The $80 billion mined-diamond industry is at a tipping point as man-made diamonds are offering consumers a new option. When consumers are given a choice between buying a 1 carat mined diamond for $5,000 or a bigger 1.25 carat lab-grown diamond for the same price, more people are opting for the bigger lab-grown stone. It is virtually identical in quality and composition to the mined diamond, but without the human toll or negative environmental impact of mining operations. This is most especially important to the millennial generation. That is, if they are given the choice at the jewelry counter.
Today the lab-grown diamond industry is estimated by Morgan Stanley to represent less than 1% of the global market for rough diamonds, with sales between $75 to $200 million. But by 2020 it predicts lab-grown diamonds could account for 15% of the gem-quality melee diamond market, defined as less than a half carat in rough form that can be ready for jewelry mounting by using industrial drill bits, saws and sanding equipment, and 7.5% of the larger diamond market.
That disruption is coming to the mined-diamond industry is without dispute—probably sooner than you think. A new study by MVI Marketing found millennial consumers are increasingly interested in lab-grown diamonds, especially premier diamond-engagement rings (a category that targets millennials).
We Can Help You Get Started with Lab-Grown Diamonds
70% of millennials will consider a lab-grown diamond engagement ring
In the survey among 1,000+ American consumers, aged 21-40 years, across all income ranges with half having household incomes of $50,000 or higher, nearly 70% of consumers said “Yes,” they would consider a lab-grown diamond for the center stone in an engagement ring if they were shopping or shopping with someone for an engagement ring. That represents an increase of 13 percentage points in only one year, when 57% said the same.
This is without doubt the biggest takeaway from the study, according to Marty Hurwitz, CEO of MVI Marketing. “Millennials are telling the jewelry industry this is a product they are interested in and will come into the store to look at it. To ignore that opportunity, which is both profitable to the trade and valuable to the consumers, is a huge a mistake. For an industry struggling to get millennials in the door, the answer is right in front of their eyes.”
That there is this high level of millennial interest in lab-grown diamonds is even more astounding since awareness of the category has grown organically without the support of any major industry advertising or marketing to speak of. “Millennials are learning about this product organically on social media without any ads coming to them other than SEO and Google search,” Hurwitz shares and adds, “To my knowledge there are no plans for a broad campaign and it may not be needed because the consumer is driving demand already and will continue to do so as they hear more about it.”
Why millennials demand a choice at the jewelry counter
Among consumers in general, and millennials most specifically, mined-diamonds have a bad reputation for the high human cost and environmental damage that mining operations entail. This generation is fixated on responsible sourcing and manufacturing of the products they buy. Lab-grown diamonds meet that demand, while mined-diamonds fall short.
“Millennials want to know that the products they buy aren’t harming anybody in their production. This is across all consumer products,” Hurwitz says. “That’s why companies are tracing chain of custody and providing transparency of supply chain. There isn’t a product in Whole Foods, Nordstrom or Walmart, for that matter, that isn’t being traced in case someone asks. Millennials are driving this trend.”
Of interest in this study is that millennials are even more concerned about the human toll associated with mined diamonds than they are with the environmental impact, though both concerns are quite high overall.
Lab-grown’s pricing appeal
Millennials are exceedingly responsible consumers, but they are value consumers too. That is another reason why lab-grown diamonds have such a strong appeal. Having the chance to get more for less is what appeals to them most when it comes to lab-grown diamonds. Over three-fourths of millennials surveyed agreed with this statement, “I would consider lab-grown diamonds because I would like to save money on an engagement ring.”
But when given a choice between a larger lab-grown stone for the same amount of money as a mined diamond or the same-sized lab-grown stone for less, they are more likely to say bigger is better. “Lab-grown diamonds have a very attractive value proposition. Jewelers can either position them at a discount or offer the bigger-stone value proposition. They are doing both. But the ones that are offering the choice are selling a growing number of lab-grown engagement rings relative to mined diamonds,” Hurwitz says.
From the consumers point of view, they can see, feel and touch a bigger gemstone in a ring, but positioning the price as 25% less than a mined-diamond is fuzzier. “If you are a retailer and consumer comes in with $5,000 budget and you have both products, you don’t want to reduce their budget. Just let them spend the same amount for a bigger stone,” he advises.
Jewelry retailers are slow to catch on
To date jewelers have been slow to wake up to the potential of lab-grown diamonds in the market, largely because the mined-diamond industry, with its outsized advertising budgets and dogged resistance to seeing their market share erode, have tried to build walls against it. “If this were the fashion industry or any other consumer luxury good, all that would matter for retailers would be what the customers were interested in and whether they could sell it profitably,” he says. “But the jewelry industry is creating barriers to entry not just for new lab-grown players, but for the consumers as well.”
Millennials want the option to see and experience lab-grown diamonds at the jewelry counter, but only about 25% of independent jewelers are taking advantage of the opportunity, Hurwitz shares. He points to independent jewelers, like Rogers and Holland Jewelers, Kesslers Diamonds, Calvin’s Fine Jewelers and Diamonds Inc, that have found lab-grown diamonds are a perfectly compatible and complementary product offering. However, to Hurwitz’s knowledge only one national jeweler, Helzberg Diamonds, has crossed the divide and given their customers the choice of both lab-grown and mined diamonds.
“It is a great opportunity for the independent retailers to differentiate themselves from the majors. It is a great story to tell to millennials,” he says. “And the best part is that in the supply chain, it is good margin for retailers. Mined-diamonds have very thin margins right now, but in lab-grown there is a very good margin.”
Dollars follow demand and demand is there and growing
While the mined-diamond industry sees lab-grown diamonds as a growing competitive threat, retail jewelers should see it only as a great opportunity. The demand for lab-grown diamonds is there and growing. Penetration in the market is low, especially in brick-and-mortar retail. Profit potential is high. No major lab-grown diamond brand has emerged as of yet. The field is wide open. The choice for jewelers is clear: give your customers the choice between lab-grown and mined diamonds.
For the jewelry industry, Hurwitz has one final piece of advice. “We should go where the river is going instead of trying to change the direction of the river.”
Recent Comments