Problems at Signet Jewelers (SIG)
Signet Jewelers (NYSE: SIG — $2.56 billion) is the world’s largest retailer of diamond jewelry with around 2,700 stores under brands including Zales, Kay, and Jared. Signet’s stores are often in malls and generally cater to the low-to-middle-income demographic, especially couples looking for engagement rings. The Bear Cave believes today’s youth and future generations will shift towards lab-grown diamond engagement rings and mined diamonds will be a vestige of the past. The Bear Cave further believes the trend of lab-grown diamonds is accelerating quickly, will cause a strong devaluation in both mined and lab-grown diamond prices, and will cause Signet’s business to suffer significantly.
Lab-grown diamonds are chemically and visually the same as diamonds mined from the ground. They are made by machines compressing pure carbon under immense pressure and heat over a period of weeks, similar to natural diamonds which are made in Earth’s mantle under immense pressure and heat over millions of years.
Many young couples are starting to prefer lab-grown diamond engagement rings because they offer better value and are ethically sourced.
Last week, Ramit Sethi, a popular money guru for younger couples, retweeted a post about lab-grown diamonds and added, “Lab-grown is seen as the default now.”
One of the top replies to the underlying post about lab-grown diamonds said,
“It’s the same thing. It’s kind of crazy that we can grow this stuff in a lab and there are still a bunch of people who are like ‘Nah, give me the diamond mined by child laborers on starvation wages in dangerous conditions. Bonus points if it causes environmental destruction.’”
Another young hedge fund manager, Jacob Rowe, added,
“Anyone who didn’t see this coming hasn’t talked to anyone younger than 35. The argument of ‘Hey I can get you a ring that looks better, is chemically the same, is 1/10 the price, which will save us thousands to spend on Honeymoon/Wedding/House, etc.’ is landing very well.”
Women seem to agree.
Last April, a man tweeted in favor of mined diamonds, and a woman replied,
“Lab-grown diamonds are chemically, physically, and optically identical to natural diamonds, without throwing Congolese children in open-pit mines.”
The original tweet in favor of mined diamonds got 268 likes, and the retweet in favor of lab-grown diamonds got 119,000. The Bear Cave has seen this trend across recent social media posts, with both women and men overwhelmingly favoring lab-grown diamond engagement rings.
Never fear, Signet has a plan. In October, Signet formally announced ‘Worth the Wait’ its new natural diamond advertising campaign “focused on the themes of modern love and evolving relationship dynamics, targeted at soon-to-be-engaged Zillennials.”
Signet added:
“Worth the Wait is the first major activation of the recently announced collaboration between Signet and De Beers to re-introduce the unique attributes of natural diamonds to a new generation of U.S. couples. It comes after months of intensive training for Signet’s 20,000 sales associates to equip them with the deep knowledge to communicate the unique features of natural diamonds to their customers…
Using emotional and authentic storytelling featuring diverse real-world couples, the campaign illustrates the pressures and joys of love as couples grow both as individuals and in their relationships. This journey mirrors the strength and resilience of natural diamonds as they travel from deep in the Earth and are transformed into polished gems to reveal their true beauty.”
Below, Signet’s Zales location in the Hillsdale, California mall:
The diamond market is an insulated industry, with conflicting information muddied by obfuscation and marketing, largely designed to get consumers to pay higher prices for diamonds. As a result, determining the growth and long-term effects of lab-grown diamonds can be difficult for outside observers.
Enter Colin Ferguson, a four-decade veteran of the diamond industry who has worked at its highest levels. Mr. Ferguson recently came out of retirement “to pull back the veil of secrecy and misrepresentation” in the world of diamonds on his podcast: The Global Diamond Broker.