This 15-carat diamond ring is expected to fetch upwards of $120,000 at auction.

Diamond sales held on strong relative to other luxury categories during the pandemic, according to a new study. This insight is among those disclosed in Bain & Co.’s annual report on diamonds, which had a positive outlook this year and forecasted that the diamond category will return to growth mode in 2021.

Overall, Bain says that diamond sales hit a 15 percent slump in 2020 that, while not great, is better than a 22 percent decline in general luxury spending. Diamond sales suffered the most in the first two quarters but rebounded in time for the holiday season. In the U.S., holiday spending on diamonds increased between five and 10 percent over 2019, while in China they grew by 15 to 20 percent year-over-year.

“In 2020 the diamond industry as a whole unexpectedly benefited as consumers unable to spend on experiences or travel used those funds for items such as diamonds, which are considered a tangible physical investment. Our research found that more than 75 percent of consumers intend to spend the same amount or more on diamond jewelry than before the crisis, indicating a strong, ongoing emotional connection with the diamond story,” said Olya Linde, a partner in Bain & Co.’s energy and natural resources practice. “

Diamonds are still intrinsic to the experience of love and commitment, with 60 to 70 percent of respondents in the U.S, China and India saying that they are an “essential” part of the engagement experience.

Sustainability is of accelerating importance for young diamond shoppers. Bain says that social impact is key for consumers in the U.S., while conservation, supply chain ethics and carbon output are important for shoppers in China and India.

It’s no secret that the pandemic forced shoppers to move online, and that translated to the diamond market with about 20 percent of commerce taking place on the internet — up from 13 percent the year prior. Bain feels that this trend will not go away, and therefore diamond retailers should invest in online growth and digital capabilities to capture market share. Despite the gains in online shopping, however, between 90 and 95 percent of consumers say they prefer to buy diamonds in physical retail spaces. About 70 percent of those who make an in-store purchase do so after conducting extensive research online.

Bain’s studies have been at the forefront of analyzing the rise of lab-grown stones and their effect on the wider diamond trade. In 2020, the firm says that lab-grown diamonds reached between 6 and 7 million carats of total global production — with the majority of that stock (60 percent) manufactured in China. Retail prices for the stones fell, but wholesale prices remained steady — resulting in a slimmer margin for stores. Bain assesses that lab-grown stones have reached a pivotal moment: their retail value and public perception could continue to fall and push the stones into the fashion jewelry category, or they could push into the premium category by reversing the perception that they are wholly different than natural diamonds.

Regardless, Bain says that diamonds are seeing a supply chain contraction — a result of curtailed mining efforts. A sharp decline in sales at the pandemic’s start resulted in bloated 65 million carat upstream supply of diamonds at the end of the third quarter. Due to the successful holiday season this fell to 52 million carats — still 17 percent above last year’s inventory quantities.

The diamond industry leapt to action in 2020 to manage its general inventories. Diamond mining production was already declining each year since 2017 by about 5 percent, but in 2020 it was cut by a sharp 20 percent — settling at a total of 111 million carats. Currently, medium and large diamonds represent about 25 percent of mined stones, but account for 70 to 80 percent of total production value.

According to Bain, the Chinese diamond market will be the first region to fully recover, anticipated for early 2021. The remainder of key developed nations will see their markets recover by 2023 and undeveloped nations should see a turnaround in 2024.

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