Diamonds go designer
Hearts on Fire pursues a jeweler's dream: creating a branded diamond. Fortune's Bethany McLean reports.
(Fortune Magazine) -- "Hearts of fire, creates love desire, takes you high and higher...." The sounds of the Las Vegas Mass Choir singing the old Earth, Wind & Fire hit spilled out of a ballroom in the Bellagio Hotel in Las Vegas. Inside the darkly lit space, over a thousand people swayed to the music, their hands in the air. An unwitting observer might think he had stumbled into a mega-church or a revival meeting. But actually it was a convention of jewelers.
These particular jewelers, who work for independent mom-and-pop stores around the world, were in town at the invitation of a diamond company called Hearts on Fire. Hearts on Fire sells the World's Most Perfectly Cut Diamond, and it sponsors a three-day Vegas extravaganza that it calls Hearts on Fire University - HOFU, for short.
HOFU's goal is to teach retailers how to convince you and me that when we buy a diamond, anything less than a Hearts on Fire diamond - which retails for 15% to 20% more than a comparable stone from Tiffany - means that we just don't love enough. Glenn Rothman, the CEO of Hearts on Fire, told the cheering jewelers, "Love is the one area of human life that cannot be commoditized."
If you haven't bought a diamond lately, you may not have heard of Hearts on Fire. But the Boston-based company, which Rothman says has posted 30% annual growth in sales over the past 11 years to reach $350 million (at retail) this year, is a very ambitious example of a still-nascent change in the diamond business. Right now you might shop at Tiffany (Charts), or you might buy a stone from your local jeweler, but the stone would be just a diamond - a "generic diamond," Rothman calls it.
That's a problem for jewelers, because as savvy consumers have learned that the value of a diamond is predicated on the four C's - cut, clarity, color, and carat - they have begun to shop on price. As a result, a diamond has become a commodity, albeit a very high-end one, and the margins that jewelers make have plummeted. So the diamond industry is trying what has worked for other consumer products from toilet paper to coffee: creating brands.
Rothman isn't alone in trying to brand a diamond, but he often gets kudos for being early to the trend - and for being a great marketer. Last year Hearts on Fire designed a $6.5 million bra for Victoria's Secret made of more than 2,000 diamonds that together weighed over 800 carats. (Rothman, who swears the model said the bra was comfortable, says he's still waiting for a sheik to buy it.)
In 2006, lifestyle magazine Robb Report cited the launch of Hearts on Fire as a notable event in the history of luxury goods. And certainly there's nothing quite like HOFU, which began in 1997 as a 50-person event in a Chinese-food restaurant in Boston and is today a $2 million-plus shindig for 1,252 jewelers. "Sometimes we're called a cult," Rothman told me before the event began. I'm glad I was forewarned.
HOFU is a direct outgrowth of Rothman's personality, which is a mixture of slick salesmanship and infectious enthusiasm. He began his career by selling Moroccan wallets in Harvard Square in the 1960s. In 1996, Hearts on Fire was born after Rothman underwent what he calls a "mind head transformation" when a diamond cutter in Antwerp showed him a diamond that was cut in a special way.
"I had been buying and selling diamonds for 18 years, but the first word out of my mouth was, 'Wow!'" he says. The stone was an "ideal cut," which was first developed in 1919 by a Belgian engineer named Marcel Tolkowsky to maximize a diamond's brilliance and fire, thereby helping the stone achieve optimal "performance," in modern diamond-industry lingo.
But this particular stone had something else: a "hearts-and-arrows" pattern. When you look at a diamond cut this way through a jeweler's loupe - basically a magnifier - from the bottom, you see eight perfect hearts. When you look from the top, you see eight perfect fire bursts.
That, of course, is the inspiration for the name "Hearts on Fire." Not everyone agrees that the cut is special. If you wander New York's diamond district on 47th Street and ask about Hearts on Fire, you'll hear that it's just another ideal-cut diamond, differentiated only by its marketing.
Charles Rosario, a senior vice-president at Lazare Kaplan, another company that makes an ideal-cut branded diamond, says that even a cubic zirconia can display a hearts-and-arrows pattern, and that the pattern is not a "scientific criterion for brilliance." Some of the disparagement, though, stems from annoyance that Rothman was the one to capitalize on the marketing potential of the hearts-and-arrows pattern.
There is no question that the attendees at HOFU - and their customers - see something special in Hearts on Fire. All the participants were from independent jewelers, because Rothman only does business with them. "Part of selling the diamond is telling the consumer a story," says chief operating officer Mark Israel. Mom-and-pop jewelers, who are fending off national chains like Zales with one hand and the Internet with the other, are desperate for a story they can tell that will differentiate their diamonds.
Every session is packed, with people often sitting on the floor. Hearts on Fire seems to inspire incredible loyalty in its retailers. "It has changed our lives," says Felecia Koerber, who with her husband owns Koerber's Jewelers in New Albany, Ind. Harvey Rovinsky, who owns a chain of upscale New Jersey and Pennsylvania stores called Bernie Robbins, says that he began to carry Hearts on Fire when an assistant brought one in. "He sold it within two hours," says Harvey, still sounding amazed. "I said, 'Whoa!'"
In one session, a customer explains that while most diamonds "are like the ten that everybody turns it up to," Hearts on Fire "is like Spinal Tap: They turn it up to 11."
Rothman, as he'll tell you himself, is more a brand guy than a diamond guy. "The funny thing is that there isn't much about diamonds here," whispered a man camped out next to me in one session. "It's all about selling and marketing."
This year, Hearts on Fire used HOFU to roll out its new advertising campaign. The slogan: "Monogamy to the 100th power." Among the jewelers, who are an outspoken group, the campaign provoked controversy. "It's not sexy," complained Stuart Laing, a jeweler from Scotland. Rothman admits that the reaction was "mixed" but says, "It's about going to the edge and hanging out there together."
HOFU does strip the diamond business of some of its mystique. As in any business, there are statistics - statistics that aren't entirely encouraging. For instance, while 96% of women expect a diamond when they get engaged (good), small chains and independents are losing market share (not good, for this audience). Some 300 to 500 jewelers go out of business each year, partly because of the Internet, which now accounts for over 5% of diamond purchases.
Ken Gassman, an industry analyst who led this session and who says he owns 100 shares of every publicly held jewelry and diamond company in the world, tried to argue that this actually was a positive trend because it could mean more profits for those who survived. "A lot of people say, 'You have the weirdest sense of logic,'" he said.
If you started to forget that HOFU was about diamonds, you could go see Katherine Rosenberg-Pineau, Hearts on Fire's head designer, who held court in a room where Hearts on Fire creations were displayed on purple velvet - Imperial Plum, the company color.
"Once you get a Hearts on Fire diamond, you can't buy anything else," says Rosenberg-Pineau as she shows off jewels ranging from "everyday product" - crosses and hearts that retail for between $790 and $4,500 - to special creations like Hooplas, which are diamond hoops that sell for between $12,500 to $25,000, to a $139,000 diamond cuff, in which the diamonds appear to be floating. There was also a $1 million necklace that you could wear as a lariat, with the diamonds cascading down either your front or your back. "You could start out with Hearts on Fire as a child and stay with it for life," says Rosenberg-Pineau.
Amid the spectacle, you might have missed a session conducted by Brian McHardy, who has been cutting diamonds since the late 1960s, entitled "Crafting a Hearts on Fire Diamond." I was particularly curious about this given the controversy over the hearts-and-arrows pattern - and because all the makers of branded diamonds claim to have a special cut that maximizes the "performance" of the stone.
I came away thinking that while there may not be one particular thing that distinguishes a Hearts on Fire diamond, you do get a beautiful stone cut to an exacting standard. McHardy explained that first, Hearts on Fire turns down 99% of the rough diamonds it is shown, so it starts with a high-quality stone.
"You can't make a silk purse out of a sow's ear," he says. Then, when cutting diamonds, Hearts on Fire uses a loupe that magnifies 100 times instead of the traditional ten times, to make the cuts more precise. McHardy also explained that because cutters are usually paid by weight, they often "swindle" the angles, or compromise them to keep more of the stone. In contrast, Hearts on Fire diamonds are cut strictly for beauty, and so the angles are always precise - even more so than for other hearts-and-arrows diamonds. "The magic of Hearts on Fire patterns is all about physical symmetry," says McHardy.
"There's a consistency that is unequaled in the industry," says Rovinsky of Bernie Robbins, adding, "Is Starbucks just another cup of coffee?"
Of course, the entire diamond industry is a phantasmagoria of marketing. You're paying lots and lots of money for what is essentially compressed glass because you've been told by years of advertising that that's the way to express love. If you believe that paying a little more for a Hearts on Fire diamond expresses even more love, well, what's wrong with that?