Lab-Grown Diamonds and Blue Nile: The Conversation Continues

By Rob Bates | February 06, 2025

I’ve received a lot of feedback on my Jan. 28 post about Blue Nile and lab-grown, and I’d like to respond and elaborate on certain points.

That blog discussed similarities I saw between jewelry e-tailer Blue Nile and sellers of lab-grown diamonds: namely, their focus on price, general lack of distinctiveness and innovation, frequent hostility to the incumbent industry, and the lower-than-expected barrier to entry for competitors.

Basically, Blue Nile tried to grab a chunk of the existing market rather than grow it. “Pie-splitting” strategies generally damage all involved. I see lab-grown acting much the same.

I don’t know if lab-grown diamonds will follow the same trajectory as Blue Nile (which, we should note, was once an extremely successful business). I think that’s a lot more likely if lab-grown continues to ape Blue Nile’s business model. I’ve long argued that the lab-grown sector needs to become more creative and innovative—instead of just relying on “We’re the same as natural but cheaper,” lab-grown must evolve into its own thing.

Lab-grown has the chance to truly grow the overall diamond market, and to lay claim to an extremely profitable niche. It needs to step up and grab those opportunities.

I’m always amused how certain people get worked up over negative comments about lab-growns. Created diamonds aren’t a marginalized group. They’re consumer products, made and sold by companies backed by billionaires.

I received one not-particularly-friendly comment on my recent column which said, essentially, “Isn’t the mined industry in trouble too?” Of course it is. My article covered that, as did a long article this week in Bloomberg. The natural industry is dealing with a new normal. Again, the Blue Nile model may be instructive: Just as brick-and-mortar retail has lost market share to e-commerce—likely forever—natural should no longer expect to have a monopoly on the diamond market, engagement included.

As I mentioned in last week’s post, one way jewelers learned to “fight back” against Blue Nile was by charging less. (This has been a key reason independent retailers embraced lab-grown—it offers better margins.) Miners have generally been reluctant to lower their prices—with the occasional exception. Diamond producers see the current “bifurcation” as a good thing, as it positions lab-grown as a lower-cost product, in a different category than mined gems.

Yet as the price of synthetics has dropped, their market share has generally increased. A young consumer may opt for a natural engagement ring if it costs only $1,000 or so more than a created stone. When the gulf grows to several thousand dollars or higher, that lab diamond becomes a lot more tempting.

On the other hand, if the value of lab continues to fall, some grooms may not want to spend, say, $200 on an engagement ring. We haven’t reached that point, though if consumer price expectations get reset, who can say? Many people buy wedding rings for around that much.

Should the natural diamond industry lower its prices to be more competitive with lab-grown? That’s not an easy question, given that one of the main talking points for natural diamonds is that they hold their value. As lab-grown diamond prices experience sharp declines, the natural business probably shouldn’t spiral down with them.

However, once the dust settles, lowering prices might be worth considering. Natural diamonds are generally viewed as a more prestigious product than lab-grown. Just how much is that prestige worth? While naturals’ cachet may stem in part from their high price—that’s how veblen goods work—the price differential could eventually scare people away. Despite what Martin Rapaport says, I don’t believe the natural diamond industry can (or should) only sell to rich people.

To be clear, I’m speaking about “generic” diamonds. Branded jewelry will always enjoy a premium. Which brings me to my final point.

The lab-grown versus natural battle also has echoes of the so-called quartz crisis, which rocked Swiss watchmaking in the 1970s and 1980s.

How did the Swiss save their industry? By focusing on branding, fashion, and innovation, and by touting their watches as status symbols. Nobody needs to buy an expensive watch today—and with cellphones, nobody needs to buy a watch at all. Even so, the Swiss watch business is bigger than it was pre-crisis. It’s a consumer-driven industry that, not surprisingly, receives lots of consumer press.

Large parts of the natural and lab-grown trades share a common problem: They are selling “commoditized” products. This lack of differentiation has led to fierce, unhealthy price competition. Though both industries may be hurting, they do have a way forward—it just requires fresher thinking than we’re seeing now.

None of this will be easy, but the smart players in both sectors know it can’t go on like this.

To quote Tom Chatham, a pioneer in created gems, in a recent comment on my LinkedIn: “Natural will survive but they have their work cut out for them. LGD will survive but also have their work cut out for them. Both camps need to reinvent themselves or die.”

(Photo: Getty Images)