Lab-grown diamonds provide ‘a nice choice’ for customers seeking affordability, Brilliant Earth CEO says

Brilliant Earth CEO Beth Gerstein joins Yahoo Finance Live to discuss lab-grown diamonds, consumer demand, pricing, the differences between natural and lab-grown diamonds, and the outlook for the lab-grown diamond market.

Video transcript

BRAD SMITH: As inflation rattles consumer spending, there's one industry that could stand to benefit. Lab grown diamonds accounted for 15.7% of all engagement rings sold in the US in December, nearly doubling its market share from a year earlier, according to Tim Norris. For more on the industry, we're joined by Brilliant Earth's CEO Beth Gerstein, alongside Yahoo Finance's Brooke DiPalma. Beth, great to have you here with us this morning. First and foremost, I mean, we're just taking a look through some of the results here. And in 2022, you gained more share. You had strong profitability. How do you kind of begin to compound on some of that profitability that you've been able to experience?

BETH GERSTEIN: We're really excited by the results that we had last year. We have really strong brand momentum, an all-time high of searches for Brilliant Earth. We have a fantastic, differentiated product and a brand that really means something for the next generation millennial and Gen Z consumer. We also have, I think, a very differentiated omnichannel model we've been expanding our showroom footprint. We had ended the year with 25 showrooms and expect to launch about 10 or more this year. So a lot of really strong initiatives around jewelry, around showrooms, and around just overall growing our brand awareness.

BROOKE DIPALMA: And emphasizing that pull-back on discretionary spending, you guys did have 25% more customers in 2022. So break it down for us. Are consumers turning to perhaps lab grown diamonds or lower cost options in this sort of environment to perhaps get bigger diamonds for less money?

BETH GERSTEIN: I think lab grown diamonds just continue to grow in popularity. We've been selling lab grown diamonds for over a decade and so have really been leaders here. I think it really provides a nice assortment for the customer, a nice choice. I think some customers really like that it's mining-free. They're affordable, they're beautiful, and they do allow you to get that bigger diamond that you've really had your eye on.

BROOKE DIPALMA: And perhaps in this sort of environment, customers are looking for long-term investments. And so break down for us, what is the difference in resale value of a lab grown diamond versus a natural diamond?

BETH GERSTEIN: I think that customers don't really think about this as something they're going to have to sell later. They're buying a diamond for the emotional value. It's a symbol of love and commitment. And so whether it's natural or lab, customers are buying this because of how it makes them feel. And some customers really like it natural, that they're buying into something that's romantic. It has many billions of years of history. And I think lab gives a different value proposition. So I don't think it's about resale value. I mean, try selling a diamond anywhere after you purchase it. And I think that certainly I don't think it's going to have the same value as when you originally ended up buying it.

JARED BLIKRE: And can you talk to us about the identification process? Is blockchain being used now? We saw the resurgence in the first place of NFTs a couple of years ago. I know that has died down, but just wondering, people are more interested. We now have the technology that's capable of tracking not only real diamonds, but lab grown diamonds as well. What is the user demand for this?

BETH GERSTEIN: We've been selling blockchain, actually, blockchain enabled diamonds for many years now, since 2018. And the value that we see is it allows you to have a lot more confidence in the journey of a diamond. So, ultimately, there's a database that's immutable that continues to be appended by the next chain of custody. And so you have transparency that you just didn't have before. You know exactly what the diamond size was when it was unearthed, what the rough diamond carat weight was. So I think that there's a lot of interest overall from the customer standpoint in terms of the practices, making sure that they're buying something that is consistent with their values that's sustainable and transparent.

BROOKE DIPALMA: And Brilliant Earth does consider itself a digital first brand. I want to emphasize that here. But you guys, as you mentioned, did open those showrooms. And so I'm curious-- how do appointments then translate to sales? And do people still buy more online or at those showrooms you guys are investing heavily in?

BETH GERSTEIN: We think the winning model in this space is really about omnichannel. Customers oftentimes start their journeys online, so they'll do a lot of research. This is a new category for them. And this is one of the largest purchases that they're going to make at that point in their life. And then they really like coming into the showroom and being able to touch and feel the product and really working one-on-one with our jewelry specialists. It is a high touch sale, so making sure that they feel really confident and comfortable in that purchase and ultimately walking out with this really beautiful product.

And shopping together is another, I think, big trend that we're seeing a lot of couples come in together. And we're able to provide a personalized and curated experience. So we know exactly what they want, based on what their digital shopping behaviors are. And then we're able to curate that appointment. So that's what's so unique about our model, is, we have so much more information about the customer. That makes that customer experience so much better. And ultimately, it's going to drive conversion. So we open a new showroom, we see these amazing economics in terms of lifting the overall metro market. It lifts it over 100%. So it's really great for the customer experience, and it's also great in terms of the bottom line.

BRAD SMITH: Absolutely. We only have about 30 seconds left here. I'm just wondering, in terms of that experience and taking the digital experience and what you've been able to power there into those showrooms as well, and having that same type of profitability and that margin at the end of the day, how do you maintain that, even as you do power that new type of experience where a customer is coming in to a brick and mortar capacity?

BETH GERSTEIN: Well, I think it's just having, really, a disciplined approach to how you're managing your investment. So every time we're opening a new showroom, we have strict ROI thresholds. And it's about a mix of that customer experience, but also making sure that you're being financially responsible. And that's how we've been able to drive profitability. We exceeded our expectations in Q4. And we're going to continue to have a really keen eye there in terms of providing a premium experience, but also making sure we're driving profitable growth.

BRAD SMITH: All right, Beth Gerstein, who is the Brilliant Earth CEO, alongside Yahoo Finance's Brooke DiPalma, thank you so much for taking the time here with us, both Beth and Brooke.