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Articles from DIAMONDS BY TYPE - SYNTHETIC / LAB-CREATED (118 Articles)

Retailers, it’s time to follow the leader – your customer

When MVI Marketing first started researching consumer awareness and acceptance of lab-grown diamonds in 2004, most people in the industry thought we were crazy.

Key points

• Tradition is useless in a declining retail market; the objective is to give consumers what they want

• Lab-grown and mined diamonds don’t have to compete – they can serve the needs of different customers

• Competitive margins make lab-grown diamonds attractive for retailers, while customers can buy a larger stone within their budget

That was nothing new; when we first started researching consumer acceptance of Argyle champagne diamonds in 1989, most people in the industry thought we were crazy then too.

The jewellery industry is really an industry of followers, with few Elon Musks. But when turmoil and tumult becomes the everyday environment and the traditional, paternal market makers have abdicated, there is only one true leader for any retailer to follow: the almighty, omniscient consumer.

In other consumer goods categories it would be obvious that whatever the consumer wants is what is sold to them. Tradition would have little or nothing to do with the transaction.

I understand if some readers find this jarring; change is challenging, however we are in a period of change and consolidation in all retailing.

The next generation consumer is not shopping in-store and they need to be attracted back for the retail industry to survive. Traditional jewellery retailing, especially, is struggling.

"You are not in the investment business. If your customers want investments, they should go to a stockbroker or financial advisor. You are in the love business."

Before you face further threats, perhaps you can answer this question: what business are you in?

You are not in the investment business. If your customers want investments, they should go to a stockbroker or financial advisor.

You are in the love business. If your customers want to give a gift that symbolises their love for someone, they come to you. You need to focus on, and remember, in which business you trade before you become obsolete.

For example, when the jet engine developer first presented his plans to the propeller manufacturer, the propeller manufacturer said: ”What do I need that for? I’m in the propeller business!”

Not too long after that meeting, he realised he used to be in the transportation business.

Empowering choice

There is no greater personal choice than what you choose to symbolise your love. That is the key challenge and opportunity, with a freight train of change coming down the track in the great lab-grown versus mined diamond debate.

It’s all about offering your consumers the choice. Let them decide and then profit from whichever product they choose.

We work with many companies in the mined diamond and the lab-grown diamond business. They are complementary, and both are filled with opportunity, as long as we present both products to our customers and allow them to decide which best represents their love.

In the course of our market research, we have discovered that there are important facts for jewellers to consider.

Firstly, the younger generations will choose lab-grown diamonds because of the value they represent to them, not the ‘investment’ value.

Customers shop with a budget in mind and when they see the comparison of a lab-grown diamond next to a mined diamond, they gravitate to the lab-grown diamond seven out of 10 times. Why?

Because when it comes to diamonds, bigger is better.

"There is no greater personal choice than what you choose to symbolise your love"

Secondly, lab-grown diamonds are now a mainstream product. Recently, Atelier Swarovski announced the opening of a ‘Conscious Luxury Boutique’ at Harrods in London, which features lab-grown diamonds.

The largest US jewellery company, Signet Jewelers, is now in the lab-grown business as is Helzberg Diamonds, which operates 210 stores in the US. Australia’s Michael Hill has also introduced lab-grown diamond jewellery.

With these large retailers now expanding into the category, what will you say to your customer when they ask if you stock lab-grown diamonds? If you say you don’t or won’t stock them, there is a very good chance that they will walk out your door, maybe never to return.

As more retailers stock lab-grown diamonds, the prime ‘growers’ – manufacturers – will struggle to meet demand. Supply and demand is creating price stability for this product. Lab-grown diamond prices are not significantly deteriorating.

Will more manufacturers enter the market and drive prices down? That’s the conventional wisdom – but that wisdom ignores the fact that it’s not so easy to ‘grow’ diamonds.

Many people can raise the funds (around $US300,000) to build a reactor, but the shortage is in the number of scientists that know how to operate the equipment and create a product that is the correct colour and size.

In other words, there is a shortage of human capital, at the PhD level – people who have the expertise to grow quality stones. There is also intellectual property (IP) involved in diamond manufacture and the holders of that IP are now enforcing their rights.

This will tighten legitimate supply even further. Major retailers will want to avoid legal liability and will require their lab-grown diamond suppliers to become IP compliant in order to undertake ‘legal’ manufacturing.

A matter of margin

Mined diamond inventory is rapidly devaluing, and can no longer be relied upon to produce a solid return on investment for retailers. The only valuable inventory is inventory that sells through to the customer.

It would be wiser for those holding mined diamonds to sell existing stock before prices drop further. While this point may invite scepticism, those who don’t believe me should try to get an offer on their entire mined diamond inventory tomorrow. That will be a wake-up call for them.

"It would be wiser for those holding mined diamonds to sell existing stock before prices drop further. [...] those who don’t believe me should try to get an offer on their entire mined diamond inventory tomorrow."

Ultimately, the number of profitable businesses in the mined diamond category is rapidly shrinking, while those making margin in the lab-grown diamond category are increasing. That’s why the freight train is ploughing down the track.

Retailers are noticing the margin potential with lab-grown product that is better than they’ve been able to secure in years, and they want to take advantage of it. The benefit is that customers get more value, while retailers make more money.

The new product also offers retailers the opportunity to cater to self-purchasing females. Our research indicates that these customers don’t really care about nomenclature, gemmology or science when it comes to their jewellery – rather, they want fashion, style and the ability to accessorise.

Lab-grown diamond melee will also give jewellery retailers new options for affordable, high-quality fashion jewellery that women can buy three to four times per year. That presents a great opportunity – this stock is not a one-time turn per year.

Global opportunity

So far, the lab-grown diamond market has been driven by US consumers and therefore retailers, however this is slowly changing and will impact Australasia in the near term.

Luxury retailers such as Courbet, on Place Vendôme in Paris, are creating entire collections of high-end bridal and fine lab-grown diamond jewellery. Wholesalers in Japan are distributing lab-grown diamonds to traditional retailers.

Retailers in Indonesia, Mexico and South America are entering the category and widening the jewellery market by offering lab-grown diamonds to customers that, previously, could never afford any diamond jewellery.

It’s only a matter of time before this trend fully goes global.

Consumers all over the world are demanding sustainable practices from brands and products they purchase and support. Jewellery is no exception and lab-grown diamonds can provide radical transparency and a clear chain of custody.

The only certainty in life is change. Embrace it, accept it, own it and you will profit from it. Bury your head in the sand, ignore the change, bemoan the loss of the past, and you will miss the boat.


'The Great Diamond Debate' Contents » 

The natural diamond industry is facing disruption in every aspect
Sergey Ivanov, CEO of Alrosa
Don’t blame synthetic diamonds for the natural industry’s woes
Garry Holloway, founder of Melbourne’s Holloway Diamonds
Both sides of the diamond debate should verify their claims
Danielle Max, editor in chief IDEX Online



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Marty Hurwitz

Marty Hurwitz is CEO of MVI Marketing, which provides consumer and trade market research and strategic consulting to luxury industries, with a primary focus on jewellery and accessories.

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