Pandora’s Box

Pandora jewelry group (Pandora A/S) announced the start of sales of the Pandora Brilliance collection. From May 6, 2021, Pandora Brilliance jewelry are available in the UK, and by 2022, the collection will be sold in all key markets around the world. The main feature of the Pandora Brilliance collection is using the exclusively synthetic diamonds, moreover, Pandora has declared its ultimate refuse to use natural resources in its jewelry for environmental and ethical considerations.

Pandora is one of the world leaders in the jewelry market and its goods are sold in 100 countries, the number of outlets is over 7,000, the number of employees is 26,000. Pandora is listed at the Nasdaq Stock Exchange in Copenhagen (PNDORA.CO) with its market capitalization of over €75 bn. The ultimate refuse of one of the top companies to use natural diamonds may mean the beginning of really revolutionary changes in the global diamond market and they require due and detailed consideration.

According to the Pandora’s marketers, the benefits of synthetic diamonds are that “Every diamond in the Pandora Brilliance collection is a sustainably lab-created diamond. This means that we know the origin of every diamond, that they have achieved CarbonNeutral® product certification in accordance with the CarbonNeutral Protocol, a leading global framework for carbon neutrality, and that they have been responsibly sourced in accordance with international human rights and labor standards.” (https://pandoragroup.com).

And since there is a statement in the next page of the company’s official website that “going forward, mined diamonds will no longer be used in Pandora’s products”, the consumers may think that mined diamonds are not doing well as for the environmental and human rights and labor rights standards. As for the CarbonNeutral® product certification, this is just a PR masterpiece! Indeed, there was such an incredible “study” carried out by Trucost ESG Analysis commissioned by the Diamond Producers Association (DPA) when the diamond synthetics manufacturers were “accused” of some prohibitive CO2 emissions - well, the answer arrived on time. This round in the ecological ring was completely lost by those who are for natural diamonds. They were knocked down.

Ten years ago, we warned that the fight would be tough and that the “melee” sector, for example, would be hit hard by a synthetic competitor. And what did we hear in response? “The markets will not overlap! The synthetics will occupy their own specific niche! The synthetics are for the fashion jewelry! True love cannot be synthetic!”, etc. And we also said that the competition with the synthetics in the ecological field is futile and dangerous. However, the industry stakeholders had turned a deaf ear as they were preparing a powerful fighter - DPA/NDC - and, finally, they pushed this “miracle” into the ecological ring. A weakling was fighting against a heavyweight puncher. And what niche will the natural diamonds occupy in the goods of one of the leading jewelry market players? Nil or Zero? Which do you like better?

Why did Pandora take such a radical step? Let’s set aside the arguments about the environmental friendliness and ethics of the synthetic diamonds - this is actually not a reason but a tool to create an information “umbrella” that allows knocking out a “natural diamond” competitor from the market. And the real reason was quite frankly explained by Alexander Lacik, CEO of Pandora, in his interview with Bloomberg, “Pandora also emphasized price as a consideration behind its decision. Lab-made stones cost about a third of mined ones and the switch will make diamond jewelry accessible to more consumers”. (https://www.bloomberg.com).

Let’s dwell on this theme. Really, the synthetic diamonds of similar quality and weight range typical of the Pandora jewelry (0.15-1.0 carats) are 50-70% cheaper today than their natural analogues. But the thing is that Pandora is a vertically integrated company, so, the jewelry designing, manufacturing, distribution, and marketing are concentrated in one holding. Except for polished diamonds - to get these “components,” it was necessary to contact the diamond dealers and, accordingly, to share the margin with them. But now, this is not required as the Pandora synthetics will be manufactured at its enterprises - what they need and in quantities they need. Besides, one can also get tax preferences for the CarbonNeutral® product certificate. And this circumstance coupled with the fast development of synthesis technologies can give a brilliant effect because for end consumers, the Pandora synthetic diamonds will cost 2/3 less than their natural analogues but their production cost will be extremely low.

If the Pandora approach succeeds, the temptation for vertically integrated jewelry brands to join this “revolution” will be irresistible. Pandora is a public company, and the success (or failure) of the Pandora Brilliance program will be easy to track. The global start of the Pandora Brilliance program is scheduled for 2022, it is easy to predict that the fight for the market between the synthetics and natural diamonds will sharply escalate by 2022. It is obvious that it is ridiculous to say that the synthetics will occupy a “specific niche” and that the markets “will not overlap”. The “niche” is right here, before your eyes, and it includes all the stones of up to 1 carat. Unfortunately, this “niche” can expand by improving the synthesis technologies and reducing their cost. See the Pandora website, an apologia for synthetic diamonds. It is an implicit (but very effective) way to get consumers to make comparisons and make the right choice. So, the slogan launched by Pandora “Diamonds are not only forever, but for everyone” sounds obviously sarcastic. The synthetics can push everything that is up to 1 carat out from the market or, in other words, everything that is made from 80% of rough diamonds mined by ALROSA.

When Pandora opened her box, Death burst out. Pandora got frightened and jammed the top of the box down, and Hope remained in the box. Whose Death and whose Hope? It seems that we will find out soon.

Sergey Goryainov, Rough&Polished