Please explain to me the way something is appraised to reflect a
valuation like this.
Most appraisals like that are intended to reflect an average/typical
normal retail price for the item, purchased new. There is about the
same sort of relationship between the cost of the raw materials,
(gold, silver, gemstones in the wholesale market) and the final
retail price, as there is for other types of products, such as the
difference between the cost of that nice new dining table, and the
cost of the lumber to make it. Or the cost of a bunch of steel, and
the cost of an automobile made from it.
The raw material is only the starting point. Appraisals are seldom
just a multiple of the cost of the material, or if some items can be
valued that way, the multiplier to use would differ a lot from item
to item.
Consider that bracelet. Yes, the gold is only worth a hundred bucks
or so as scrap metal. But if you’ve looked, you’ll find that new,
ready to cast or fabricate, white gold costs more than the scrap
value. Depending on the alloy, sometimes a significant percentage
more. That reflects the profit margin and costs the refiner incurs in
producing that precision alloy.
Then, some manufacturer has to turn that raw metal into a bracelet.
That takes facilities, employees, time, equipment, and what all. The
resulting bracelet, from the manufacturer, has a wholesale value
based on the cost of the metal, plus the cost to make it, and then a
multiplier to allow for a profit margin. Often, for larger scale
manufacturing operations, the end wholesale cost can end up double or
triple the cost of the basic raw materials. And that’s wholesale.
That wholesale now sells a bunch of those bracelets to your local
retail jewelry store, or internet seller, or catalog seller,
department store, or whatever. That retailer has to maintain an
entire business, with all it’s expenses, with the profit margin
generated by the sales of that jewelry. Often, their actual cost of
the jewelry is only a minor percentage of the operating costs.
Often, in order to remain even modestly profitable, the markup will
be anywhere from two to four times the wholesale cost. More
(sometimes much more) for the most inexpensive items, like the rack
of cheap costume jewelry earrings by the door selling for 5 bucks a
pair. Those, bought by the gross, might have cost a tenth of that,
but to make the space taken up by that display pay it’s way, that
markup is needed.
No, these markups are not obscene, or highway robbery, or anything
of the sort. It’s what’s needed for the business to survive. Consider
the grocery store. Items are often marked up somewhere between 30 and
50 percent. Pretty low. But then most of it sells within weeks, and
there’s a steady line of people constantly keeping the cash registers
busy. The big box club stores like Sams Club or Costco make their
name by being low priced discount sources. Guess what. Most of that
merchandise has at least a 100 percent markup on it. (sell price
double the cost of the item) That too, is low, considering that the
store needs to make a profit. Their merchandise costs more than the
groceries, and selling costs may be higher too. Now compare that to
clothing stores, jewelry stores, furniture stores, and the like. Such
shops do NOT have a line at the registers. A jewelry store might have
to remain profitable on the profit from just a limited number of
sales per day, and the costly merchandise might only get sold/turned
around once or if lucky, twice a year. A three time markup is often
the least that such a store can charge and still keep the doors open.
Do the math here, dude. A ten times ratio between the materials cost
and the final retail value is not at all unusual for many types of
item. Exceptions might be the things that turn (sell) more
frequently, or are unusually inexpensive to manufacture (like machine
made chains, for example) Those, in addition to often being highly
competative in the market, can be sold for a lower end markup simply
because they’re cheaper to make, inventory, and sell. But that’s not
the norm for most items. And you’ll find this same sort of math
throughout the retail marketplace. Jewelry often has a somewhat
lower markup than some retail goods. Fashion clothing, for example,
is often substantially higher. Furnature too, sometimes. And many
other items. And before just assuming this is outrageous, just
consider what’s involved, financially, to open a store (pay for the
real estate or mortgage, rent, utilities, etc) staff it with a bunch
of sales people, managers, buyers, and the boss (all of whom want a
paycheck. and remember the sale doesn’t just pay the commision of
the sales person. it pays the salaries of all the other folks, from
stock people to accountants to security guards), stock it with a
million dollars or two in inventory (and paying both the insurance
and the security costs for that stuff). Now consider the typical
frequency of sales in such luxury goods stores. Walk by a mall
jewelry store some time. You see shoppers, sure. But do you see a
steady stream of people lining up to put money in the register? No.
Sales can range from boringly slow, to moderately good, but it’s
seldom a constant stream, like you see in the grocery store. And all
those above costs have to come from somewhere or there’s no incentive
for the owner to even open a store.
Still confused about why the appraised value of a piece of jewelry
seems like more than the gold? Wake up. Think about it. Oh, and still
think the wise retail buyer can go on the net and get stuff for a
little over the materials cost? Again. wake up. do the math. The
internet stores may not have all the costs of a retail store, but the
merchandise still costs them the usual wholesale value, and they’re
not in business just to be nice. They too, are at least doubling
their money on most typical merchandise. They have to, or it’s not
worth doing.
Peter Rowe