Michael Hill takes a shine to lab-grown diamonds

The push into lab-grown diamonds could also be validated by De Beers, the world's largest diamond producer. Photo / 123RF

Jewellery chain Michael Hill has become the first major retailer in Australasia to become an accredited seller of lab-grown diamonds.

The NZX/ASX listed retail chain, which operates 280 stores throughout New Zealand, Australia and Canada, first started selling lab-grown diamonds in 2020 and has seen sales within this category increase by more than 180 per cent.

Michael Hill's range of lab-grown diamonds are certified under the SCS-007 Jewellery Sustainability Standard as part of SCS Global Services' Sustainability Rated Diamond program.

Michael Hill chief executive Daniel Bracken said the accreditation was part of the retailer's ongoing drive towards sustainability.

The retailer said it had noticed a large increase in consumers opting to purchase laboratory-created diamonds, particularly among the younger generation.

"We're in the business of celebrating the special moments in people's lives and we know the story behind the jewellery matters. We've long had a focus on responsibility and ethical sourcing, and our offering of Certified Sustainability Rated Laboratory-Created Diamonds is an important part of our ongoing sustainability commitment," Bracken said.

As part of the programme, Michael Hill's lab-grown diamonds can be traced back to their source of manufacture and these producers have committed to climate impact neutrality, through either eliminating or offsetting their emissions.

Michael Hill's financial earnings have improved dramatically since 2020.

It is unclear if this is a result of its sales in lab-grown diamonds. In the year to June 2021, the retailer posted a A$45.3 million net profit after tax, a 1300 per cent increase compared with A$3.1m in 2020.

In a recent trading update, Michael Hill said its store sales were up seven per cent in the current financial year, and it anticipates a net profit before tax of between A$60-$63m for FY22.

Lab-grown diamonds are fast becoming popular within the jewellery business, but draw scepticism on whether they are merely a marketing ploy rather than a clean alternative to natural, mined diamonds.

Some in the industry believe the creation of laboratory-grown diamonds causes more - if not just as much - damage to the environment as traditional diamonds, which take thousands of years to be made.

Retail commentator Chris Wilkinson, managing director of First Retail Group, says Michael Hill's formal move into the lab-grown diamond space was a smart move for the retailer, which operates in the premium end of the jewellery market.

He said its push into the synthetic diamond space reflected what other major jewellery chains were doing around the world - both for environmental and economic reasons, and could also be validated by the move into that market by De Beers, the world's largest diamond producer.

"Diamond mining is recognised as highly impactful on the environment both in terms of extraction and emissions and this sector has been a target for environmentalists. Growing scrutiny on the way traditional diamonds are sourced is becoming a concern for those involved in the trade," Wilkinson told the Herald.

"We understand that laboratory-created diamonds are very hard to distinguish between natural diamonds and typically sell for around 20 per cent less, which enables greater affordability and broadens the market for brands like Michael Hill.

"In a tightening global economy where discretionary spend is likely to be under continued pressure, this will help the business and its products maintain relevance and market share," he said.

Wilkinson said Michael Hill, like competitors Pascoes, operated in the premium end - not the luxury end like Partridge, Tiffany or Chanel, of the jewellery market so opening up to sell lab-grown diamonds as well as mined diamonds would not damage the brand's appeal, and would no doubt be beneficial to the company's top line sales.

The sustainability debate

Lab-grown diamonds are a good product for retailers to sell as they offer much larger margins than those of natural mined diamonds.

A natural mined one-carat diamond typically sells for between $15,000-$20,000, whereas a one-carat lab-grown diamond between $5,000-$6,000. Lab-grown diamonds are coming down in price as more become available in the market.

Both diamonds hold the same physical properties - except one is not 3.5 billion years old.

Jane Bell, founder of Godavari. Photo / Supplied

Jane Bell, founder of luxury diamond brand Godavari, said there was a question mark over how sustainable lab-grown diamonds really were.

"I think it is possible that they are just as damaging as naturally mined diamonds, possibly even more so. They have a different environmental impact, that's all it is.

"They have to be formed under great heat and pressure, the same as natural diamonds in the ground, and to be able to generate that heat and pressure a lot of power is required. In some cases, in less regulated environments, they may be using fossil fuels to generate that power.

"Typically, lab-grown diamonds are manufactured in factories in China or India where environmental regulations aren't as strict as ours. It is not so much the stone itself, it is the inputs in terms of how it is generated," Bell said.

"I'm not convinced that they are necessarily any more sustainable than mined diamonds - it's just a different issue that comes into play."

Bell said she believed lab-grown diamonds should be much cheaper than what they were currently available for in the market, and that they could not be considered as an investment as they were not rare or unique.

"In people's minds they compare them to a natural diamond, but a natural diamond is a limited resource and it is rare, whereas these lab-grown diamonds are generated just like a plastic clip - daily - and they can keep producing thousands of them.

"Lab-grown diamonds have the same properties as natural diamonds in the way they reflect the light and their hardness, they do have a place in jewellery, I just don't see it as investment jewellery - it is not necessarily the thing you buy to hand down for generations. It is the thing that you buy as costume jewellery ultimately."