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Diamond pricing question


#1

Hey All,

I was reading the recent thread regarding starting up an engagement ring business and had a question pop into my head that has been nagging at me for the past few years. I’ve always stayed out of the bridal jewelry area for a host of reasons, but would still help out friends here and there. More recently, I have had the occasional request for a diamond only to discover that I can’t find them above about 0.75ct. at wholesale for less than I can find them at retail on sites like Blue Nile. In fact, “wholesale” usually runs about 5-10% more than places like Blue Nile. (By wholesale, I’m referring to all sorts of channels including pricier options like Stuller as well as a number of specific diamond dealers I’ve meet in Tucson). Some of this seems to disappear if you start comparing significantly higher goods like D-IF stones above 1.5ct, but in the G-H,VS1 range, I’ve ended up just telling friends to buy them at BN since I can’t even get them for their retail price much less save them anything. Plus, I still have shipping to cover. Can anyone shed some light on this for me?

Thanks!


#2

You nailed it Erich. It is entirely possible for a retail customer to find a particular diamond for sale online for less than you or I could buy it from a diamond wholesaler. Not just a similar diamond, but sometimes the exact same diamond. On more than one occasion, I have actually found a diamond that I got from one of my suppliers for sale at retail on James Allen for $100 less than my supplier was going to charge me for it. Not just the same weight and grade, the same GIA grading report number. Then throw in the fact that for out-of-state sales, online sellers don’t have to collect sales tax and it’s a really big problem if that’s how you make your living.

What is the incentive for a small retailer to even try to sell diamonds anymore? Heck if I know. That’s why I don’t buy diamonds from wholesale distributors anymore unless I have to. And I certainly will never buy anything from anyone that also shares their inventory in an online database like those used by James Allen, PriceScope or Blue Nile. That’s a hard conversation to have with a customer, and I really resent any supplier that would willingly and knowingly put me in that position.

The whole industry is in a major upheaval right now. It used to be that most jewelry retailers made their living selling diamonds and that everything else they did was done to support those sales. Now it’s completely upside down, we sell diamonds almost as a loss-leader for selling other, higher profit items or services. Consumer financing has become a better profit source for a growing segment of the industry than sales of anything else they have sold in the past… A lot of the larger jewelry retailers have become nothing more than finance companies that sell jewelry. That’s one of the big reasons that there have been so many independent store closures in the last few years. Retailers that were able to make the change over to making money selling things other than diamonds survived, those that couldn’t, didn’t.

There are also many smaller independents that didn’t make it because they were squeezed out by the big shots that could afford to undersell them on diamond prices, thereby securing a higher profit margin on the other things, like engagement mountings. They could sell a large volume at a small profit and the Mom and Pops just couldn’t make it on smaller volumes at the same thin margins.

Some refer to it as “the Walmart Effect” and it’s being caused in large part by the commoditization of diamonds. Many consumers are no longer buying diamonds as much as they’re buying descriptions of diamonds on paper, foregoing the traditional method of comparing actual diamonds side by side with the help and advice of a trusted expert. The only way that I know of competing in this environment is by doing something that can’t be commoditized, like creating one-of-a-kind, handmade custom jewelry.

Fortunately for those of us that think this way, there has been a surge in demand for truly unique bridal jewelry and increased use of non-traditional gemstones. I think this trend can be attributed to a whole lot of factors, including the disintegration of cartels like DeBeers and their decreasing influence in global pricing and marketing, the increase in the awareness and concerns surrounding “blood diamonds”, whether fully justified or not, and most recently by the further loss of credibility of the industry created by the increase in synthetic diamond production. No one is quite sure where that will lead us, but I’m confident that it won’t affect small artisans like us all that much. I don’t make a living selling diamonds, and I’m darned sure not going to start doing it now.

Dave


#3

I always agree with David on these topics and he is spot on this time as well. But for me this is not a new concept. In the 80’s and 90’s I would often lose business to the chain stores that sold “financing”. At a business seminar I attended once the manager claimed that the 20% down payment they received, paid for the piece, and they would then sell the loan to a finance company and get their profit the next day. They had a five key markup and after selling the paper loan made 3 X their cost. My business was mostly custom and repair and I was always under pressure from the bigger stores which limited my markups and that was before the internet!
Skill and service are still the best ways to compete but it is hard and for so many who leave the industry too hard.
Sam


#4

I know a very successful small retail jeweler who openly marks his center diamond sales up only 10% for the reasons David listed. It’s become a real sales tool. People like that small markup, think it’s reasonable and fair and they tell their friends and that drives in more customers. They don’t bother shopping around. He’s well established in his community which helps as well. There’s never just one ingredient in the recipe for success (a rich old guy gave me that line years ago, good huh?).
Mark


#5

Thank you very much David for such an in-depth reply! I’m glad to hear that I simply wasn’t misunderstanding things or having an odd run of bad luck with questionable dealers.

It was the GIA certs that tipped me off as well. I noticed the identical stone for sale online for less that I was quoted from the dealer. I’m not sure if the dealer is getting less from the online company in exchange for volume or if the site is simply willing to sell at a small loss for the sake of a large gain on the setting. That’s my current guess which seems like a rather clever move to be honest. If I was setting up an large online business like Blue Nile, that’s exactly how I would go about it. Most people focus on diamond value first and the setting is rather secondary in terms of cost concerns. By offering the lowest price on diamonds, I think most others wouldn’t even bother to price check the settings elsewhere since that would be much harder to compare and they’d already feel that they were getting a “good deal”. Your margins could be a bit slimmer, but you would most likely make it up in significant volume. Couple that with financing options and. . well, you get the idea.

Interesting that you should mention Walmart. Just a few weeks ago, a friend was looking at a significant ring for his wife for their 40th anniversary. One of the places he checked was Sam’s Club. I have no horse in the race as I don’t do that kind of work, so I had to ask him why he would want to spend 5 figures on ring that came from Sam’s Club? I mean, I can’t say that I’ve been one for “brand appeal” or anything, but on the flip side, if I’m spending that much for something, it better be from a place that not only specializes in the product, but is well-known for it too. There’s no way I’m taking a 5 figure “chance” on a place that specializes in low-quality import products. His response was that he hadn’t even thought about that. It actually shocked him a bit. He said he was so concerned with a “deal” that it never even occurred to him to consider the quality and reputation of the item for something so deeply sentimental. I then asked, “Well, what do you think you wife and your kids and grandkid’s down the line would think/prefer? That you got a good deal on a mediocre ring of questionable quality that came from Sam’s Club or, for the same amount, that she could’ve had a ring with a slightly smaller stone from a place with unquestioned quality and prestige like Cartier or Tiffany?” He chuckled and said, "You’re right. It would be quite embarrassing to have such an important gift for such a significant event be boiled down to a mere “deal” and forego all other elements. I can just imagine her friends asking where I got the ring and her sheepishly looking down and saying “Sam’s Club”.

I wasn’t trying to sell the guy anything, but I simply wanted to make sure he got something of quality that wouldn’t be a constant repair headache given how much he was spending and something that his wife would be proud to wear and pass on. Lord knows I’m not a “brand” person. I go to where the quality is. If that’s a well-known brand, so be it, but I don’t really care about status symbol-style stuff. Anyhow, it got me thinking about how poor of a job smaller jewelry companies have done about making a clear line in the sand to places like the Sam’s and Walmarts of the jewelry world in delineating “value” as a numeric dollar amount vs. “value” as dollar amount coupled with quality, longevity, and customer experience. Let’s face it, if it experience wasn’t worth anything, Disney World wouldn’t be in business. However, as you mentioned, the Walmart Effect is making people focus entirely on dollar amount and ignoring the customer and their emotion/motivation completely.

Times like this, I completely agree. . .I don’t make my living selling diamonds and I have no intention to ever start. Heck, I bet I’ve only ever sold perhaps 3 or 4 diamonds above .4ct in the last 15 years. I always turn down those requests because I know that people are just looking for a “deal” and a) There aren’t any deals to be had in diamonds anymore and b) It simply isn’t worth my time anyway. I just direct them to one of several jewelers in my area.

Thanks again for the information David. As I said, I’m just glad to know that it isn’t that I have had a run of bad contacts, but rather just the state of the industry right now. Whew!


#6

The internet and the women’s movement changed the old basic jewelry biz model where stores could get by selling diamonds and jewelry made by men, and sold by men to male customers for their women.
Most men are really only interested in the price and quality and grade of the diamonds. Women really just want it to look beautiful on them. They care about beauty and practical daily wearability.
We do custom only and these days only supply the diamond at a low mark up as a courtesy to the rare clients that don’t have one already. We make our money on the custom mountings and colored stones.
When we do buy center stone diamonds for clients we often go to pawn brokers that we know well and have done biz with for decades. Our younger clients like buying “vintage” or up cycled diamonds. They like to think they are conflict free stones. I find that amusing because diamonds mined during the he early 20 th century were most likely done with slave labor in unspeakable conditions.
I wonder if De Beers saw this coming and decided to promote all of the micro pave halo mountings to sell off their inventory of tiny diamonds at a nice profit. Melle goods have gotten pretty expensive while center stone prices have stalled. De Beers did this many years ago with the Eternity Ring. A romantic idea touted to sell melle in mountings nearly impossible to size and doomed to eventual failure.


#7

I certainly wouldn’t recommend to anyone that isn’t a trained GG with years of experience to buy from Blue Nile. There is way more to buying a diamond than looking at a Grading report. I sell diamonds on a regular basis and it is just not that simple and Blue Nile counts on taking advantage of their ignorance. I have looked at many diamonds with good color and clarity that have a poor cut. They are called off makes. And I have seen lots of discrepancy between various grading labs and even from the same lab. Form a relationship with several good diamond dealers that don’t have their stones listed on Blue Nile. Get the Rap App for your phone and learn how to use it. You can sell diamonds a carat and above with a 1.5 to 1.75 mark up. If you sell the fact that you are there to service and warranty that jewelry and Blue nile is not.


#8

I tell people that a diamond grading report is like a real estate listing. It tells you all about the square footage, the number of rooms, whether there’s a fireplace or not, but it doesn’t mention the fact that the lady that used to live there smoked two packs a day and ran a cat rescue out of the back bedroom.

You have to look at it before you buy it. No one in their right mind would sign a real estate contract or buy a car without first seeing the property and hiring an expert to check it out, but all too many seem willing to shell out tens of thousands of dollars on a diamond based on nothing but it’s report. Sure beats me as to why.

Dave


#9

The biggest retail jeweler in my area, very successful, multiple stores, says that 65% of his diamond sales are now created diamonds (man made).
Mark


#10

"Buyer beware!!!.. no other comments needed…;(

Gerry! from my mobile-phone!


#11

I like the analogy to real estate listings and diamond reports and agree very much about it being a potent selling tool. The problem that I encounter is that for nearly all of the people I meet, the difference in diamonds past their basic reports is pretty much entirely lost on them. Without something side by side to compare it to, they just don’t see the difference except for the price . . .even then it is somewhat of a toss-up. They could look at 2 different diamonds independent of each other and say, “yeah, that looks nice” and be pretty much happy with either. However, if they compare them side by side, they may start to see a difference and begin to develop a preference for one. What I usually tell them then is, “do you plan on constantly comparing your diamond to others? If not, take the cheaper one that you were otherwise happy with and be content with having saved the money. The reality is that you will never get out of it what you paid for it so you might as well save some money here or there.”

One caveat, this is for the average joe that asks me about this stuff. This is not my approach to anyone that has expressed a significant interest in gems, jewelry, or shows an interest in fine, high-quality things in general. Where I live, most just want something sparkly for the cheapest they can get it. . .quality is of little consequence (again, thanks to the Walmart effect mentioned earlier) and I frankly don’t feel like spending the time to educate/convince them otherwise when I might only make $50-100 on the sale anyway and end up with someone down the road that feels they were pushed into something “better than they really wanted”. This isn’t to say that is how I view this approach, but rather that I don’t even want to take the chance at all. To be honest, I’m a truly terrible salesman. . . :stuck_out_tongue_winking_eye:


#12

A helpful tool when explaining the real value of a diamond grading report is to run a search for a 1.20 to 1.25 carat G SI1 round diamond and see how many hits you get. On most online diamond sellers’ websites, you’ll get hundreds (I just got 301 on PriceScope) and they will vary in price from around $5000 to nearly $10,000 (I just got $5531 to $9740 on Pricescope. If they’re all essentially the same, at least on paper, how can there possibly be such a difference in price? Obviously they’re not all the same, regardless of what the papers say. The only way to tell for sure what’s worth what is to get the help of a trusted expert. Your buddy that just bought his diamond from Blue Nile or Costco last month is not an expert, regardless of how many hours he spent online researching.

Erich, I don’t think you’re a bad salesman, quite the contrary, you’re probably much better than you give yourself credit for. A really good salesperson has the client’s best interests at heart, not the company’s bottom line. A good salesperson understands that referrals and repeat business are the keys to long-term success, not “hittin’ 'em a lick and moving on to the next one” as is the strategy employed by most big companies. Mark’s friend obviously understands and practices good long-term sales concepts and is prospering as a result. A good measuring stick is the number of returns someone gets. When I see people complaining about their high rate of returns, it tells me a lot about who they are actually putting first in their sales techniques.

Dave


#13

Ahhhh, I get what you’re talking about now. Yeah, with SI1 stuff things can be wildly different. . .big carbon deposit smack in the center vs. to the side where it can be hid under a prong or something. I was thinking of the differences in VS1 and up. The kind of differences that it takes a direct side-by-side comparison to see for the casual looker. That definitely makes more sense and I agree with you 100%. I just wish I was any sort of expert. Diamonds are definitely not my forte and I’ve made a habit of pushing them aside in part because of that.

I appreciate the words of encouragement regarding my approach to sales, but I probably take it a bit far. In an effort to make sure it’s what a person really wants, I usually try to gently talk them out of it. I just want them to be fully aware of any potential short-comings of my style for their intended use, any issues with a stone they’d like in a particular setting, etc. If they understand all that and still want to move forward, I’ll feel okay about the sale. This might sounds really weird, but I’ve never actually felt happy about a sale before. I always feel a sense of. . I dunno. . . resigned reluctance. . .? Even when presenting someone with their custom piece and they rant and rave about it. Sure, I feel good that they’re so happy and that I evidently did a good job for them, but there’s a majority of me that feels “off”. I’ve never been sure why that is, but it’s one of the reasons I push a person to really consider if it’s what they “really want”. The more I know that they truly want it, the more comfortable I am selling it to them. Silly I know and it is certainly one brought about by the luxury of not requiring these sales for my primary income, but it’s always bugged me nonetheless.


#14

I hope this link will work? This is a story that ran on the local news about the local jeweler who sells lab grown diamonds. I know this guy pretty well, he is in the super-salesman category, really like a savant. His seven stores in two states are phenomenally successful (not exaggerating). I say that because he is a guy who can sometimes create a market for a product all by himself. Still I think his success at selling lab grown diamonds may indicate a trend.
Mark


#15

I have followed his ads for years. A little cheesy around Christmas but spot on perfect every time. I wish I had half of that sales ability! We have a store in Madison WI where I live. I have visited a few times and was always struck by how well trained the staff were and how nice the store was. If I ever decide to get a part time job, I might apply there.


#16

Oh Man! I didn’t know you were in Madison, I love that city. I owned a shop and did his work years and years. Ultimately I sold him the shop and most of my old employees still work there (with better pay and benefits than they had with me).

I’ll tell you a story about him. When I started doing his work I had 8 or 9 goldsmiths working for me and was doing work for around 25 other stores. We were totally overwhelmed with work. I have always focused on custom so we were doing about 16,000 jobs a year, lots of them labor intensive custom. I did not have an office person. Each goldsmith polished their own jobs. It was organized chaos. A guiding rule of mine was to let no one account exceed 10% of my gross, so losing one was never a problem.

When Richard (the guy in the news story) started with me he had one little store in a strip mall and one employee. A big turning point in his business life was when he met Tony Robbins, joined a jewelry marketing advisory group and hooked up with advertising guru Roy Williams. His business has not stopped growing since then. It’s been unreal. That steady growth meant more and more work for me.

He was frustrated because our work was very good but we’d regularly drop the ball on delivery dates or have a loose stone go back, pretty regular nuisance problems. He came to me and said he wanted the problems fixed, I said that we were balls to the walls busy and this was as good as I could do… because I wasn’t getting any sleep as it was and losing an account wasn’t the worst thing that would happen to me. I said that I couldn’t hire more people and I was sorry but I’d understand if he took his work elsewhere.

He said, tell me about your business in detail. What are your margins, who is not paying you, how much overtime are you paying…all of it. I trusted him, he was the smartest business guy I’d ever met, so I told him. I’d also add that he was the first jeweler I’d had as a customer that ever cared how my business was doing and if I was making enough money. He was all about win-win.

He looked things over and his advice was this, “Raise your prices 50%”. At the time my pricing matched my most expensive competitors, I’d felt like I was locked in to my current charges. This was a long time ago, but he said, what do I care if you charge me $6 or $9 to set a half carat marquise? He said, I guarantee you won’t lose me as an account and your work is so good I doubt you’ll lose anyone else. With his encouragement I did it, raised prices 50%. I didn’t lose anyone because of the increase. I dropped the slow payers plus a few more, hired office people, reduced our workload, improved our quality and increased our income. What it gave him was an excellent and reliable shop that caused him no problems. It was a real turning point in my life.

His business grew and grew and grew. Ultimately over the years he became 80% of my gross. He never once took advantage of that. When the business was getting a bit big for me and I needed to move to a 3000 square foot shop I called him to make sure we were going to continue to get his work, because why rent the huge space if he’s going in another direction. He said, why don’t you sell me the shop? I’ll worry about the money, you worry about the work. I did, that’s my old shop in the Germantown store, and then worked for him for a few years to smooth the transition. It was hard to leave.

I guess what I’m trying to say in this long boring story is that his success has come by thinking differently. It’s a little unnerving actually. I mean that he’s a guy who is different than anyone I’ve ever met. If you ask him a question, most of the time his answer won’t be what you expect. He pays almost zero attention to what his competitors are doing. He’s got his own compass and that’s what he follows. A really unusual individual and I think that’s his secret sauce.
Mark


#17

Wonderful and refreshing profile.


#18

I always tell folks that any craftsman who has too much work needs to raise their prices.
Jo


#19

I read this and when you got to the shop being in Germantown I said Hey I bet I know who your talking about. I do some hand engraving for Kesslers on occasion. Super nice people to work with.


#20

Yup that’s them! I’m the guy that gave them your name. I was doing their hand engraving until I left. They asked me if I knew anyone and I’d seen your excellent work on stullers forum. Glad it worked out!!
Mark