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Signet’s Growing Synthetics Problem

Updated: Apr 8

Signet Jewelers is shifting its lab-grown diamond offering toward the fashion jewelry category, mirroring the broader trend taking effect across the industry.


Signet can least afford further infiltration of synthetics to the engagement ring segment, as it claims some 30% of the US bridal jewelry market. Bridal accounted for 43.7% of Signet’s revenue in the fiscal year that ended February 3, 2024, with the remainder split between fashion jewelry, watches, its services division, and other streams which includes diamond sourcing, as reflected in the graph below.

Group revenue fell 9% to $7.17 billion for the year, reflecting the struggles for growth experienced across the trade in 2023. As the largest seller of jewelry in the US, with an estimated 10% overall market share, Signet tends to serve as a bellwether of what’s happening in the broader industry.


Three main themes stood out in its annual earnings report and analyst call on March 20.


The first relates to the idea that the engagement and bridal market is still due for a correction from the Covid downturn. Signet anticipates a boom in engagements in 2024. The theory is that people couldn’t date during the pandemic, so new relationships only started to form once the lockdowns ended. Given a two-to-three-year dating cycle, we should now see a spike in nuptials.


That was supposed to start in the fourth-quarter holiday season, traditionally a popular time for proposals. But that did not transpire as Signet’s bridal sales in North America fell 12% year on year to $902 million in the fourth quarter.


Signet didn’t talk about the “engagement trough” as much this time as it has in previously earnings reports. It may be tempering expectations, though it does expect engagements to increase 5% to 10% in the coming year.


The company can capitalize on a wedding boom, given its market share. But it is being challenged by the heavy discounting environment in which it operates – the second major theme from the report.


“Industry data suggests independent jewelers accelerated their deep discounts in lab-created diamonds and stepped up their discounting for natural diamonds modestly,” CEO Gina Drosos told analysts.


Signet managed to withstand that promotional pressure, she added. The company’s average transaction value slid just 0.6% year on year to $497 during the fourth quarter, while the number of transactions fell 6.7%.


Jewelers are discounting lab grown as wholesale prices fell sharply in 2023 and continue to decline this year. They’re still seeing high margins for synthetics but are reducing prices to reflect their costs. Ultimately, Signet will need to do the same. Given that scenario, the company becomes increasingly vulnerable the more that consumers ask for lab-grown diamond engagement rings.   


Which brings us to the third major theme that Signet is dealing with: finding the right balance of lab grown in both its inventory and its messaging.


Of Signet’s total merchandise sales in fiscal 2024, 12% were of products containing synthetic diamonds, the company reported. Drosos noted that “lab-created” diamonds remains in the teen percentage of overall jewelry sales [in the US], with Signet’s reliance on the product slightly below the average given its strength in bridal.


The company – and independent jewelers – cannot afford for that number to grow. Signet’s earnings report signaled a recognition of that and a change in the company’s messaging on synthetics. It is placing a greater emphasis on the product’s place in the fashion segment, which proved to be a “good strategy” over the holiday season, Drosos added.


That implies the product had entrenched itself in the bridal category previously, as was widely reported in 2021 and 2022.


Signet appears to be refreshing its message on natural diamonds, stressing both the diamonds-do-good story and the value proposition of natural diamonds.


“I think that consumers are becoming more aware that lab-created diamond prices are falling, and so while they might be great for fashion jewelry, there's something very, very rare and individual about a natural diamond,” she said. “And so, we think that is a potential tailwind for natural diamonds in the year ahead.”


Is this a case of too little too late from Signet? And to what extent will the company extend that message to its consumer facing marketing by its various banners, which includes Kay Jewelers, Zales, Jared, Diamonds Direct, Blue Nile and James Allen, among others?


It seems that jewelers are coming to realize their aggressive promotion of lab-grown diamonds was opportunistic for short-term gains. They doubled down on synthetics during the 2021 and 2022 boom years, pushing lab grown in bridal. It was a new product, gave them better margins, and they could up-sale consumers to fill their budgets with a larger, yet comparatively less valuable, stone. 


Signet played its part in that narrative which led to consumer acceptance and expectation about the category – including in bridal. That is going to be difficult to reverse. But reverse that notion is something jewelers must do as they cannot sustain their businesses with a higher percentage of synthetics sales. They need the value, and frankly the values, of the natural diamond product to ensure top-line revenue growth.


Signet must take the lead in readjusting the consumer mindset toward natural diamonds. It hinted at doing so in its earnings call. But it needs to convince consumers rather than analysts.


Perhaps the most telling suggestion that Signet has come to this realization came in the risk disclosures of its annual report. The company cautioned: 


“Lab-created diamonds are a meaningful portion of sales and inventory for Signet and the jewelry industry, and declining costs and retail prices could impact operating results and disappoint consumers,” it stated. “As retail prices of lab-created diamonds decline, consumers who purchased lab-created diamonds at higher prices may become disappointed in the relative value of their purchase which could negatively impact the reputation of Signet and the jewelry industry.”


This is a stunning and important statement. Martin Rapaport, chairman of the Rapaport Group, has been lobbying for such disclosures to be made at the point of sale. Would such a declaration by sales staff swing the consumer back to natural diamonds?


Signet needs to make those disclosures more publicly. It also needs to double down on natural diamonds, the diamonds do good story, the emotional value of a diamond, and its value as an asset purchase. The company’s recent annual report signaled that it may be steering in that direction.


Having played its part in conditioning consumers to believe that lab grown is an acceptable option for that meaningful love engagement ring gift, Signet needs to lead the market in the antidote story that will feature in this fiscal year – that natural diamonds provide the value consumers seek, leave jewelers less vulnerable to discounting, and will help them capitalize on the bridal boom that Signet believes is still coming.


It must do so for its own reputation, and that of the jewelry industry.

Image credit: Signet Jewelers

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