• by Sarah Mahoney  @mahoney_sarah, December 15, 2016

Diamonds may be forever, but to a growing number of Gen Y shoppers, they’re also sinister. Mining is notoriously bad for the environment, and diamonds (along with many other precious metals and stones) often carry a heavy humanitarian price tag, used to fund African warlords and rebels.

That’s why lab-grown diamonds are winning over more luxury shoppers. “These lab-grown diamonds are very compelling to Millennials right now,” says Milton Pedraza, CEO of the Luxury Institute. “You can mimic what happens in nature with less environmental damage, and have a more beautiful product. Even a few years ago, the consumer reaction might have been ‘but it’s artificial.’ Now, it seems environmentally friendly.”

The technology for creating diamonds in a lab has been around since the 1950s, but those created in the last several years are larger, clearer and even closer to those made by Mother Nature. Morgan Stanley estimates sales of rough cultured stones at between $75 million and $220 million, and while that is now a tiny chip of the $14 billion diamond market, jewelers need to pay close attention: It estimates sales of these rocks will take as much as a “15% market share in gem-quality 'melee' diamonds, which are a half carat or less in rough form, and 7.5% share in sales of larger diamonds by 2020.”

And the idea of finding new luxury items — not heirlooms — fits with the same Gen Y ethos that has them turning up their noses at their parents' antique furniture. “Millennials enjoy new trends and they are adopting our product very broadly,” says R. Martin Roscheisen, CEO of the Diamond Foundry, whose diamonds are selling in a capsule collection at Barneys New York. (Leonardo DiCaprio is an investor.) Roscheisen says most of the Diamond Foundry customers are based in the U.S., and that while lab-grown diamonds are modern, its most popular styles indicate a certain traditionalism. “People are getting back to the basics,” he tells Marketing Daily. "People enjoy timeless pieces that transcend any trend of fashion.”

Morgan Stanley estimates that while the cost of creating a diamond in the lab isn't much cheaper than actually mining one, $343 per carat vs. $367 per carat, the lab-grown variety sell for between 30 and 40% less. In part, it says that’s because lab-grown channels are fragmented, compared with the consolidated distribution system of mined diamonds.

The report also says that consumers are somewhat confused, with some companies marketing the lab-grown alternatives as more affordable, and others focusing on the environmental message. They might be called man-made, cultivated, or lab grown. And it doesn't help that overall, diamonds are undermarketed.

“For decades, diamond engagement rings have driven the industry,” the report says. “Relative to other luxury segments, however, the diamond industry spends very little on marketing. At its peak in the 1990s, the marketing budget of the industry's largest player was 5% of revenue; by some estimates, that figure has fallen to 1%. Contrast this to the marketing budgets of leading luxury brands, which spend up to 10% of their revenues on marketing.”

But when consumers focus on the issues surrounding mining, “it is not hard to educate people about grown diamonds,” Roscheisen says. “Once they know about it, they recognize it is simply a better product.” And he points out that it’s also a matter of being forward-thinking. “In 20 years, 100% of all diamonds will be man-made, because even the miners are saying that there's perhaps only 18 years left to extract diamonds from the Earth.”

That kind of modernity, prizing technology over tradition, is why Pedraza thinks these stones have such appeal. “Sure, people will always be sentimental about a diamond ring worn by their mother or grandmother, but as a rule, not as many things are as imbued with meaning for this generation,” he says. “These cultivated diamonds represent innovation, not artificiality.”

But that doesn’t mean that Millennials are backing away from the emotional impact. “They love jewelry, and diamonds still represent love,” he tells Marketing Daily. “And because some people will see these as more perfect diamonds, this is a niche that will continue to get stronger.”