Consumer demand for lab-grown diamonds is skyrocketing worldwide. And because jewelry retailers will undoubtedly face increased competition for lab-grown diamonds (LGDs) and supply challenges in the category this upcoming holiday season, they should be establishing quality sourcing relationships now—instead of just spot market purchasing—so that when the crush comes, they can rely on consistent supply and pricing.
Remember, the only valuable inventory in a retail store is them that moves! And lab-grown diamond inventory turns rapidly and profitably for jewelry retailers. So, you can expect more retailers to be carrying lab-grown diamonds this holiday season. My own company, THE MVEye—a market research and strategic consulting firm for the jewelry industry that completed the first-ever consumer research study on awareness and acceptance of lab-grown diamonds—forecasts that upwards of 75% of U.S. jewelry retailers will be stocking lab-grown diamonds this year. And the demand in overseas markets like Australia/New Zealand, Canada, the European Union, United Kingdom, India, China and even Japan is picking up as well.
But there are production challenges afoot that are throwing a wrench in LGD producers’ plans to capitalize on the increased demand for lab-grown diamonds. Growing diamonds is a precise science, and consumer demand has outstripped the pace of new high-quality lab-grown diamond chambers that produce top-notch LGDs. Why? It’s challenging to add new growing chambers and get them fine-tuned to the specs customers require. It can sometimes take six months to install and set up one chamber to produce consistent gem quality diamonds in a lab.
Every prime diamond grower in the world is experiencing demand beyond their capacity—specific product categories are currently sold out for months in advance, and some growers are already taking orders for 2023 delivery.
I asked Elda Fistani, CRO of WD Lab Grown Diamonds, a U.S.-based prime grower of lab-grown diamonds: What are best practices for independent retailers to employ to establish good relationships with a lab-grown diamond supplier so as to ensure a consistent supply through the fourth quarter?
Here’s the checklist she sent over:
Do your homework: Partner with a reputable supplier who can ensure continuous product flow
Be one step ahead: Consistently communicate the needs to your dedicated account executive so they can learn which lab grown diamonds perform best in your store, and plan for incoming inventory.
Don’t miss the boat: Make sure to replenish frequently; empty displays turn customers away and end up losing you sales. You can’t sell what you don’t stock.
Don’t be afraid to invest in fast-turning stones: Know the stone specifications of your bestsellers and stock accordingly — demand for lab grown diamonds is off the charts, and inventory will undoubtably turn.
Louis Price, COO of M. Geller Ltd., one of the country’s leading wholesalers of lab-grown diamonds, added, “Many retailers have gravitated to lab-grown diamonds, but many are just now sticking their toes in the water. But to build lab-grown supply relationships, retailers need to understand that not all lab-grown diamonds and suppliers are the same. Retailers need to educate themselves on some key metrics such as: Who is the lab-grown consumer? What is the competition at retail? What are differences between suppliers? What are the differences in the products offered? What training and marketing support does a supplier offer?” And they need to decide how they want to merchandise the product for their stores, then decide on the suppliers that support their choices.
Finally, it’s important, as the lab-grown diamond market explodes, that retailers make smart commitments that build trusting relationships with suppliers. It’s not going to be just a one call business. The relationship is a two-way street that requires trust and loyalty from both parties.
The lab-grown diamond business is different
When it comes to best practices a jewelry retailer can implement to ensure lab-grown diamond supply, during peak demand times, here are a few tips to keep in mind.
It’s not a diamond trading business
The lab-grown diamond supply pipeline isn’t like the traditional diamond trading business. In the mined diamond business, diamond mines dig up all the diamonds they can find and then distribute them in mixed parcels to cutters and wholesalers who gradually sort them for an array of different customers all over the world. The LGD business is very much an inventory trading business that operates on slim margins.
Conversely, the lab-grown diamond business is a growing business
It’s much more like the semi-conductor business or even the bakery business. Prime growers really don’t grow for inventory, as the technology improves, they are growing more and more for specific customer requirements. And volume customers can only secure consistent quality and supply, in the magnitude of thousands of carats per month, if they make projections of their requirements for an extended period of time (3-12 months).
Get as close to prime as possible
It’s important for a jewelry retailer to get as close to the prime grower as possible either through direct purchases from one or more growers, or through relationships with authorized wholesalers (distributors) for a prime grower. Of course, there are plenty of small orders being filled in the spot market, and at generally favorable pricing. But the stronger your lab-grown diamond business becomes at retail, the less dependent on the spot market you want to be. Why? Because you don’t want to run out of lab-grown diamond inventory when the product is turning rapidly and consumers are coming into your stores and asking for it.
Provide projections and expand communications with suppliers
Quality, ongoing communications with your suppliers will both go a long way in ensuring you have a consistent supply of LGDs at great prices. Put in the time on this. It’s important to treat your lab-grown diamond suppliers as partners in the journey of this explosive new category rather than just another vendor. The technological challenges to growing diamonds are formidable, and establishing a quality, communicative relationship will be a win for both parties.
Purchasing asset vs. memo
More and more retailers are purchasing lab-grown diamonds from their suppliers as opposed to just taking stones on memo. Why have lab-grown diamonds begun to cross this threshold while mined diamonds are nearly entirely on memo in most retailers? It’s the margins. If you can add a few margin points by purchasing asset instead of memo, that can be worth thousands of dollars to you when the diamond sells at retail. And as retailers sell more lab-grown diamonds, their cash flow improves. As their cash flow improves, they are finding they can acquire more inventory on asset and continue a positive growth cycle for their business. All the while giving their consumers more value, in the form of a larger diamond.
Avoid API data feeds on your website
I know it’s all the rage these days to take API (Application Programming Interface) data feeds of diamonds and embed them on a retailer’s website and show them to consumers as if they are the retailer’s inventory. But I’m not a big fan of this tactic for selling diamonds and here’s why: Selling diamonds is all about communicating love. API data feeds from multiple vendors are all over the web and attracts mostly male shoppers. They are “price” shoppers and won’t be wearing the diamond they’re shopping for.
We really need to tell the story of lab-grown diamonds to capture consumer interest. Making lab-grown diamonds another commodity, as we’ve done with mined diamonds for generations, doesn’t move hearts and minds—and ultimately doesn’t serve the retailer or consumer. —Marty Hurwitz
Top photo courtesy of Novita Diamonds
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