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RETAILERS REACT TO SOARING DIAMOND PRICES | April 20, 2011 (2 comments)
Merrick, NY—“Sticker shock.” That’s how jeweler Chip Davis of Skaneateles Jewelry bluntly describes his recent diamond-buying trip to Antwerp. Finer, larger clean white goods were up 15% to 20%—and the first thing he did upon returning home was to raise the price on his current stock of better goods.
Davis and other jewelers like Laura Stanley of Stanley Jewelers Gemologist in North Little Rock, AR, and Susan Eisen of Susan Eisen Fine Jewelry and Watches in El Paso, TX, all say the hardest goods to find right now are nicely made one to two carat sizes.
“They’re just really crazy expensive,” says Stanley. Older inventory that used to seem expensive now looks like a bargain when you factor in gold and diamond prices, she adds. She’s adapted by buying only what she needs, not keeping a lot in stock.
“Last year, people might have decided that next year will be their anniversary and they’re going to spend $15,000—but now it’s $20,000, and they don’t want to spend it,” Eisen says.
“We try to buy asset, rather than memo, and try stay ahead of the curve, but it’s not always easy,” says Davis. “But am I really going to make a difference in the world diamond economy here in Skaneateles, New York? Like Martin Rapaport said in his presentation at Centurion [Jewelry Show], we’re just tossed around like ping-pong balls.”
Davis has been luckier than some of his peers—his challenge around price increases has generally been internal education of the staff, rather than external pushback from customers. “Customers don’t know prices, and we’re not a price store. We just say that gas has gone up, gold has gone up, and diamonds have gone up.” So far, he says, customers understand and accept that.
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Two views of a three-stone ring from Julius Klein, New York. At the top left of the page, rings from the Lattice Collection by A. Link & Co. feature top quality melee.
But sometimes a bit of unfortunate timing puts a jeweler in an uncomfortable spot. That happened recently to both Susan Eisen in Texas and Lou Guarino of Louis Anthony Jewelers in Pittsburgh, PA. At Louis Anthony, a customer had been admiring an 18k pave band priced at $5,000, but when she came back a week later to buy it, it had been sold to another customer. An identical new one now would cost $7,500, which the customer did not want to spend. She ended up buying another pave piece Guarino had in stock—one that actually had greater diamond weight for a lower price than the new version of the first piece would have cost—but it wasn’t the style she’d initially loved.
At Susan Eisen Fine Jewelry, a customer asked if a ring could be made in a different metal. Yes, said the manufacturer, but for $1,000 more than the one in stock cost. At press time, Eisen was about to call the customer with the news.
“It’s very difficult to deal with prices changing so erratically,” she said. In the case of this particular ring, it wasn’t because of the metal, it was the diamond baguettes in the setting. She also described another memo piece that she’d only had for a few days when the manufacturer called and said it had to go back for a price change.
It’s not a fun place to be, say Eisen and Guarino—caught between too much of a cost increase to just absorb it, and the unpleasant task of telling a customer that the piece is so much more expensive than they were first quoted. Both do try to sell at the higher price, but recognize they may need to make some adjustment.
Why not simply re-price inventory, as Davis did?
Most jewelers will re-price certain goods, while leaving others as is. Even Davis didn’t re-price everything, only his better goods. Stanley, for example, doesn’t like to re-price many of her big individual pieces, but for a display of gold chain, she does try to keep up.
“It’s too confusing to the customer. If they pick up one chain at a certain price, then pick up another that’s two inches longer but costs twice as much, you don’t want to tell them that the reason the first one is so much less is because you’ve had it for three years.”
“I don’t have the gram weight of each piece in the store in my computer so that I can just change the price with one entry, like big manufacturers do,” says Eisen. “It’s almost more work than the money you’d get back,” she says. Stanley adds that even if a jeweler does have all that information in the computer, you still have to re-tag each piece, which is very time consuming.
“It’s virtually impossible to re-price every piece from every manufacturer’s line. And, they have to let us know, too [when prices change],” says Guarino. What would be the best thing, he suggests, is if manufacturers would ask jewelers for their inventory lists prior to a price adjustment. Then, he says, jewelers can just email what they have in stock and the manufacturer can respond with the new prices.
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Retailers are working to adjust to increases in melee and better goods, such as are incorporated into these pieces by Rahaminov Diamonds, Los Angeles, CA.
The savior on the street. The rocketing price of melee isn’t lost on retailers. “It’s cheaper to break something apart than buy new,” says Laura Stanley. It’s also a potential source of cash, since brokers come around regularly looking to buy.
“It’s astonishing what they’ll pay for breakout stones—$50, $60, $100 a carat—for stuff that’s too yucky for us to do anything with. A guy who always used to come in trying to sell us stuff now wants to buy,” she says. The breakout melee she’ll reuse typically comes from old inventory she’s bought, whereas what she sells off typically comes from pieces bought off the street.
As Rapaport discussed in his Centurion Show presentation, and GIA’s senior industry analyst Russell Shor discussed with The Centurion Newsletter, the secondary market is burgeoning. No longer solely the province of seedy shops with posters screaming “We Buy Gold,” jewelers at every level of the market from discount to deluxe are buying off the street. For some, it’s been a great source of good-margin inventory; for others, it’s been the saving grace that made the difference between staying in business vs. closing the doors for good.
“Buying gold and selling the little beads like Pandora saved a lot of independents,” says Davis. “Without it, I think a lot more would have gone under.”
“It’s so much of a discount, how can you not [buy off the street]?” asks Eisen.
“We’re buying as many [diamonds] as we can off the street,” says Stanley. A lot of it, as she mentioned above, is lower-quality melee that happens to be part of a piece that’s getting melted down for gold. But people are selling big diamonds as well.
She’s bought pieces off the street that she typically would not seek out from a diamond dealer—maybe it’s off-color, or not well cut, or just an unpopular shape—but she’s also been finding there’s a customer for everything. She cites a 3-1/2 carat marquise she bought recently.
“I’d never buy a 3-1/2 carat marquise but the guy selling it was desperate for money,” she said. She sold it almost right away—to a staff member who loved it.
“I wish some of the other shapes were more popular,” says Eisen. “I have a ton coming in for sale but I don’t buy pears and marquises because I can’t sell them.”
What buying off the street has done for Eisen is allow greater design freedom for her original pieces.
“As a designer, I used to be cheap. I was always afraid to use my bigger stones in case I needed them for an engagement ring. Now I have enough stones [from buying off the street] that I feel ok using one carat or more in designs, and customers are responding really well.” It’s been an unexpected side benefit, she says.
Guarino is one of the few who has not bought off the street. He’s a Circa agent, so he does get some consignment business that way, and he has a trade-up program for customers who want to upgrade a Louis Anthony piece they’ve bought earlier. Those he will polish and re-sell, or if they’re dated, he will break them apart, reuse the stones and melt the gold.
Another tipping point? Like some dealers and analysts, retailers too are concerned about pricing out of the market. In the immediate future, one area that might be affected by sharp increases is pieces that rely heavily on melee, such as the tremendously popular micropave trend for engagement rings. To date, jewelers aren’t seeing resistance to prices for those, though as Stanley points out, that might change depending on what the prices are in Las Vegas.
Guarino believes in selling engagement rings as a piece, rather than breaking out the center stone and the setting separately. “It’s easier to sell customers on the fact that larger stones have gone up than that smaller stones have gone up. But if it’s in a setting, there’s not as much resistance.” Still, he says the rising cost of melee might affect some of his buying in Las Vegas this year in non-DER categories.
Eisen says the lower the price, the more resistance. “If a $900 ring now is $1,100 but the customer only has $1,000 max to spend, they’re not going to buy it.” But, she says, some of the impact can be blunted by manufacturing tricks, whether it’s a slight drop in quality of the melee stones or an adjustment to the design, such as stopping the pave higher up on the sides of a ring shank.
“There are many ways to save money without it showing,” she says.
The bigger fear is that customers will reach a point where they’re no longer seeing the value in the price and slam their wallets shut.
“I worry that we will price ourselves out of the market,” says Guarino. “I deal with many designers, and in each line I always look for quality but also for value and can I really retail it out? For example, silver. It’s creeping up, but it’s still our price point goods. But when suddenly your price point pieces are approaching $3,000, it’s going to open us up to more competition from other categories like fur coats, vacations, and so on.
“People come in wanting to spend $3,000 to $5,000, and they’re getting less and less for it,” worries Eisen.
Adds Guarino, “My customers are used to buying really well made pieces. They feel the weight of the metal, they know the stones are good. [Right now] they’ll still pay for quality, but will there come a point when they look at what they’re getting for the price and just decide it’s not enough?”