Columnists sometimes do the strangest things, like writing a column about something they know very little, and sometimes nothing, about, tossing some figures to give credence to their writings, and in the process causing damage. One such column appeared a couple of weeks ago in the New York Times titled “When Diamonds Are Dirt Cheap, Will They Still Dazzle?” It raised concerns in Mumbai and Antwerp that “dirt cheap” lab-made diamonds are around the corner and that consumers will no longer be willing to buy full priced natural diamonds.
Diamond folk fear the article will sway consumers from buying diamonds – natural or lab-made – as a luxury item. After all, what’s luxurious about a “dirt cheap” item?
Let’s start from the conclusion: The article is inconsistent, uninformed and the one figure mentioned in it – that “flawless two-carat stones can be had for only $25” – is an imaginary number pulled out of thin air without backing or explanation. Definitely not the kind of researched figure expected from a respected Cornell University economics professor.
Robert H. Frank, the writer of the article, is a an economics professor who has written many economics books, including one titled Passions Within Reason, where he explains how emotions impact decision making even when we understand they are irrational. Something that happens when buying a luxury item, right?
While he understands the passion behind buying a luxury item, Frank misses a lot in his article. He calls lab-made goods replicas (they’re not), he thinks diamonds are scarce because of De Beers’ policy (De Beers is held back only by its ability to mine and the market’s ability to buy goods. The market is demand, not supply driven). He quotes old data about Apollo Diamonds and calls it new technology, he states that only an expert can distinguish CZ from a real diamond and proclaims that lab-made diamonds are identical to mined goods only visually.
It’s okay if an economics professor is not a gemologist or does not have knowledge about minerals. What is not okay is to write in an authoritative voice, in one of the most prestigious newspapers in the world about something he does not seem to know much about. At the very least, he could have done his homework. He didn’t.
The funny thing is that Professor Frank wrote a book in 1999 titled Luxury Fever about the economy of luxury products, and there, too, it is clear that he doesn’t understand the luxury sector. In her excellent column, When the Times doesn’t dazzle, my colleague Michelle Graff debunks most of his assertions, pointing out to retailers that the trade press, which specializes in the industry, serves them better.
Professor Frank compares natural diamonds to fine art. He states that advancements in technology provide the ability to create excellent copies and that it is at times difficult to distinguish real from replica. However, no one will pay $100 million for a copy of a Picasso, no matter how good it is, he states accurately. He misses the mark with his view that lab-made diamonds are copies of natural diamonds (they are not; they are diamond minerals created under different conditions). Nevertheless, if they were, then the same logic should be applied here, too – the original, mined diamonds, will keep carrying a premium that the reproduction does not.
Professor Frank skirts an important point. What will happen with lab-made diamonds when their producing technology improves? The answer is: the same that happens with every technologically driven product – the quality of the product improves and prices decrease. In the case of lab-made diamonds, technological developments will result in larger, high-quality diamonds created for less – and likely sold for less. This does not mean that the price of natural diamonds will be dragged down along with it. It means that differentiation will take place.
In any product category there are high-end, mid-price and low-end versions. There are Patek Philippe watches for hundreds of thousands of dollars, Rolex timepieces for tens of thousands, Seiko watches for a couple of hundred dollars and watches that sell for a few dozen dollars. Each has its space, quality, brand strength and appeal. The same goes for diamonds. As lab-made diamonds gain market share, they’ll create their own niche – not replace the higher niche that naturals hold.
Remember, these are not industrial diamonds or car parts. These are luxury items purchased with passion and emotion! Frank recognizes in his book Passions Within Reason that in those circumstances economic logic is set aside.
As for the $25 Flawless 2-carat diamond that he mentions, Professor Frank is simply not familiar with the economy of the diamond industry. He does not explain how he arrived at the number and that is unfortunate.
On the downside, two other important newspapers, in Britain, The Telegraph and The Guardian, also recently published poorly researched articles about the diamond industry that quoted some less than sparkling sources and, naturally, arrived at wrong conclusions. What they all have in common is that they mislead readers, i.e. consumers.
Conversely, more people follow reports on celebrities than read the New York Times. This means that most people didn’t read or hear about Frank’s article, but all over the world consumers are reading with interest about the diamond engagement ring George Clooney gave his fiancée – a natural, ethically mined, 7-carat emerald-cut diamond set in platinum, flanked by two tapered baguettes, according to reports.
That ring is getting far more traction and will generate plenty of positive diamond PR. My guess is that emerald-cut diamonds are just about to become a lot more popular!