World’s Largest Fashion Jewelry Maker Bets Big On Lab-Grown Diamonds—As Demand Dulls For Natural Stones

Contributor

Hyunsoo Rim is an editorial fellow at Forbes.

May 3, 2024,06:00pm EDT

Topline

Pandora, the world’s largest jewelry maker by production volume, reported strong first-quarter sales this week amid a boom in lab-grown diamonds, while companies specializing in natural diamonds struggle with a price slump—which, some industry experts say, signals a shift in consumer preferences.

Pandora Bets Big On Lab-Grown Diamonds As Natural Diamonds Slump.

AFP via Getty Images

Key Facts

The Copenhagen-based jewelry brand posted an 18% annual sales increase and projected growth between 8% and 10% this fiscal year, crediting an 87% year-over-year sales jump for lab-grown diamonds for creating a “positive halo effect” for the brand.

Pandora started doubling down on lab-grown diamonds and expanded its collections in September, which fueled demand across all Pandora products, especially in its biggest market, the U.S.; sales were up 16% from the previous year in that market.

Shares surged more than 80% in the past 12 months on the back of strong earnings.

Lab-grown diamonds only account for 20% of global diamond jewelry sales, with the majority still held by natural stones, said Paul Zimnisky, a diamond industry analyst; but there has been rapid growth in lab-grown sales, with global sales soaring to nearly $12 billion in 2022, a 38% year-over-year increase and up from $1 billion in 2016.

While the man-made alternatives are riding high, companies that still specialize in natural diamonds are faltering due to a slump in prices caused by weakening demand and oversupply of traditional diamonds: The parent company of De Beers, historically a leader of diamond production, is considering selling the business after writing down its value by $1.6 billion in February, The Wall Street Journal reported last week.

Signet Jewelers, the world’s largest retailer of diamond jewelry focusing on natural diamonds—and owner of Kay Jewelers, Zales and more—posted a 9.6% drop in same-store sales revenues for the latest quarter, with the CEO noting the challenges posed by independent jewelers’ “significant discounting” on lab-created products, as consumers continue to be value-oriented.

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Are Lab-Grown Diamonds Cheaper Than Natural Diamonds?

Depending on the size, lab-grown diamonds could be 70%-80%, or even up to 90% cheaper, said Dan Moran, a diamond dealer and private jeweler. Over the past year, he has sold 30%-50% more units thanks to robust demand for lab-grown diamonds, which he thinks will eventually “eat natural [diamond]

’s lunch” in the fashion jewelry world.

Tangent

Lab-grown diamonds were introduced in the 1950s for industrial use. As new manufacturing improvements made it easier to produce gem-quality diamonds, they became commercially viable in the jewelry market by the 1980s. In 2018, the Federal Trade Commission changed its definition to officially recognize them as real diamonds, leading to wider acceptance and supply. Even traditional industry giants like De Beers, which initially opposed the man-made technology, have started to come onboard, introducing its own brand of lab-grown diamonds in 2018.

Key Background

As lab-grown diamonds have been around for decades, their recent surge in popularity prompts the question: why the sudden hype? The increase in supply in recent years has driven down lab-grown diamonds’ retail prices, hence luring buyers with their affordability. “Up until 5, 6, 7 years ago, it was only a little bit cheaper than natural diamond, so nobody really was enthusiastic about it,” Zimnisky said. “But as the price has come down, the demand has definitely grown with the relative decrease in price.” The price gap between a 1-carat lab-grown diamond and its natural counterpart widened from 10% in 2016 to as much as 80% by 2022, according to Zimnisky. Additionally, lab-grown diamonds also hit another sweet spot: they are "visually indistinguishable" nowadays to the naked eye, says Moran, even for seasoned diamond dealers like himself.

News Peg

The lab-grown diamond boom comes at a time when its traditional competitors are facing a downturn. The natural diamond industry flourished during the pandemic-induced lockdowns as consumers increased spending on luxury goods, but demand waned as everyday life resumed with the easing of pandemic restrictions—leaving suppliers with excess inventories. Signet’s CEO, in the latest earnings call, voiced concerns about consumers continuously being impacted by elevated inflation over the last two years. As sluggish demand persists, coupled with oversupply, major miners like De Beers had to make one of its steepest-ever price cuts to revive sales. Additionally, lab-grown diamonds’ emergence as a viable alternative—and their much cheaper price—has diverted consumers away from natural diamonds.

Contra

Despite Pandora’s solid results, there are looming concerns about lab-grown diamonds, particularly regarding the rapid decline in prices, which could potentially hurt its profitability. According to Edahn Golan, founder of Edahn Golan Diamond Research and Data, revenues from lab-grown diamonds continue to shrink even as the number of units sold increases. In March, retail sales of loose lab-grown diamonds fell 5.6% year over year, with a 20% decline in average unit price. “The lab grown sector needs to figure out their path forwards,” wrote Golan. “Consumer demand is not enough. [...] With less income, retailers suffering from eroding profitability will direct their customers to other products.”

What To Watch For

Whether the natural diamond market will turn the corner. Despite uncertainties, experts don't see the future of natural diamonds as entirely bleak—or threatened by their cheaper man-made peers. “Part of the appeal of diamonds, in the first place, is that they’re valuable,” explained Moran. Some wouldn’t go after the “fast food version” of diamonds, as they care about “retained value,” he said. In the recent earnings call, Signet CEO Gina Drosos also remarked that the company expects a “potential tailwind” for the industry, as “there is something very, very rare and individual about a natural diamond.”

Surprising Fact

While natural diamonds form under immense pressure and heat within the earth's mantle over millions of years, lab-grown diamonds are created by mimicking this process: subjecting carbon atoms to high temperatures and pressures and crystallizing them, which takes weeks or months—making the lab-grown products chemically indistinguishable from natural diamonds. However, a group of scientists reported in Nature last week that they found a new way to make lab-grown diamonds in just a few hours by using liquid metals and gases, even under lower temperature. Whether this discovery could revolutionize the landscape of lab-grown diamonds remains to be seen. Rodney Ruoff, the Ulsan National Institute of Science & Technology professor who led the project, wrote in an email to Fortune, "Time will tell in terms of scalability and cost."