Lab-Diamond Sales Grow amidst falling Prices

Lab-grown diamond jewelry demand grew an estimated 38% to $12B in 2022, however like-for-like prices retreated by an estimated 20% –a trend that likely continues into 2023 -

By Paul Zimnisk

Going into 2023, the swift momentum of lab-diamond demand growth continues, however, so does a trend of softer prices.

In 2022, more and more retailers, especially in the U.S., inventoried the product, which has led to much wider-scale downstream distribution of lab-grown diamond jewelry. Notably, U.S. major Signet Jewelers and global fashion jewelry powerhouse Pandora led the charge.

The former, which is the largest diamond jewelry retailer in North America, said that it would “really lean into” lab-created diamonds in early-2022; the latter, which is world’s largest vertically-integrated fashion jewelry company, debuted a novel line of lab-diamond jewelry later in the year targeting its U.S.market.

Signet is selling lab-diamonds side-by-side with natural diamonds in its primary banners, which include, Kay Jewelers, Zales, JamesAllen and now Blue Nile, which it acquired in September 2022. Prior to the acquisition, Blue Nile exclusively sold Lightbox-branded lab-diamonds marketed as non-bridal “fashion” jewelry.

Paul Zimnisky, CFA is a leading global diamond industry analyst based in the New York City metro area specializing in global diamond supply/demand fundamentals and the companies operating within the industry.

His research and analysis on the diamond industry, which includes natural as well as lab-grown diamonds, is used by financial institutions, management consulting firms, private and public corporations, governments, intergovernmental organizations and universities including: HSBC, UBS, Scotiabank, Fidelity Investments, KPMG, Deloitte, Boston Consulting Group, De Beers, Rio Tinto, Tiffany & Co., Cartier, The International Monetary Fund and the governments of Canada, South Africa and Botswana.

Paul is a regular contributor to industry-leading trade journals and he is often interviewed and quoted by prominent media outlets including: The New York Times, The Wall Street Journal, Reuters, The Financial Times, Bloomberg, The Economist, Vogue, The Globe and Mail, Agence France-Presse, The Times of India, The South China Morning Post, Xinhua and China Daily.

Paul is a graduate of the University of Maryland’s Robert H. Smith School of Business with a Bachelor of Science in finance. He is a CFA® charterholder and is a member of the CFA Society of New York.

He can be reached at paul@paulzimnisky.com, http://www.paulzimnisky.com/ or +1-917-806-4555 and followed on Twitter at @paulzimnisky.

Pandora is exclusively selling lab-diamonds, however, diamonds as a category is a new foray for the company which is known for its lower price-point charm bracelets and related jewelry. Priorto the debut of the diamond line, Pandora’s average order value (AOV) was estimated at under $100.

Globally it is estimated that lab-diamond jewelry sales grew to almost $12 billion in 2022, up a steep 38% year-over-year (see above chart). For context, this is up from under $1 billion as recently as 2016.

Notably, in 2022, lab-diamond jewelry surpassed the 10% mark of total global diamond jewelry sales for the first time.

This figure is expected to expand as lab-diamond jewelry sales are forecasted to continue growing at an annual double-digit percentage rate in the coming years. That said, in the medium and longer term, lab-grown diamond sales as a percentage of natural diamond sales will likely become less relevant. lab-diamond producers as the government attempts to boost its current account deficit via export industries.

It is important to remember that lab-diamonds are creating incremental demand for diamond jewelry that would otherwise not exist especially at the lower-price points.

Looking longer-term, this incremental demand will likely continue to grow while the share of lab-diamonds directly cannibalizing natural diamond sales will stabilize and level-off.

Product marketing by both natural and lab-diamond producers as well as product positioning by retailers at the jewelry counter will ultimately determine the level of segregation of the two products and the speed at which the bifurcation plays out.

However, as the price point between natural and lab-diamonds continues to widen, consumer’s intuitive perception of the two products is also likely to naturally diverge –as at the end of the day, diamond jewelry is a luxury/discretionary purchase often driven by emotion or feeling, i.e. the economic concept of diamonds being a “Veblen good” is at play.

India and China, combined, are estimated to account for almost three-quarters of global lab-diamond jewelry production by volume.

The (declining) price of lab-diamonds as a material will continue to be a primary driving force for how the product is represented longer-term.

In terms of jewelry, a lower price point could discourage retailers from offering the product as an alternative to a traditional (solitaire) natural diamond out of fear oftop-linerevenue destruction.

However, a lower lab-diamond price point also increases the creative flexibility of the product from a jewelry design perspective.

For instance, a natural diamond is considered too valuable to be cut into low-yielding “exotic” shapes, whereas this is not nearly as much a problem with lab-diamond. Further, lab-diamonds can be produced in chemical variations and colors not found in nature by altering the production “recipe.”

The current dynamic of rising demand for lab-diamonds but falling prices seems counterintuitive for the jewelry

As recently as 2016, a 1-carat lab-diamond sold for only 10% less than an equivalent natural diamond; by the end of 2022, the differential had widened to as much as 80% (see above chart).

The global production capacity of lab-diamonds has exploded in recent years and it is expected that the trend will likely continue for at least the next few years. This dynamic has boosted the supply and pressured prices of lab-diamonds.

Recent new production capacity has been driven by declining capital equipment and production costs as well as growing investment capital availability.

For instance, according to anecdotes, off-the-shelf Chemical Vapor Deposition (CVD) machines can currently be acquired in India for under $100,000 —the compares to as much as $300,000 as recently as 2019.

Further, the Indian government is developing subsidies and capital equipment financing incentives for new