to reach out to the younger generation, never exposed to a blockbuster campaign such as the celebrated ‘A Diamond is Forever’, launched by De Beers back in 1947 and famously credited with creating the diamond myth by associating the gems with engagement rings and eternal love. Cook is confident that the new generation can warm to De Beers diamonds. “Demand growth for branded diamond jewellery has significantly outpaced that for diamond jewellery as a whole in recent years — however, just as importantly, this trend is particularly pronounced for younger generations. Only 30 per cent of the jewellery market is branded, but among Gen Z, brands represent 70 per cent of purchases, so we strongly expect that demand for brands will continue to grow. With the iconic De Beers jewellers house set for exciting expansion, we see great opportunities ahead.” What else could help restore the sparkle of natural diamonds? Perhaps a partnership with a luxury group experienced in selling well-crafted goods at multiple times their cost and imbuing them with the allure of exclusivity through expertly executed marketing. De Beers could be a prized partner for a luxury group to strengthen its vertical integration strategy, or even help deliver further transparency on the origins of such stones. “De Beers is a unique asset as it’s not a mining company and it’s not a luxury company. I would describe it as a hybrid between the two, and both are very different businesses,” diamond analyst Paul Zimnisky says. “It needs someone that really believes that the diamond business has a long runway ahead with growth potential. I believe it does — it has been a very resilient industry, but investment is required.” De Beers’s future ownership Would it make sense for a luxury group to buy De Beers? “The short answer is no,” says Erwan Rambourg, global head of consumer and retail research at HSBC. “LVMH ended its joint venture with De Beers Jewellers [a De Beers-owned jewellery brand]. It tried for over 15 years to make it work, but it didn’t. Richemont just bought Buccellati and Vhernier — it has other priorities. And the mining part of De Beers, which is the largest, would not make sense for any group.” Mining is a capital-intensive business that involves negotiations with governmental institutions where the mines are located. In the case of De Beers, the government of Botswana has a 15 per cent stake in the company. While some analysts consider diamond mines’ dwindling production a threat, Cook sees it as an opportunity. “The Origins strategy is underpinned by a compelling outlook for natural diamonds — where global supply is gradually declining, making diamonds even more rare; where consumers in key regions are becoming more affluent; and where consumers are increasingly differentiating between natural diamonds and lab-grown diamonds,” he says. Diamond consultant Avi Krawitz echoes Rambourg’s reservations, but is more open to change. “LVMH has evolved since then,” Krawitz says, referring to the previous joint venture. “LVMH might be the only luxury jewellery group that would have some interest in De Beers, given its appetite for iconic brands. Tying up De Beers in the same portfolio as Tiffany could bring some synergies for both.” Cook says he’s not worried. “De Beers has had many ownership structures over the past century, so we are confident in our future whatever the ownership structure,” he says. The next episode of the De Beers story has yet to unfold. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: High-ticket watches are booming as women and Gen Z shell out How philanthropy became big business for luxury Leonardo DiCaprio invests in circular watch startup, sending signal to the industry

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