Lab-grown diamonds poised for major growth

The jewelry industry has been buzzing the past two years over lab-grown diamonds. It appears early reports, as forecasted, find lab-grown diamonds to be a bestseller for holiday 2021, and a category poised for major growth in 2022.

As the market awaits final post holiday retail sales results, the banner headline at the start of the New Year for Rapaport Diamond Report, “Lab-Grown Drives ‘Phenomenal’ Holiday Sales,” will likely bear out for jewelry retailers, large and small, who carry the product. The report sampled U.S. independent jewelers, who describe lab-grown diamond jewelry to be “the outstanding performer” that boosted seasonal sales, as consumers sought larger stones at lower prices. They also find consumers undeterred from buying lab-grown diamonds, even after being told their resale value could not be guaranteed and might decline.

This sentiment has come up in recent consumer surveys in other markets like China and India, and most keenly among younger consumers, who do not view diamonds as a store of value like they do gold.

Bigger For Money, Major Driver

Studies in multiple markets worldwide reveal a real disconnect between the budget consumers have to spend on an engagement ring and the size of the diamond center they desire. The lesson learned: consumers, especially Generations Y and Z, want affordable bigger diamonds.

Few people consider anything less than 1 carat an ideal carat weight for an engagement ring center stone, as revealed in a study conducted last June by Jean Dousset, owner of his namesake fine jewelry and engagement ring brand, and descendant of Louis Cartier. Of the 400 U.S. jewelry consumers surveyed, 65% identify 1 to 3 carats as their ideal carat weight. Nearly half (49%) say their engagement ring budget is below $10,000; and 46% find lab-grown diamonds appealing for their lower prices compared to natural diamonds.

“For most consumers, it comes down to size and quality. They have a budget, they have aspirations, they want a certain look, and when compared to a mined stone, the lab-grown diamond gives them that option, and retailers are able to provide that choice,” says Cora Lee Colaizzi, director of marketing and catalogs and senior merchandiser for Quality Gold. The Fairfield, Ohio manufacturer carries both natural and lab-created stones. “Even five years ago the market would have never thought lab-grown diamonds would be where they are today.”

Regarding resale value, for which jewelers are concerned, Colaizzi says the long-term value of lab-grown diamonds has yet to be settled. “There is a value. What the future holds, no one can predict. It’s not an easy discussion, because of the unknowns, and the pros and cons should continue to be addressed, so that consumers feel educated.”

Recent diamond market analysis by Bain & Company cites the retail price of a 1-carat, G color, VS-clarity lab-created diamond fell to only 35% of an equivalent mined diamond in 2020; in 2019 and 2018 this figure was 50%, and in 2017 it was 65%. Prices have stabilized and will continue to as overseas markets and luxury brands test the waters, says Marty Hurwitz, CEO MVI Marketing, who has been tracking lab-grown diamonds in the trade since 2004.

Diamond industry analyst Paul Zimnisky finds: “When analyzing the wholesale and retail prices of unbranded man-made and natural diamonds, the retail gross margin of man-made diamonds in popular carat-sizes is as much as 1.8 times that of natural diamonds.” Retailers are doing everything to protect their margin.

“Its Real” is Pivotal

It has been more of a marathon than a sprint to get here. Consumer awareness of lab-grown diamonds in the U.S. market has risen from 9% percent in 2010 to 80% in 2020, with a dramatic 22% increase from 51% awareness in 2018, finds MVI Marketing research. “Critical mass of consumer interest is converging, with increasing acceptance of lab-grown diamonds by retailers,” says Hurwitz, who notes that independent jewelers and jewelry chains are the leading retail channels in the lab-grown diamond category today. “This will continue to propel growth for years to come.”

Due to client demand, GN Diamond began selling lab-grown diamonds last November. “Our customers were so excited that GN finally went into this segment and that we found one of the strongest players that produced the brightest rough grown lab,” said Asaf Herskovitz, CEO GN Diamond. Focusing on quality, GN knows there are wide variations of lab created diamonds and chose a partner that “uses the whitest and brightest rough to produce the whitest and brightest lab grown diamonds,” says Asaf.

A game-changer that elevated the acceptance of lab-grown diamonds in the jewelry trade was the declaration by the Federal Trade Commission in 2018 that a diamond is a diamond, says Colaizzi. That’s when big companies like De Beers and Signet jumped in the market, providing further validation for the product. Last summer, Pandora announced it would be using only lab-grown diamonds not natural-mined in its jewelry. With 6,700 points of sale in more than 100 countries, Pandora is likely the largest jewelry company in the world to enter the lab-grown diamond space, as it takes its latest collection global in 2022.

Lab-grown diamonds represent nearly 5% of the specialty diamond jewelry market in the U.S., a figure that is up 34% from 2020, estimates Edahn Golan, industry analyst and founder of Diamond Research & Data.

“The conversation with jewelers is no longer what are lab-grown diamonds and are they real, but how do we buy the best ones,” Colaizzi describes, finding diamond cut grade more important. She notes that retailers are purchasing a considerable amount of loose lab-grown diamonds to use in their own custom designs, but even more are asking for finished jewelry lines set with synthetic diamonds and lab-created color stones. “Retailers would not be doing that if consumers were not asking for it.”

Sustainability Remains Important

While it’s not the main draw for consumers to lab-grown diamonds, sustainability is a not-too-distant second to getting a bigger, better diamond for the money. Multiple studies find consumers, especially Generations Y and Z, care that sustainable, ethical and transparent practices are followed to bring products to market, and would pay more for them if they were.

Consumers overwhelmingly feel sustainability in a jewelry purchase is very important, according to a survey of over 1,000 U.S. jewelry consumers by The Plumb Club in 2021. Twenty percent of respondents rated it a 10, most important that their jewelry be responsibly sourced, with the average a 6.5 on a scale of 1 to 10. Nearly three quarters (72%) said they would be willing to pay a moderate to great deal more for a piece of jewelry that was sustainably sourced.

Hoover & Strong of Chesterfield, Virginia added in 2018 lab-grown diamonds to its Harmony brand of responsibly sourced diamonds and gems and 100% recycled metals, which it launched in 2008.

“We sell more lab-grown diamonds than we do natural-mined diamonds,” finds Torry Hoover, president of the company. “Our lab-grown diamonds fit right in with our Harmony brand. We carry sizes from .25 to 3 carats, and melee is just starting to come into play.”

HarmonyMade® lab-grown diamonds are sourced from two main producers in the U.S., and come with certifications like GIA, IGI and GCAL reports. Hoover says H&S is working toward distinguishing lab-grown diamonds certified by SCS Global Services as “Climate Neutral” that could be offered as a true sustainable alternative to natural diamonds.

Expectations for Growth

“After five years in the market, lab-grown diamonds are used across the board,” says Harold Dupuy, vice president of strategic analysis for Stuller in Lafayette, Louisiana, which carries both natural-mined and lab-created diamonds. The styles most popular are those that people want a bigger look for the money, like engagement rings and studs, solitaire pendants and line bracelets.

Dupuy expects continued double-digit growth for lab-grown diamonds in 2022, as Stuller has seen for the past six years.

At GN Diamond, the segment is “growing at high double digits month after month,” says Herskovitz. “I do not believe it will take over the natural demand, which has been extremely high,  but it will be a strong sector and jewelers who sell both will grow their sales.”

In its long-term outlook for the diamond industry, Bain & Company expects lab-grown diamonds to be within 5% to 15% of the total global polished diamond market by 2030, gleaning its insights from the lab-grown and natural sapphires market. Bain estimates that global lab-grown diamond production reached between 6 and 7 million carats in 2020, with 80% sold in the U.S.

The global lab-grown diamond market is valued to be about $19 billion in 2020, cites Allied Market Research, projecting it will reach nearly $50 billion by 2030, registering a 9.4% CAGR through the end of the decade.

Surveys suggest that only half of U.S. jewelers are carrying lab-grown diamonds, says Dupuy, so there is a strong upside to consider adding the category. He cites a significant portion of the retailers who don’t stock lab-grown diamonds, as accommodating consumer inquires with memo inventory to make the sale.

Hurwitz says that while that may currently work, he does not see it as sustainable, as consumers demand faster turnaround time, and major retailers, who are stocking the product, are projecting their needs and locking into future production. “Independents will have to buy inventory and possess it.”

Although synthetic diamonds are created in a lab, they are not necessarily easy or cheap to grow. In order for lab-grown diamonds to reach 15% of the diamond market, Hurwitz says that an enormous amount of stones would need to be produced, and supply is currently not keeping up with demand.

Among the challenges the industry faces is a shortage of scientists who can master the technology to grow diamonds of consistent size and quality, and scale production, says Hurwitz. Also, the same technology used to make components for diamond growing chambers is used in semi-conductors, which are in high demand, as this industry was hard hit by the pandemic.

In LGD Business

Dupuy encourages all jewelers to educate themselves about lab-grown diamonds whether they carry the product or not, as there is a lot of misinformation in the market. “This material is not a CZ or a moissanite, it is diamond; only the growth method varies.”

Jewelers should be able to explain lab-grown and natural diamonds in an objective manner without personal bias, advocates Dupuy, and present the product as a consumer choice. “Refrain from any ‘eco-friendly’ justification (not proven) and avoid comparing lab-grown diamond’s future value to its natural counterpart, as they are two separate and distinct products and markets.”

Dupuy sees it as imperative for all jewelers to research and acquire a screening device to separate natural diamonds from lab-grown. “Your reputation depends on the proper disclosure of the goods you are selling. Even jewelers who say they are not in the lab-grown diamond business are fooling themselves. You may not carry lab-grown diamonds, but if you’re in the jewelry business today, you’re in the lab-grown diamond business.”

The Natural Diamond Council’s ASSURE project is a good resource that evaluates over 30 screening devices (www.naturaldiamonds.com/council/assure-diamond-verification/), cites Dupuy.