Buying Effectively

May 1999

Managing:Diamonds

Buying Effectively

You can squeeze more profits from diamonds if you are knowledgeable and consider this menu of possibilities

PLAN FOR PROFITS

Diamond certificates can be the proverbial double-edged sword. They help you justify a price when selling to a consumer. But they can weaken your negotiating position when buying from a dealer if you rely on them rather than your own knowledge of diamonds.

A generation ago, diamond buyers would visit a dealer's office and examine diamonds for the location, size, type and number of flaws – as well as the cut and color – before negotiating a price, says Tom Tivol, president of Tivol Jewels, Kansas City, MO. Today, precertification makes such examination unnecessary.

"The precertification of diamonds by labs with varying degrees of expertise has had the unintended effect of eliminating the retail jeweler's need to know about diamonds," he says. "Buyers who have authentic knowledge of diamonds make better profits. If you know the difference between a feather and cleavage, a chip and an indented natural, for example, you can use this information in negotiating price." You can save 2%-5% because of durability flaws, he says, as long as you represent the diamond honorably to consumers.

Tivol offered this and other tips to increase diamond profitability, along with the caveat they can affect your image, so you have to consider them carefully:

  • Don't reduce diamonds to a commodity by negotiating a certain percentage below the Rapaport Report price list, he says. This gives the supplier the advantage in setting prices. Tivol encourages you to buy five 1-ct. precertified diamonds that are G, H or I color and VS2, SI1 or SI2 clarity with the kind of cut and price you like. Then buy the same kind of diamonds without certificates. "Our average saving is about 7% when buying non-certified stones and having them certified later," he says.
  • Shop the certificate market. Is it useful to have two independent laboratory reports done on a diamond (at about $70 per report) on the chance they result in slightly different grades? "If you price your diamonds based on color and clarity grades on paper rather than on authentic knowledge of diamonds, the answer is clearly yes," he says. "It's a problem ethically, but if you can overcome that with your own knowledge, then from the limited standpoint of making profit, certificate-shopping may be appropriate."
  • Sell enhanced diamonds. "Tivol Jewels doesn't do this, but as long as the enhancement is identified and represented fully, then you have done your job with the public, and therein lies the chance for increased profit," he says. "It is unpalatable to some; to others who are better businesspeople than me, selling enhanced diamonds suggests tremendous size and value opportunities for profit."
  • Precision clarity shopping. There are differences in clarity grading based on size, location, type and number of surface blemishes and imperfections if you are willing to look at them and negotiate from that standpoint," he says. "This can result in 5%-10% additional margin."
  • Domestic vs. international. You can buy just as low at a U.S. show as in a foreign dealer's office on average, he says. But once you establish a relationship with a foreign supplier and the supplier accumulates enough of certain types of diamonds, you may be able to get better prices. Tivol, for example, has saved 8%-15% when buying certain groups of diamonds at certain times in Antwerp, though he says the same can be true in New York City. The key when buying abroad, he says, is to make the arrangements in advance rather than traveling there first blindly in hopes of negotiating a deal.
  • Light sizes. Diamonds that weigh slightly less than common weights (a little under a half carat, a little under a carat, etc.) can cost 15%-20% less per carat. "If you choose not to buy these diamonds, it's because you're being controlled by your customer a little too much," says Tivol. "We are so subject to consumer preferences created by advertising that we have forgotten our power as merchants to suggest what the customer should have."
  • Cut. Better cuts suggest the opportunity for more profits because fewer stores offer them so there's less competitive pressure on prices. What's more, he says, you can buy a diamond cut to Tolkowsky proportions without a certificate and then have it certified yourself. "Therein lies your profit, – a savings of about 15% per carat."
  • Taking a cut. This is an old-fashioned way to buy diamonds: for example, taking a paper of 25 marquise diamonds in a range of sizes with some variation in color and clarity. If you sell a range of diamond qualities, this can yield a savings of 5%-10% overall, especially if you can negotiate out any you really don't want.
  • Memo/consignment. Tivol believes jewelers should buy diamonds rather than obtain them on memo. For those who have developed a clientele for larger diamonds (say 5 to 15 carats), however, memo makes sense because of their expense or infrequent turnover, he says. But he cautions not to accept that these larger diamonds should cost more just because they're in your store on memo. "The diamonds are available for memo because they cannot be sold elsewhere," he says. "The fact you are the available merchant for them suggests a negotiating position."
  • Internet competition. Tivol won't match diamond prices a customer finds on the Internet. "That gives the customer the advantage by suggesting you will compete for his business," says Tivol. "Why would you want to develop a relationship with a customer who can buy diamonds very close to the wholesale cost? What kind of goodwill ambassador would that customer be if he can say, 'I found the stone on the Internet, took it to Tivol's and Tivol's met the price.' Do you really want that customer for your business?"

– by Ren Miller



Copyright © 1999 by Bond Communications.


 

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