Edahn Golan on Lab-Grown Prices’ Downward Spiral
By Victoria Gomelsky | March 27, 2024
"Edahn Golan is a font of statistical information about diamonds, from the average price per carat of polished diamond imports to the U.S. in 2022 ($2,256) to gross margins on lab-grown diamonds at retail (currently 60% to 68%).
The owner and manager of Edahn Golan Diamond Research & Data and managing partner of Tenoris, which supplies retail and consumer trend analytics to the fine jewelry and gemstone industries, recently spoke to JCK about the extent to which wholesale prices on lab-grown diamonds have plummeted over the past six years and how he thinks the market will evolve. The interview has been condensed and edited for clarity.
Can you quantify how prices on lab-grown diamonds have fallen?
Since the third quarter of 2018, when I started tracking wholesale prices, prices have declined by 86.5%. I’m working on my Q1 report for this year, and prices continue to nose-dive.
Has the decline been sudden or steady?
It depends on the size. As technology improves, people can more efficiently and cost-effectively grow bigger and bigger diamonds. As soon as a new item comes out, they price it fairly high, but over time the price drops.
What’s the simplest explanation for the category’s precipitous drop?
During COVID, demand started to go through the roof. Everybody wanted in, because they were afraid they weren’t making enough money. Then they ran into oversupply, which created this snowball of falling prices.
Also, initial pricing was very high. It was kind of off natural, which made sense in the beginning: “We’re like natural, but a little less.” But costs are so low, and margins are insane.
In natural, the margins are with the miners and the retailers. And the manufacturers in the middle are really getting screwed. And in lab-grown, the producers, the growers, are getting really close to cost-plus. The midstream has very nice margins, and at retail, margins are 60% to 68%. Gross margins on one-carat lab-growns are 64%, versus 40% for natural diamonds.
Let’s say your cost for a lab-grown diamond is $400. You’re selling it at $1,000. Keystone is 100%, so this is 150%. There’s no item where retailers make so much margin.
Are retail margins declining along with wholesale prices?
No, they’re growing. Retailers are not passing the savings on to consumers as quickly. Let’s say you got a lab-grown on memo, and it’s been in your inventory for six months. You just return it. And then you get a fresh batch starting at a much lower price. Your cost is down maybe 5%, and you don’t pass it on as quickly.
But here’s the flip side: You’re getting a bigger margin from a smaller and smaller dollar value. In other words, to generate the same income, the same revenue you generated last year, you will need at least 20% more units just to cover. And if you don’t succeed, your income is going to decline.
ALTR lab-grown diamond solitaire rings
Has the market reached bottom?
No. If gross margins come down from 60% to 30 to 40%, maybe. The growers are nearing their limit.
The other aspect is, what happens when the cost of an engagement ring is under $1,000? People stop buying it. Think about it: Nobody buys a silver ring for their engagement ring. There’s nothing wrong with silver. It’s a sturdy piece of metal, it’s as nice as white gold, but it’s just silver. It costs a tenth less than gold.
At the end of the day, we want to spend a handsome amount of money on an engagement ring. If the conversation today when buying a lab-grown is “My diamond is bigger than yours,” at some point it’s going to be too large, so there won’t be a point in getting a larger diamond. You’re stuck. The conversation will be “What, you don’t want to invest in ... "
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