What has happened in the last two years? – Rami Baron
Let’s first get an overview of the diamond market from the last few years and see what the research tells us by looking at some of the highlights from the Bain and Cole Annual Report on the global diamond industry, which is commissioned by the Antwerp World Diamond Centre. Take note however that this report is already out of date in that it’s looking at 2019 and 2020 periods.
The report notes that during the period impacted by Covid, while the luxury market shrank, the diamond industry actually did better compared to others in the luxury space. Clearly, there was a drop in mining and production which allowed diamond manufacturers and wholesalers the opportunity to clear a lot of stock. At the start of 2020,it was estimated that diamond wholesalers had cleared existing merchandise and reduced their inventories by 22%. In 2020, we started to see a change with higher quality diamond prices improving and recovering from the previous price drops we saw over the preceding two years. In the last two years, we saw approximately 20% of retail sales occurring online, with those who participated in this space posting increases of 60-70% year over year growth in their online businesses.
The research also stated that 90-95% of consumers still wanted to buy physically in a store/showroom. You may be asking why our online jewellery sales are still low compared to other luxury items, even with the pandemic. The answeris simple. There is still a lack of trust in purchasing directly online. In purchasing online, you are missing out on the experience of meeting with a jeweller, trying on rings, having great conversations and developing a trusting relationship. It’s also a massive part of our psyche, allowing us to feel special.
The marketing campaigns created by the Natural Diamond Council have played out very well in the markets that they have been used. Unfortunately, this is normally limited to the US, China and India (high population centres). Clearly, what we can all learn from these campaigns is that diamonds need to connect to life moments and the connection needs to be expanded on – it’s not only engagement rings.
The diamond jewellery market is still skimping on its marketing. We are roughly spending approximately 1-2% of our revenue as an industry on marketing, with the average luxury product spending between 6-8%. You have heard it before and you’ll hear it again, the words sustainability, transparency and traceability. Although the small diamond
retailer is rarely faced with these questions, research shows that they are important and increasing in the frequency of being asked by the consumer.The small jewellery retailer will find themselves playing catch up when they lose sales to consumers who are asking these questions, and the retailer doesn’t have the answers and or proof that it is as important to them.
As many of you are aware, my core business is jewellery insurance. Being the largest jewellery insurer in Australia puts us in the unique position to know statistically the percentage of natural diamonds versus lab grown diamonds insured in engagement rings in Australia. This allows us to extrapolate what is being sold and draw some comparisons.
Clearly, in the last 12 months we have seen a dramatic increase in the sale of lab grown diamonds as a substitute for natural diamonds. I use the word substitute because the engagement ring itself is constant; it’s really about the centre stone. Moissanite was never really a major contender, but lab grown has without a doubt had a major impact. I was curious to know whether or not the diamond sector grew with the introduction of lab grown, or whether lab grown in effect gouged natural diamond sales. While we don’t have data on melee or fashion jewellery, we have incredibly accurate data on the engagement ring market in Australia. It’s very easy to get a distorted picture depending on who you talk to.
When I speak to a diamond merchant who specialises in lab grown, they will say to you unequivocally that there’s been a 50% increase in the sales of lab grown. When you speak to a diamond merchant who specialises in natural, they will say to you that they have begun to sell lab grown and that there is more and more demand for them, however their natural diamond sales have never been stronger, and they’ve had the best 12 months in memory.
In 2020, there was an estimated 7 million carats of lab grown diamonds produced, with 60% being manufactured in China using HPHT technology. Those retailers selling lab grown diamonds have had the advantage of massive marketing spend by the manufacturers of lab grown diamonds and the bigger retailers that were offering the product. So many of the articles don’t need to be objective. They can be paid positions as to the positive benefits of a lab grown versus a natural. It’s often just an opinion, but when delivered by an influencer, it can have a real impact.
Many of you would already know the impact this has in the retail store. Place a 1.5ct high colour and clarity lab grown diamond in front of the customer and compare it to a 1ct natural diamond, and be perfectly transparent that one is natural and the other is lab grown. The sheer visibility of size difference and the enormous price difference will, in most cases, lead to a lab grown sale.
Those who don’t wish to sell lab grown will make that choice. As I have written in previous articles, the question is what does your customer want? I understand that if you were an exclusive jewellery retailer who prides themselves on only carrying natural gemstones, it doesn’t fit your image or comfort level in selling lab grown. For the other retailers, it does not make commercial sense to deny or not to supply your customers with a product, which is in some cases, visually superior, will no doubt have longevity in terms of wear and tear, is incredibly price competitive and will provide you with a higher gross profit.
In the last 12 months, the lab grown diamond has become much more mainstream. Retailers who were sceptical to begin with have introduced them into their business with great success. Initially, I personally thought it was dangerous to mix the two in a traditional jewellery store, but then I saw how well and transparently the two were introduced to the customer.
Some customers unequivocally say that they are not interested in “fake diamonds”, while on the other hand a very high proportion were at least curious to see the comparison. It became clear to me that this needed to be presented as another product category in the retail jewellery store’s mix.
In Q Report Jewellery Insurance, we saw a significant jump in lab grown engagement rings being insured over the last two years. In 2020, the percentage of lab grown engagement rings compared to natural diamonds insured was 6%.
Compare this to 2021,where the percentage of lab grown engagement rings compared to natural diamonds insured was 17%. This is a 3-fold increase. Something to think about.