If you had to guess, what would you think the purchasing trend for lab-grown diamonds by US consumers would be? Are they consciously buying an alternative item, or are the goods so small that the purchase is about the jewellery item, and not as much about what is set in it?
It might surprise you to learn that by number of units sold, 32 percent of all the lab-grown diamonds sold in the US weigh 1-1.49 carats, based on data collected from nearly 4,000 specialty jewellery retailer doors in the US by retail metrics research firm NPD. Another 26 percent weigh 0.70-0.89 carats. Representing 58 percent of the total, it would seem that we are not talking small-set goods but more likely centre stones. Considering that a number of these items existed as loose stones in retailers’ inventory, we can conclude that retailers keep them on hand for clients.
Due to a successful marketing effort, consumers are already aware of lab-grown diamonds and it is not unusual for them to walk into a retail outlet asking about them, or for them. Since early 2015, many US retailers who in the past were dead set against lab-grown diamonds, have changed their mind and are now following their clients’ lead.
Market Share Is Growing
During 2015, consumer purchases of lab-grown goods were on a steady growth path. In January 2016, sales by unit shot upwards 230 percent as compared to January 2015. During the first half of 2016, sales increased 80 percent and during July, consumer purchases were double the number of items sold in January 2016. Based on the most recent figures, the upward trend only continued, as the following graph shows.
The sharp rise in sales notwithstanding, however, it is worth paying close attention to the monthly market share trend. During February, May, November and December, diamond sales tend to rise. They are “romantic” holidays (Valentine’s Day, Mother’s Day and the year-end holidays) during which bridal and anniversary jewellery is purchased. However, notice that sales of lab-grown have relatively declined during those periods.
This is an indicator that for buying important jewellery, consumers prefer natural diamonds, they want the real thing and view lab-grown as less romantic. This is clearly a differentiation opportunity that the diamond industry as a whole should grab and deepen the gap between the occasional fashion jewellery purchases and those purchases made for celebratory and significant occasions. In more basic terms – position diamonds as luxury again, while relegating lab-grown to the impulse, seasonal, low cost category item.
Because diamond sales are cyclical and because a rise in sales reflects the period — a rise in December indicates overall holiday demand, not necessarily a peak in interest in lab-grown. From that perspective, it is worth exploring market share to understand how cannibalistic the lab-grown niche is.
In January 2015, sales of lab-grown were less than a quarter of a percent of total loose and mounted diamond sales by US specialty jewellery retailers. From that modest start, relatively more items were purchased by consumers in the following months.
By January 2016, the very modest market share quadrupled and for the first time stood at more than 1 percent. The growth trend continued, and during July 2016, market share of lab-grown reached 1.6 percent. Based on the most recent sales figures, it is reasonable to anticipate market share to double again by the end of this year.
In terms of shape, the breakdown is similar to that of natural diamonds: 76 percent are rounds and 19 percent are princess. The remaining 5 percent of the lab-grown diamonds sold in the US include some cushions and emeralds (2 percent together), and then a few of several other shapes.
A lot can be said about the presence of lab-grown goods in the midstream of the diamond pipeline. Most of it surrounds disclosure, detection and to what degree the traditional diamond pipeline should or should not be involved in the trade of lab-grown diamonds. Most feel that “synthetics” must be blocked at all cost, but clearly, that ship has sailed.
This analysis is based on a presentation given on October 20 at the Bharat Diamond Bourse in Mumbai on behalf of NPD, a retail metrics research firm that is collecting data from US specialty jewellery retailers on actual diamond performance. The presentation included US demand for natural diamonds.