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Diamond pricing etc


#1

The thread about diamond markups got me thinking (dangerous
territory I know, but bear with me). I wonder if retail jewelers
would have been so keen to bend to the temptation of lowering
diamond margins if other segments hadn’t become so profitable?

For example, about the same time diamond prices started to see
pressure, platinum really started to become popular; and there was
little or no price pressure on platinum jewelry. As well, this was
about the same time that the designer movement really took off,
again, little price pressure there.

The stable price of gold probably made some difference, too, and
gold jewelry has really seen a tremendous increase in sales over the
last couple of decades, about the same time we started seeing
pressure on diamonds.

Any thoughts?

Larry


#2

Larry, Hmmmm, interesting thought. I think it’s probably the other
way around, though. Retailers moved into platinum and designer
pieces because they were experiencing price pressure on diamonds,
and these items offered better margins.

Diamonds are, well, common as dirt, at least in comparison to most
colored stones. Until the mid-'90s, the primary thing that preserved
their price was DeBeers careful control and effort to match the
supply with the demand. During the '90s, however, a number of new
sources of diamonds began spilling stones onto the market, leaving
DeBeers scrambling to keep up. This diluted their effectiveness at
controlling price, and introduced a higher level of competition into
the market. Unsurprisingly, prices dropped as the supply rose. The
increase in supply also made it easier for all kinds of people to
enter the market as sellers. More supply, more sellers, more people
willing to sell at lower margins.

Thanks to the widespread use of lab certs, diamonds could easily be
comparison shopped (at least, consumers think so). The Internet has
helped encourage this type of comparison shopping by making
about diamond wholesale values and comparison
(certs) readily available to the consumer. Ask any car
dealer about the impact this has on price negotiations how many new
car buyers don’t walk in knowing what the dealer invoice price is?
They expect to negotiate from there, not the MSRP, as they once might
have. I know car dealers who far prefer to sell used cars, as a
result the margins are much better than on new vehicles, where the
profits have become razor thin as a result of an informed consumer
and heavy price competition.

As more customers started beating them up about price on diamonds,
retailers had to decide whether to reduce their margins or watch
their customers go elsewhere. And because they were making less on
diamonds (no matter which option they chose), more retailers began
looking for alternative products to promote. (In a way, so have car
dealers: Saturn, for example, began selling its low-pressure,
no-haggle buying experience, which consumers have bought in
surprising numbers.) Gold, platinum, colored stones all offered
alternates. But there were other developing price pressures with
standard designs and classic pieces: the volume retailers.

Wal-Mart and QVC can direct-source jewelry made in Asia, cutting out
the wholesaler (and his profit) and with the volumes they buy at,
they can get the stuff for far less than any independent retailer
could hope to. (Yes, I realize the quality issues heRe: for the
moment, let’s assume all these buyers were interested in the same
quality product, at least initially.)

But selling on price alone brings its own problems, and that’s the
oft-noted quality issues. Since price point drives buying decisions
for most of these retailers, manufacturers gave them what they
wanted lower and lower price points. And you all know how they did
that using less gold by making thinner shanks, prongs, walls, etc.,
using lower quality stones, avoiding excessive redos by simply
passing poorly made pieces through quality control, etc. etc.

Smaller retailers couldn’t compete on price they couldn’t buy enough
product to get the same price points QVC got, even with lower
quality. So they had a choice: educate their customer enough to make
them willing to buy more expensive, better quality product and/or
offer them something they couldn’t buy in the chains ie platinum,
unusual colored stones, and designer pieces. These things couldn’t
be comparison shopped, and so offered no price pressures. (This is
also why exclusives developed: to prevent comparison shopping. If you
have four shops selling David Yurman within 20 miles of each other, I
guarantee the price drops, as all four compete for the same
customer. There’s little the manufacturer can do and still stay on
the sunny side of price fixing laws.)

Anyway, that’s my take on the market, for what it’s worth. I think
lower margins on diamonds encouraged retailers to look beyond the
stuff they always sold, and personally, I think it’s a good thing. I
think the natural limits on the supply of these products will
continue to support margins on these items. I do think the situation
is still evolving, though. For one thing, the Internet hasn’t
finished influencing buying patterns: it’s not going to end
retailing as we know it, but I don’t think we’ve seen its full
influence yet, either.

There’s also the hurdle of convincing consumers to pay more for
non-mass-produced jewelry. This has not been a society that has
readily valued quality or uniqueness over price. As those of you who
do custom work know, it’s not easy to convince consumers that your
exquisite work is NOT equal to the mall jewelry stores’ it’s better
and worth a higher price. But I’m optimistic that there are enough
people out there who do value quality and originality to support such
a market. At least I hope so, because I sure would hate to lose the
creativity and beauty you guys offer the world, and be stuck with the
bland, low quality stuff high volume retailers inevitably end up
selling.

Suzanne
Suzanne Wade
writer/editor
Suzanne@rswade.net
http://www.rswade.net
Phone: (508) 339-7366
Fax: (928) 563-8255