Vin Lee on Lab Grown Diamonds

1. There is no better person to ask this question than Vin Lee - having been in the luxury space, do you think lab-grown diamonds has the potential to make inroads in the luxury industry, jewellers like - do give us your honest opinion.

Thank you for the compliment and the opportunity to participate in this conversation. I believe that the very definition of luxury is contradicted by the existence of lab-grown diamonds. I do not even know how to describe them to people. We maintain one of the largest privately-held jewelry groups in the world. Finlay Fine Jewelers owns and operates 30 brands, several of which have been in the TOP 50 in North America for almost a century. Currently, we have no plans to participate in the marketing and sales of lab-grown diamonds.

This is not a new concept by any stretch of the imagination. The people at Charles & Colvard have been aggressively marketing moissanite since the 1990s through a couple different corporate iterations. Tom Chatham, who I do admire, has run a company that’s been at the forefront of synthetic emeralds for over 80 years now. I would also like to add that John Slocum, a man from my own neighborhood in Michigan, had modest notoriety with the Slocum stone, a synthetic opal he created and sold since the 1970s.

My company has been very aware of this impending phenom for decades now. I have a home in Sarasota, FL the original headquarters for Gemesis, one of the first lab-grown diamond companies now known as Pure Grown Diamonds. About 20 years ago, retired Brigadier General Carter Clark was building this company out of Russian technology. It was a very costly and timely process that produced varying results. When I inquired about quality and volume, we were discounted with a short excuse about limited stone size and yellowing color. They cited that yellow diamonds were sold at a significant premium, so synthetic yellow stones would have a more sought after market.

Years later, I had several conversations with their President, Lisa Bissell who was working on branding in an industry that still didn’t exist. But I will share with you what I said to her. Don’t do it. It will have lasting and devastating effect on millions of people around the world. Coke and Pepsi are now selling smaller cans and bottles for more than their larger counterparts. They are charging more and providing less than they did a decade ago. Diamonds like fine art are perceived as Veblen goods. If you distort that perception people will spend their money in other ways. 

2. Facts and data show that lab-grown diamonds do pose a threat to natural diamonds - there has been a fairly curious audience who are looking at this product, especially in U.S. In Asia, particularly India, the word is that lab-growns will gain demand - what do you believe is happening - should the natural diamond industry be worried?

Yes I do agree that lab-grown diamonds do pose a serious threat to the natural diamond industry. But I don’t see it in the same manner that most speculators are anticipating. I don’t believe it will be an authentic cannibalization of the market. I see that lab-grown diamonds will become an infectious disease to the public that will erode confidence and continue to deteriorate the integrity of a global industry that has been built solely on that integrity for centuries. A romance that convinced people to give up two months salary at a time in their lives when their finances are the weakest.

This is not an opportunity the jewelry industry has been waiting for to increase sales organically. It will ultimately end in a net loss of revenue. And that’s a very dangerous result for an industry of over 20,000 independent retailers in the North American market that are leveraged or memoing a great deal of their inventories. 

Our industry, the diamond industry, is built on relationships, and those relationships are built on communication and trust unlike any other business in the world. The public has been increasingly less trusting of us for decades. Because we sell a magic they need to believe in in order for it to be real. Since the advent of the iPhone, no one really needs a time piece anymore. The watch manufacturers have had to pivot severally to survive. They have had to create a direct relationship with the consumer, tell a story, build trust based on customer service for a product no one needs. 

They don’t court the retailers like they did in the 1970s and 1980s. Fine timepieces are now being sold directly through company owned retailers and the romance is being initiated through social media directly by the very thing that almost rendered their existence obsolete. 

No one needs a diamond. The diamond industry has not yet realized that it has to create that relationship with the consumer at a time when they don’t trust the value in the product. This is not helped by introducing a “fake” but mildly less expensive alternative. You can argue the nomenclature all you want. Outside of the industry jargon, people don’t want to read the asterisk next to their jewelry.

3. Why can't both the markets coexist peacefully without constant conflict - because the LG industry is not going anywhere - so how can they both coexist. 

Unfortunately they do coexist. But they do not honestly represent their own markets or independent share of the same market. Many years ago a handful of companies began marketing a product called clarity-enhanced or fracture-filled diamonds. Producers were taking stones with better than average color and cut but large flaws and laser drilling them to remove those infractions and back filling them with silicone. These stones were offered at ridiculously low prices compared to Rappaport because they couldn’t be rated properly or regulated with any degree of consistency. The problem with these stones was the care of cleaning was different than natural diamonds. Yes they were diamonds, but they had this little asterisk next to them. This is the fatal flaw, to use a pun. 

Buyers of these C/E diamonds would proudly present them to their beloved or betrothed. But they would neglect to share the “handle with care” instructions that went along with what is suppose to be the hardest and strongest material on the planet. Ultimately, thousands of people would find their engagement rings were cracking or damaged through no fault of their own. The gift giver was then forced to either admit the purchase of a lower quality stone or blame the retailer as if they had been swindled in some fashion. Of course, that also did happen which begs another point of loss.

I can tell you that personally I have gone through this when I was very young and just starting out. A close relative came to me for his engagement ring but couldn't afford what his girlfriend was demanding. The C/E broker came in and offered him a selection of stones with the accompanying

"warning" on care. These products destroy relationships. I wish I was being melodramatic, but there are family members that 20 years later still resent me because the buyer didn’t tell his wife the truth about the stone he purchased for her engagement ring. So when the ring wasn't properly cared for, the stone cracked, everyone believed I had swindled them in some fashion. He paid $3800 for a two carat custom-made clarity-enhanced diamond engagement ring at a time when it should have cost him over $20,000 for a natural stone in a custom setting with that quality and color. 

This industry is much more challenging than many others. It is often the second largest purchase a client makes in their lifetime and often the single greatest amount of money they put down on anything in their lives. 

4. Many big natural diamond players, beginning with De Beers, and now manufacturers are entering the lab-grown space - so would you say that they are seeing great value in the product?

I would often tell people at parties about how difficult the diamond industry really is. Offering the example of how I would have to seduce a woman into wanting a large and expensive stone and then wrestler her husband into paying for it. There are easier ways to make 15% on your capital. 

How would a traditional husband go home to his wife and say “Honey, I love you! I bought you a new 2 carat ring for our Anniversary!” “Adding later, if ever, well its not a fake diamond, its real, its just not a mined diamond. I paid a lot for it! I mean not as much as a real diamond, I mean a natural diamond.”

There is no way for the product to honestly enter the mainstream marketplace as people will not be able to distinguish it from a cubic zirconia other than the thousands of dollars they are paying per carat. Not to mention the secondary market will evaporate. 

I have no knowledge of the inner workings or communications over at DeBeers. I do not believe the branding of “Lightbox” has merit. You can pump hundreds of millions of dollars into the marketing, but I see this as eroding the integrity of an ecosystem that needs to be authentic. Creating and marketing synthetic diamonds is the opposite of that.

People thought that the tobacco industry would be destroyed by the creation of vaping products. Big tobacco seeing the flood of this synthetic smoking product, invested billions recently. Bad actors have stepped in with questionable product and now people are dying from the unregulated, masked in a cloud of fake smoke marketplace. It will be no different with the questionable synthetic diamond producers starting to surface. 

5. What according to you is the future of both the industries?

 The problem with your question, is that the client doesn’t know its two different industries, and neither does the retailer. Honestly, I am not sure the producers do either. There is of course a huge multi-billion dollar market for “synthetic” Louis Vuitton and Rolex product in the market. If they know they are fake, People will still buy them and pass them off as real. How does that effect the sales of those companies? I am sure they will tell you that they spend hundreds of millions of dollars annually to shut down all avenues of production and distribution of those goods because it destroys the integrity of the legitimate retailers.

We own a boutique cigar business. Our label is considered TOP 8 luxury cigar in the world but only available through the Beverly Hills Cigar Club, which I also own. The entire process is secure. People understand that when they buy a $100 cigar from the BHCC it is authentic, aged properly, and sourced from the finest tobacco blend of that year.

Can someone else have those cigars made? Copy the label? Certainly, they can get a $1 cigar and sell them out the back of a van for $20 a piece and make a fortune just like those fake Rolexes and Louis Vuitton bags. But you're missing the point. They aren't luxury goods just because they have the same label. And neither are “LG” diamonds.