A Diamond Choice 2019

Lab-Grown Diamonds & The Future of the Diamond Industry

This the choicest part of the report that published by International Grown Diamond Association (IDGA), A Diamond Choice 2019, Lab-Grown Diamonds & The Future of The Diamond Industry



Aggressive growth

Challenging supply chain:
The expansion of inventories and new retailers coming into the category pose new challenges for dealers and growers to keep up with demand. In fact, the need for more supply—both rough and polished—was a theme echoed by dealers (who buy from growers, cutters or other dealers and supply jewelry manufacturers and retailers), manufacturers (they create jewelry collections with lab-grown diamonds) and retailers alike.

When asked to list their concerns about lab-grown diamonds going forward, supply and price were the top two replies across the board. Signet Jewelers, the world’s largest retailer of diamond jewelry with more than 2900 stores in the U.S. alone (plus another 650+ in Canada and the U.K.) under well-known names such as Kay Jewelers, Jared and Zales, is expected by many to begin testing with lab-grown diamonds in 2019, although no official announcement has been made.

Other national retailers are likely to follow suit, as indicated by the recent comments made by Bill Koefoed, CFO of online diamond and jewelry retailer Blue Nile (JCK online): “We are a retailer. We sell what customers want to buy. We are evaluating it and looking to see where the market goes. We don’t do any lab-grown diamonds at this point, but it wouldn’t be too complicated for us to pivot there.”

As these large retailers consider embracing lab-grown diamonds and the base of independents continues to grow, further pressure will be applied to an already strained supply chain. New processes and protocols will need to be developed to support increasing capacity in the supply chain.

As it is, there is so much lab-grown diamond jewelry shipping around the world from key manufacturing centers to meet demand that in India’s SEEPZ Zone, its major export area for jewelry, most exported parcels and jewelry packages are inspected by respected diamond grading lab IGI to ensure mined and lab-grown inventories are properly labeled and not mixed.

In Bain & Company’s The Global Diamond Report 2018, lab-grown diamond sales could reach between 10 million and 17 million carats if the current annual growth rate of 15% to 20% continues.

Lab-grown diamonds: hero or villain?
In the short term, the lab-grown diamond industry has supply issues and challenges keeping up with demand. But as long as there is profit in the category, investments will be made, training protocols for highly skilled scientists/engineers will likely be created and technologies improved to alleviate the supply/demand imbalance.

“The lab-grown diamond business has given us a big shot in the arm in our overall diamond sales and allowed us entrée to a number of retailers we were not selling before,” said Marc Geller, of M Geller, a wholesale diamond service company, Chicago, IL Long term, there will by all accounts be significantly reduced supply of mined diamonds.

The Argyle Mine in Australia, the largest mine in the world by volume, is expected to close by 2021. No significant new, commercially viable discoveries have been made and many other existing mines will be nearing their end stages in the coming decade. Exploration is very costly and the expense to bring a mine on stream also requires significant investment.

As mined diamond availability wanes, demand will increase at a premium level for lab-grown diamonds. Those who get in early on the retail side will have a major advantage over latecomer competitors, and brands established or created now will have the opportunity to grab significant market share.

While viewed by many as the villain in the current landscape, as the supply dynamic shifts, lab-grown diamonds may very well turn out to be the hero and savior of the industry. Absent the discovery of several new commercially viable diamond mines, it appears to be the likely scenario.

Market dynamics bode well

For price stabilization:
Despite predictions by many in the mined diamond sector that prices for lab-grown diamonds will decrease as technology and capacity increases, this has not been the case to date. Most retailers interviewed reported that on average prices were stable, with a few saying they’ve gone up since they started with lab-grown diamonds and a few saying they’ve gone down slightly, depending upon when they first entered the category.

While there have been price declines reported for the lab-grown category many of those declines have occured in the smaller, lower-quality goods while the prices for larger, higher-quality diamonds used in bridal have remained stable due to the fact that demand is currently outrunning supply.

However, price remained a concern across the panel of interviewees which included retailers, jewelry manufacturers and dealers. Protecting the price protects the margin, and this is essential for all players at every level of the pipeline.

Prices are likely to stay buoyant as long as supply struggles to keep up with demand, although the current finite supply levels will impede the rate of growth in the industry. Given this dynamic, many expect lab-grown diamond prices to rise in 2019 as the massive demand for consistent, high quality goods challenges the entire pipeline.

Mined diamond cutters have faced the same issues of profitability and margin as jewelry manufacturers and retailers, and lab-grown diamonds represent opportunity for profit for all pipeline participants— from growers to cutters to dealers to jewelry manufacturers to retailers.

In fact, more and more mined diamond cutters are inquiring about and will be buying lab-grown rough diamonds in 2019. They understand the need for separation between their mined and lab-grown diamonds, with many willing to convert one or more of their diamond processing factories to exclusively process lab-grown diamonds.

Price at retail:
The commercial sweet spot for retailers in the U.S. is 1-carat round white lab-grown (G-H/I-J colors in SI clarities). For lab-grown diamonds, retailers are currently paying 60%–65% discount from the RAP pricing index (a B2B industry-accepted pricing construct) while mined diamonds are usually available at 20%–25% discount from the index. Wholesalers/dealers currently pay a 70%–85% discount from the RAP compared to a 30%–50% discount for mined stones.

It’s not hard for retailers to see the attraction and margin potential for lab-grown versus mined diamonds, even while passing on a considerable portion of their savings to consumers.

Consumer selling strategies:
MVI Marketing interviews with a panel of retailers who have had success and are making money with lab-grown diamonds revealed three distinct consumer groups, each of which requires a slightly nuanced version of the lab-grown diamonds story. Retailers report when properly presented, 60%–80% of consumers in the first two groups will purchase lab-grown diamonds.

The key to success is learning which value drivers motivate which group and being able to apply them accordingly with clear explanation and descriptive storytelling. Formal sales training is critical.

Sales training is mission critical:
The story of lab-grown diamonds is not a simple one, and of course much of the success at the sales counter comes down to the associates’ understanding of all its elements and their ability to explain it in a compelling way. Investing in and taking sales training seriously was a common thread among successful retailers.

“Jewelry retailers from all over the country has told us that training of their associates is critical to their success. Since this is a new product, retailers need to both explain the somewhat technical details and romance the product all while the customer is comparing lab-grown to mined diamonds in their mind.” added Marty Hurwitz, CEO MVI Marketing, Austin TX.

Federal Trade Commission (FTC)

Guidelines: a diamond is a diamond:
A diamond is a diamond no matter whether it is grown in a lab or comes out of the ground. That’s essentially the foundation of the new FTC guidelines.

When lab-grown diamonds first began seeing commercial success, the mined diamond industry sought to protect their product by fighting strongly and successfully to convince the FTC to adopt descriptive language that positioned lab-grown diamonds in a less than favorable light compared to mined diamonds.

Many felt that insisting on words like synthetic and lab-created rather than cultured, grown or other more positive descriptors was misleading to consumers, and the FTC agreed, recently publishing revised guidelines that position lab-grown diamonds as the legitimate, genuine diamonds that they are.

The FTC has eliminated the word synthetic and has opened the door to any term that “clearly and conspicuously convey[s] that the product is not a mined stone,” giving retailers and manufacturers much more flexibility to accurately describe their diamonds as real and lab-grown.

Market forces ultimately dictate their own reality, and the guideline revisions appear to reflect the growing acceptance of lab-grown diamonds by consumers as “real” diamonds and are consistent with their attitudes about the product.

“We believe the new FTC Jewelry Guides align with 21st century fact and are critical for consumer clarity. They give mined and lab-grown diamonds equal grounds to market their unique offerings to the customers, giving a legitimate diamond option and the right to choose.” says Richard Garard, Secretary General of the International Grown Diamond Association.

Consumers want to see the goods:
71% of Respondents are at least somewhat likely to ask to see lab-grown given the revised definition of diamond. Bridal jewelry shoppers are even more certain (84%) they will ask to see lab-grown diamonds.

Consumers: lab-grown

Diamonds are not synthetic:
Synthetic, the mined diamond industry’s preferred term for lab-grown diamonds, has been removed from the nomenclature requirements for lab-grown diamonds by the latest FTC guidelines. This term was an attempt to differentiate lab-grown diamonds with a negative label. However, less than 20% of consumers believed a synthetic diamond could be a real diamond, as lab-grown diamonds indeed are.


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