The adjustment question of diamond
By Michelle Graff http://www.nationaljeweler.com
During its recent conference call, the chief executive officer of Blue Nile said something that many jewelers never thought they’d hear.
The price of diamonds, which the online retailer buys on a real-time basis, had increased so sharply that it cost Blue Nile engagement ring sales. The website that, much to the chagrin of brick-and-mortar retailers, has attracted hordes of young bridal buyers looking for the best price on their diamond engagement ring suddenly wasn’t the best deal on the block anymore.
Of course, the increase in diamond prices isn’t news to jewelers.
Richard Ross, owner of Tilden Ross Jewelers in Sarasota, Fla., said he bought a diamond ring at the 2010 Las Vegas shows for $6,200 wholesale. Three months before this year’s show, he sold the ring for about twice that price to a female customer who, unfortunately, misplaced the piece a short time later.
The customer asked Ross to buy her a replacement ring while he was in Las Vegas this year. Ross said that same ring was now $9,000 wholesale, and he was left to explain to the customer why she was paying thousands more for a ring that she bought just a few months prior.
“It was extremely uncomfortable,” he said.
The sharp rise in diamond prices also leaves jewelers with a decision to make: do they re-price older inventory to reflect current replacement costs, or do they take this opportunity to move merchandise via lower prices?
Seemingly, there’s no one correct answer to the question.
Both Bill Longnecker of Longnecker Jewelry in McCook, Neb., and Van Simpson of Tara & Co. in Searcy, Ark., said they evaluate price adjustments on a stone-by-stone basis.
Simpson said if he can “beat up” Blue Nile on price while at the same time maintaining his margin, he does.
It’s an advantage his store enjoys because it has been gravitating away from using memo and more toward outright buying inventory. “When you do that (use memo) you’re kind of in Blue Nile’s shoes. We’re really trying to own more of our inventory,” Simpson said.
On some stones, though, he takes into account the replacement cost. “Otherwise, you’re just not going to have any inventory. You can’t replace it. You’re losing money,” he said.
Simpson adds that now might be a good time for jewelers to bring out their older stock of slower-moving fancy shapes, the marquises or ovals, and try to sell by comparing their prices with the current price of diamonds today, particularly rounds. The sharp contrast in price gives retailers a chance to move less popular shapes.
Corina Limon Madilian, co-owner of Single Stone in San Marino, Calif., takes more of the “sell now, pay later” approach to diamond pricing. She said they saw the spike in diamond prices as a chance to draw in customers.
Current store prices on older inventory reflect what they paid for it, not what it will cost to replace. While no customers have outwardly commented on the shop’s competitive prices, Madilian said she’s seen a number of shoppers leave--presumably to check out the competition--and later return to buy.
“I definitely think we’ve had more engagement ring business coming through recently,” Madilian said.
While retailers wrestle with re-pricing, some designers are combating rising costs by getting creative with the materials they use, mixing in diamond slices, rough or off-color diamonds with traditional faceted white stones. These diamond slice earrings are from Jordan Alexander at Fragments and retail for $3,560.
Janet Goldman, chief executive officer of Fragments, a retail and wholesale jewelry business in New York City, said as a wholesaler, she’s shocked at the current diamond prices. “But I say to myself, ‘This is what it is today. If you want to buy something with gold or with diamonds this is the price today.’ You bite the bullet and you go for it.”
On the retail side, Goldman, like Madilian at Single Stone, opts to give customers a deal on older merchandise. She said they keep the original prices on pieces that are not brand new. “It’s a great selling point for retailers. It’s not a time to be greedy,” she said.
Retailers who pass along great values to their customers sell more merchandise while also building relationships that result in repeat business, as long as the salesperson remembers to pass along one crucial piece of information to customers at the point of sale.
“Let them know,” they are getting a good deal, Goldman said.
As for how to replace their merchandise at higher prices, Madilian said that’s a question she’ll worry about answering later.
The latest indications from the market show that diamond prices may soften in the near future. A recent report from India stated that the price of rough diamonds fell between 10 and 15 percent recently due to resistance to high prices at the recent jewelry show in Mumbai and the turmoil in the global stock markets. Polished prices, however, are not necessarily expected to follow suit. They could decline or hold steady, the report stated.
Jason Arasheben, owner of Jason of Beverly Hills with stores in California and Las Vegas, said the industry is in a bit of an adjustment period right now and that in six or eight months, all jewelers will have re-price their diamond inventory to reflect current prices.
At his store, he said he has trained the staff to sit down with budget-conscious customers and explain to them why diamond prices are up and to spin diamonds as a great investment.
The increase in the cost of gold and diamonds is evident in this custom-made rhinoceros beetle ring from Jason of Beverly Hills. The gold ring with 1.45 carats of black diamonds and 0.70 carats of brown diamonds retails for $14,000 but would have been priced at about $11,900 six months ago, Jason Arasheben said.
“Now the customer has to get re-acclimated to what is the fair market value for a three-carat, pave diamond ring. Customers are a little squeamish when they see the prices,” Arasheben said.
Ross, of Tilden Ross, wants to take it one step further. He wants a leading force in the industry to generate publicity about rising diamond prices, making it as prevalent in the mainstream media as are stories about the rising price of gold.
“The whole onus is left on the retailer to explain it. I think it’s wrong,” he said. “I think it’s going to be very difficult.”
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