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LABORATORY-GROWN DIAMONDS

PHOTO CREDIT: Bas van den Eijkhof on Unsplash.com

DESPITE EFFORTS BY NATURAL DIAMOND SECTOR,
LGD GAINING GENERAL MARKET ACCEPTANCE

 

Once considered a marginal competitor in the jewelry market by its considerably larger natural diamond counterpart, laboratory-grown diamonds are rapidly gaining in popularity among consumers, and even making inroads in the critically important bridal jewelry sector, writes the noted Israeli diamond analyst, Edahn Golan, in a recent article entitled “Lab Grown: All Fears Materialized.”

“Once upon a time the diamond industry either mocked or dismissed lab grown,” Golan wrote. “They called it ‘synthetic’ to degrade it. Some still use the term. And yet, some recognized the potential threat and actively looked to defend natural diamonds’ desirability in consumers’ minds.”

“Despite their efforts, it seems that success has been limited at best,” Golan continued.

The growing traction of laboratory-grown diamonds in the consumer market is best indicated by the rising number of mainstream jewelry retailers who now stock products set with them. This, he suggested, a direct result of consumer demand, driven in price by their considerably more attractive price points, but also in part because they are considered less risky in terms of their environmental footprint.

Quoting research by Tenoris, Golan noted that fewer than 19 percent of U.S.-based independent jewelers sold lab-grown diamonds in January 2020, while about half of specialty retailers now sell LGD jewelry. LGD’s market share is now 7 percent, up from 3 percent in 2020.

“The swift rise in acceptance reflects the fear of missing out,” he wrote. “Retailers, even higher-end jewelers where ‘synthetics’ are unacceptable, want to enjoy some of the income they can generate from this new product.”

RETAILERS ‘WISE UP’ TO LGD’S OFFER

The substantial uptick in LGD demand came during the COVID lockdowns, Golan wrote, with many seeking to spend more on jewelry, but also to buy bigger diamonds. With their lower prices, lab-grown stones became a preferred option.

“Before long, Zoom-weary consumers were buying larger lab-grown diamonds, especially in earrings, he wrote. “Instead of pocketing the difference in price between natural and lab grown, consumers opted to maximize their purchases. That change in perception was a crossing of the Rubicon.”

For retailers, the falling price of lab-grown stones was not a disincentive, but exactly the opposite. For years, the industry has leaned to live with razor-thin margins on diamond product, but lab-grown stones offer more attractive commercial construct.

According to a report by Rapaport’s Avi Krawitz, ass the supply of LGD increased in 2021, wholesale prices declined. In May 2022, 1-carat to 1.2-carat, D to H, VVS to VS lab-grown goods were trading at average discounts of about 92 percent to the Rapaport Price List, compared to around 86 percent at the beginning of 2021. But retailers continue to see strong profit margins of about 47 percent for the same size and quality categories.

In the words of Golan, retailers had wised up. “Realizing that wholesalers’ profits were exceptionally large, they demanded and got lower costs,” he wrote.

AN AMERICAN PHENOMENON

The holy grail of the diamond industry has traditionally been the bridal market, which has anchored it though both times of plenty and times of leans. Irrespective of whether the economy is good or bad, people get hitched up, and when they do diamond are in order, the adage goes.

But what if they buy laboratory-grown stones instead of natural diamonds? It may be already happening. According to data provided by Golan, from just a percentage point or two at the start of the 2020, close to 10 percent of bridal jewelry is now set with LGDs.

“If the American consumer abandons natural diamonds in bridal, the industry will lose a major diamond-buying driver responsible for about half its revenue in the U.S.,” Golan wrote.

But what he evident in the United States is not necessarily relevant across the board, Golan states.

“Lab-grown is very much an American thing,” he stated. “While we think of lab grown as exploding in the consumer market, this is accurate only in the U.S. We see some demand in other English-speaking countries such as Canada and Australia, but not much beyond.”

“In most other countries, lab grown is viewed as not being the genuine thing,” he continued. I”f it wants to expand outside of a single market, it will require a considerable investment to change consumer sentiment. That said, this is not impossible.”