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Desire for Bigger Bling Drives Laboratory-Grown Diamond Sales

Size is the selling point; FTC won’t allow broad “green claims” about their origins.

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IN RESPONSE TO
 INSTORE’s Big Survey last fall, 26 percent of retailers surveyed said they were “excited” about laboratory-grown diamonds, 28 percent said they were “scared,” and 45 percent were “meh” or on the fence.

According to The Knot 2019 Jewelry & Engagement Study, 15 percent of to-be-weds said it’s important to have their center stone be a manmade diamond (i.e., manufactured in a laboratory), while 42 percent said it is important to have a natural diamond.

This year, retailers who sell laboratory-grown diamonds report that a desire for bigger bling without a larger budget is driving sales in lab-grown stones of 2 carats or more. “In general, we are seeing a lot of demand for 2- and 3-carat goods for a crowd that is less affected financially by the COVID-19 situation, and they are squeezing retailers for discounts,” whether in laboratory or natural diamonds, says diamond industry analyst Edahn Golan.

Nationally, the average price of lab-grown engagement rings was $2,980 in May, which is fairly high considering that May wasn’t a good month at all, says Golan. “So, in general, we’re looking at a price that is very similar to the average natural diamond sale at about $3,200 to $3,500,” he says.

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“What we’re finding is that regardless of what happens with the market in terms of cost or demand, retailers are doing everything to protect their margins,” Golan says. “There is a big cost difference between loose lab-grown diamonds and loose natural diamonds, so what we’re seeing here is that consumers often stick to their budget and buy much larger lab-grown stones. “ Anecdotal reports from retailers support that trend. “To my surprise, lab-grown diamonds took off the week we put them in,” said Alan Perry of Perry’s

Emporium in Wilmington, NC, in a January Brain Squad survey. “Larger stones — 1-carat and up — and a 55 percent gross margin. No ads, just showed them and bam! Times they are a-changing.”

Since Jonathan McCoy reopened McCoy Jeweler in Dubuque, IA, in May, bigger continues to be better for his shoppers. “What we have seen, because we are a heavy lab-grown bridal shop, is everything keeps getting bigger,” he says. “If the budget was $8,000 for a ring, it’s now a 2-carat in lab-grown. We’re seeing the size in stone dramatically increase. Our samples had been three-quarters to 1 carat, and now we’re moving to 2- and 3-carat lab-grown samples.”

For Chuck Kuba’s inventory at Iowa Diamond in Des Moines, too, the major shift has been in lab-grown diamonds. “We sell three lab-grown diamonds to each natural diamond we sell. Our clients’ average budget is $7,500, and they want 1-carat and above center stones.”

Kuba asks clients if they want a diamond that is “laboratory or volcanically created,” and he stays neutral when explaining the options.

“They spend the same amount of money, but the difference is they get a bigger stone,” Kuba says. “With naturally occurring stones, we do what just about everybody else does. You get 100 percent value on trade-in if you’ll spend once again as much on return. With laboratory-grown diamonds, we say literally there is no way to determine the monetary value, and so if they ever want to trade it in, the trade-in value will be determined at the time of the trade-in.

“I have always said, ‘Do not buy a diamond as part of your investment portfolio. It’s an investment in your relationship. Because they last forever.’ We do very well with the lab-grown diamonds, and I know that curls the hair on some people. They don’t want to come to grips with it, but I think if we didn’t sell them, we’d be out of business. Clients are spending the same amount and getting a 30 to 40 percent bigger diamond for it.”

Typically, shoppers begin researching diamonds online, searching sites like Blue Nile and James Allen, Golan says. The online search process begins with the diamond, then the shank, etc., but inevitably leads to questions consumers would rather have answered by their local jeweler. “At some point, you have a lot of information in hand, and you go to the store to see if there is a visual difference between a 0.9-carat and a 1-carat diamond,” Golan says. “So they walk into a store and they are what used to be called a ‘hot customer,’ someone who knows what they want. All you need to do is answer a short list of very simple questions to make a sale.”

Answers to frequently asked questions, though, should not involve making broad, unsubstantiated “green” or “eco-friendly” claims about laboratory-grown diamonds, caution both Golan and Miya Owens, associate counsel for the Jewelers Vigilance Committee (JVC), since such claims are difficult to substantiate, if not impossible, and could result in Federal Trade Commission (FTC) enforcement action or civil penalties.

“The question a lot of times is, ‘Is this real?’” Golan says. “And there are lots of way to answer this question. It comes from the way the salesperson assesses the client: Does the client want me to talk them into it or talk them out of it?”

But once consumers have a budget in mind, Golan says, and have some basic questions answered, they often feel very confident to move from a natural diamond to a laboratory-grown diamond if it’s readily available and they can get a larger stone with their budget intact. “If your budget is $3,000 and if the store can push you on a natural diamond up to $3,500, you can pay $2,980 for a much bigger diamond if it’s lab-grown. So they walk into a store with a budget in mind and shift to a bigger diamond.”

If you’re offering lab-grown diamonds, decide on your policy, your positioning and execute a strategy that works for you. If you sell both, it’s important to bash neither type nor their origins, Golan says.

As far as investment value, it shouldn’t even come up. It drains the romance from the purchase, Golan says. So natural diamonds should be sold on their story, not their long-lasting value. Retailers who successfully sell natural diamonds talk about how the jewelry industry supports people in Botswana, Africa, the Congo and Canada.

Rebecca Foerster, president of Alrosa USA and a board member of Diamonds Do Good, says a diamond tells an important message of life and love and the legacy of something that will last forever. She encourages retailers to tell the story of how many lives are touched around the world by natural diamond communities.

The Natural Diamond Council has a website for diamond professionals that includes refreshed educational offerings, some of which are designed to be shared with consumers, including videos and animations of the 4Cs.

“We like to think that a diamond is the ultimate luxury product,” says Gabrielle Grazi, vice president/retail of the NDC. “We don’t feel that a natural diamond competes with a lab-grown diamond. We compete with other luxury segments. People have the opportunity to buy a meaningful gift that represents their relationship. A natural diamond is a symbol of enduring power and love. It’s rare, it’s unique, and people are going to purchase fewer, better things in this environment and are going to want to make purchases that have lasting value.”

Michael Indelicato, CEO of RDI Diamonds in Rochester, NY, estimates that laboratory-grown diamonds for engagement ring center stones will ultimately take 10 percent of the overall market. Indelicato recently partnered with De Beers on a grading lab that guarantees the diamond is not synthetic or treated.

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He believes that jewelers who stick to selling natural diamonds will have an advantage in credibility. “I do believe in the near future there is going to be an issue with prices tumbling,” he says. “A natural diamond wasn’t born yesterday. Laboratory-grown could be made in a few days. That story alone is huge.”

Retail jeweler Stuart Benjamin, who opened a new store in San Diego in March, says his customers rarely ask about laboratory-grown options, and if they do, his presentation almost always steers them back to natural. His bridal customers are generally 25- to 35-year-old professionals with budgets ranging from $3,000 to $8,000. They’re buying rings with natural diamonds in the half-carat to three-quarter carat range set in simple, often traditional, mountings.

Based on the 2018 revisions to the FTC Jewelry Guidelines, says Owens of the JVC, all members of the trade should keep the following in mind when advertising laboratory-grown diamonds:

These products should be described using one of three descriptors provided by the FTC in its Jewelry Guides: “laboratory-grown,” “laboratory-created,” or “[Manufacturer name]-created.” These descriptors should be used immediately preceding the word “diamond.” The FTC also leaves open a gray area for other descriptors that clearly and conspicuously convey that a product is not a natural diamond, but the JVC recommends erring on the side of using the above three enunciated in the Guides.

Under the revised Jewelry Guides, the following terms and similar terms should not be used to describe laboratory-grown diamond products: “real,” “natural,” “genuine,” “precious,” or “semi-precious.” The Guides explicitly state that these terms should only be used to describe natural products and are not acceptable to describe artificially produced products.

The JVC recently published a free Understanding the FTC Guides book available for download at jvclegal.org.

Eileen McClelland is the Managing Editor of INSTORE. She believes that every jewelry store has the power of cool within them.

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