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Costs, margins, and goldsmiths


#1

Remaining competitive in the jewellery market requires constant
research, skill upgrading, cost management, and a host of other
"hands on" efforts. We have all watched as companies competing
within our market areas have undercut standard margin structures in
order to attract and win sales, sometimes putting themselves out of
business in the process.

To an outsider looking in, this can’t possibly be a bad thing. This
sort of competition is present in every business environment, and is
a major part of every manufacturer and retailer’s strategy.

Where the jewellery industry fails miserably in it’s cutthroat
competition is clearly illustrated in the following anecdote.

A woman whom I have worked with in the trade called me yesterday to
get a quote on a handmade, custom platinum mounting for 3 diamonds
which she had sold to a client of hers. The centre is a 3.00 ct VVS1
D, the other two are matching .50 ct. VVS1 D, all princess cuts.
Nice sale! The total price for the diamonds is in the vicinity of
$68,000.00 Canadian.

I thought about the time which would be spent making the model, the
cost of the platinum casting, the time which would be required to
properly surface the platinum, fabricate the settings, assemble the
ring, and set the stones flawlessly.

I gave her the quote, and she couldn’t quite grasp why it might cost
up to $3000.00. I explained the details, but I wasn’t really getting
through to her.

The irony in her reaction may not be immediately apparent, so I’ll
expand on it’s presence here.

When the diamonds are purchased in Canada, federal excise tax is
immediately payable. At 10%, the tax on this particular sale might
be $5700.00, based on diamond wholesale cost. Revenue Canada is paid
immediately, and they don’t do a thing to facilitate the sale.

The wholesaler who represents the diamond industry takes a profit of
at least 10% on flipping the stones, and he or she didn’t cut or
polish them. That amount might work out to $5000.00.

The craftsmen or women who are blessed with the task of making these
precious diamonds wearable are expected to feel damned lucky to even
handle them. It is indeed a privilege, we are supposed to
understand…and, “My gosh why is it so much?”

After my material costs and labour costs are removed from my charge,
I stand to make about $1500.00 for my professional services…if
I’m lucky.

And, to the proud members of our trade who are successful in making
sales such as this one, that sort of profit on my services is simply
unacceptable.

I am constantly in awe of the wisdom which is present in retail.

David Keeling


#2
    I am constantly in awe of the wisdom which is present in
retail. David Keeling 

Hi David;

Great story! I have had a problem with retail mentalities too for
some time now. I am a wholesale repair and custom jeweler with a
small shop and 2 employees. Now wholesale repair is a lean business.
I engineered my price list very carefully to keep it competitive for
the area. I’ve subsequently drawn a lot of business from my
competition. None of us are getting rich though. I’ve been trying
to move my own designss locally through a couple of retailers. My
first attempt, I put a dozen or so pieces in a store, gave the owner
my wholesale prices and let him slap his chosen margin on it. The
stuff sat for 9 months, not a single sale at 2.5 X markup. I pulled
it and went to another retailer. This time I told him I would set
the retail price. My cut would be the cost of materials plus half
the margin over those costs. Two pieces flew out the door within a
couple weeks. He’s okay with that and so am I, but I have a friend,
another subcontractor, who tried that with his biggest account and
they wouldn’t go for it, instead, they wanted to beat him down on his
cut, so he walked on it. I think the retailers are going to have to
realize, if they want the competitive edge of unique designs with
high caliber craftsmanship, if they can’t afford to carry those
expensive lines, they are going to have to share the profits with the
skilled labor it takes to produce it. And since custom work is not
going to be cheap for the customer, how is it that it should be
cheap for the retailer unless it’s coming out of our hides? You
can’t just call up Yurman or Scott Kay and say, "I’ve got a customer
here who needs blah blah blah, but Oh, that’s too high . . . " I
think if we stand our ground, they’ll wise up or they can go fish.
Craft Report listed an entirely new category in their annual review
of who’s selling what-where. It was the “Craftsman Owned Gallery”.
I didn’t exist in last years report, but this year it was the second
biggest category, right behind retail shows. This is a pattern.
Jewelers are going to have to open their own retail venues, unless
the retailers can help them stay in business at the wholesale level.

David L. Huffman