Ian Harebottle is looking for the next Marilyn Monroe. The chief executive officer of London-based Gemfields (GEM:LN), the world’s largest producer of emeralds, says he’s seeking “an A-lister” who can do for the green gems what Monroe did for diamonds when she sang Diamonds Are a Girl’s Best Friend in Gentlemen Prefer Blondes. Monroe’s performance in the 1953 flick added extra sparkle to diamond sales.
Diamonds still dominate the $21 billion precious stone market, accounting for 90 percent of all sales, according to BMO Capital Markets (BMO). But for the first time in decades they have a little competition from the colored also-rans in the gem trade. Rarer than diamonds yet cheaper, emeralds, rubies, and sapphires are gaining favor just as sales for diamonds are beginning to show weakness. Polished diamond prices have fallen for five straight quarters as jewelry buyers in Asia and Europe become more cautious about luxury shopping, according to PolishedPrices.com. Uncut diamond prices are heading for their first annual decline since 2008, according to WWW International Diamond Consultants.
Colored gems’ rising popularity is starting to worry the diamond industry. “During the past three years these other gemstone categories have taken away yet another half percent from our market share,” Moti Ganz, president of the International Diamond Manufacturers Association, said in a speech at the World Diamond Congress on Oct. 15. As a result, colored stones are becoming more valuable. Prices for high-quality emeralds have soared more than tenfold in the past three years, according to Gemfields company filings. Cut rubies have risen in value 63 percent since 2005 and sapphires by 45 percent, according to Gemval, an online gem appraisal site.
The reason for the shift in tastes is multifaceted. Colored stones are still less expensive, a plus for star-struck lovers on a budget during hard times. A 0.9-carat round diamond that’s internally flawless and of rare white color costs about $7,000, according to online retailer Blue Nile (NILE). A round emerald with “excellent clarity” of the same size costs about half as much, according to online vendor AfricaGems.
Some of the interest in colored stones is “celebrity driven,” says Caitlin Mociun, a Brooklyn-based jewelry designer. “One reason might be Kate Middleton having a sapphire engagement ring, or even Beyoncé having a black diamond engagement ring. Those things, especially for a mass market, can definitely drive a trend.” Hollywood personality Jessica Simpson’s engagement ring sported two diamonds, but the ruby in its center got all the press and sparked numerous knockoffs. Halle Berry’s ring featured a 4-carat emerald that several celebrity magazines breathlessly announced came from “closed-down mines in Muzo, Colombia.” At a gem trade show in Hong Kong last year, Russell Shor, an analyst with the Gem Institute of America, immediately noticed the new interest in colored stones. “People were all of a sudden really hot to buy emeralds,” he says.
That may not be an accident. Harebottle, whose company produces about 20 percent of the world’s emeralds, is increasing Gemfields’ marketing budget, trying to exploit fissures in the diamond industry that until recent years was controlled by De Beers. Until the 1940s, the colored-stone market was about equal in size to the diamond industry. Then, in 1947, De Beers coined the slogan “A Diamond Is Forever,” later voted the best of the 20th century by Advertising Age. De Beers funded most of the marketing for the diamond industry through its generic marketing, similar to the dairy industry’s “Got Milk?” campaign. That changed in 2004 when De Beers’s monopoly ended after it pleaded guilty to price fixing in the U.S., concluding a 10-year legal battle. The diamond industry became chaotic and the amount spent on marketing plummeted, with De Beers cutting its ad budget in half, according to Stephen Lussier, the company’s executive director in London. The industry tried to reorganize in 2008 at a meeting in St. Petersburg, Russia, that led to the creation of the International Diamond Board. But members, including Russian state monopoly OAO Alrosa and mining giant Rio Tinto (RIO), failed to come to an agreement over how to fill the advertising void left by De Beers. “Not all people were willing to do their part,” says Lussier. “De Beers can do its part, but it alone is not enough.”
Anish Aggarwal, a partner at consulting firm Gemdax, says the diamond industry has had “four to five years without any real category marketing, and there are some markets that are suffering, such as Japan.” He adds that there’s “a danger of losing some of the cultural imperative.”
Even if Gemfields does find a modern Marilyn Monroe, it’s doubtful the company will ever be able to match De Beers’s old business model, in which a single firm mines, markets, and largely controls wholesale prices. Still, Harebottle has learned from the former monopoly’s experience. The colored-stone industry has traditionally been highly fragmented, divided up among many small, family-owned outfits. By bringing corporate heft to it, Harebottle hopes to boost supplies and raise prices at the same time. He aims to increase Gemfields’ share of the global emerald market to about 30 percent by expanding production at its African emerald and ruby mines. The company already owns 75 percent of the Kagem emerald mine in Zambia, the world’s largest, and controls 75 percent of the Montepuez ruby field in Mozambique.
De Beers still spends hundreds of millions of dollars a year on advertising, according to Lussier. But if Gemfields can demonstrate “clear industry leadership, they will have a chance” to capitalize on the diminished marketing power of diamonds, says Aggarwal of Gemdax.
Harebottle plans to boost his marketing budget to at least $4 million next year, up from just $150,000 in 2009. Next year’s budget will likely contain money for a celebrity endorser. Gemfields currently pays for about 70 percent of global emerald advertising, says Harebottle, but he doesn’t mind bearing the marketing cost for the entire colored- gems industry: “The fact that people free carry, I don’t mind—so long as it benefits us.”