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Profit Margin


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Hello Everyone,

 

I'm new to this forum but have been researching prices for the last 2 yrs...to say that I do alot of research is an understatement. I agree with many of the professionals when they talk about service and quality. However, when slim profit margins are mentioned it raises an eyebrow. Of course there is the middle man, taxes, liability and everything else that comes with being a business owner and I am sure we have all heard of the cost of a 2k stone selling for 10k retail and etrading at 6k.

 

I will be buying in the near future.

 

Any thoughts ?

 

Thank you in advance

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So your theory is that the jewelers and etraders are conspiring together to support huge profits for themselves? Hmmm. If only it were so. I would be a wealthy man, as would be many of my friends. The Forbes 400 would be chock full of diamond dealers (The only one there is the CEO of DeBeers at #158 on the international list and who got it by inheriting a crumbling empire built a century ago) and Blue Nile would have a better stock valuation than Ford and Exxon combined. Why do you suppose this doesn’t seem to have happened?

 

http://www.forbes.com/lists/2007/10/07bill...amily_2MY9.html

 

http://www.businessweek.com/investor/conte...ampaign_id=twxa

 

Neil

Edited by denverappraiser
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Diamonds are the lowest profit margin for a Jeweler, especially so over the past five years with the advent and fierce competition of the Internet.

 

Jewelers profit margins on jewelry, custom jewelry, and certainly colored semi-precious stones are much higher since they are one a kind items, Custom Orders, and in the case of semi precious stones and colored stones less consumer knowledge in comparison to diamonds and well as less attention and formal grading offered by Grading Labs and requested by consumers.

 

The term "rich jeweler" is an oxymoron and it is indeed unfortunate that your extensive research over the past two years appears to be clouded by this misperception.

 

Your focus should be on purchasing the best cut quality diamond in relation to Customer Service policies and pricing.

 

We wish you the best of luck and success in your search.

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Im not at all suggesting a "rich" jewler he is at the end of the food chain,but at the same point, many individuals coming in to buy a ring will walk out with nothing. Take De Beers for instance and the current situation, of course the wholeseller also paid a price for this circumstance and under the curent economic times it could get tougher. But like I said...al business' are taxed to death and when you start talking about other added overhead in can be over bearing. I know this because I use to own a small business.

 

Profit is only profit once costs, expeditures and liabilities etc etc are deducted.

 

I am cosidering buying from an independant cutter, any thoughts or suggestions.

I'm not trying to suggest anything and you're input on this topic is valued :)

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Are we talking about the same thing?

 

I am sure we have all heard of the cost of a 2k stone selling for 10k retail and etrading at 6k.

What do you mean by the above comment? At the bottom of the ‘food chain’ someone just picked it up out of the dirt. For him it cost nothing. All of those other costs are the entirety of it.

 

The mining companies aren’t getting rich off of this either. DeBeers has become steadily less valuable for decades. They don’t public report their profits but their biggest competitor, BHP Billiton is very upfront about what they are doing, how they do it and how much they are making by it. Profits are slim. Other ‘competitors’, like the governments of Botswana and Namabia are fairly upfront about their cash flow and neither the people or the elite are rolling in money in either of these places. If not the jewelers, where does your research indicate all of this excess money is going? The cutters? The diggers? The tax collectors? DeBeers?

 

Where have you been doing this research?

 

Neil

Edited by denverappraiser
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If you believe you can get a better deal from a Diamond Cutter then by all means you should definitely explore this possibility.

 

Insofar as to your comment that "many individuals coming in to buy a ring will walk out with nothing", that has as much to do with the lack of knowledge, homework, and preparation on the part of the purchaser as it does with the inferior quality merchandise, lack of product knowledge, and education of the selling Jeweler.

 

Diamonds are individualistic like fingerprints; two diamonds with the same exact specs on paper can look completely different to your eye. They are not a standardized commodity as are cars where you need only to reference Consumer Reports or Car & Driver and just choose your price range, options, and color.

 

Caveat Emptor applies to all industries, services, and types of merchandise.

 

It is unfortunate that after two years of research you are still uneasy, uncomfortable, and very suspicious.

 

I would advise you not to make a purchase until you do get more comfortable and get to the point where you are confident that you can buy a quality diamond that will make you happy with no Monday morning buyers remorse.

Edited by barry
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Neil,

 

I think you're reading to much into that. Jewelers are obviously at the end of the food chain because typically they would be the last person involved in the sale unless of course there was an appraisal.

 

Here is a partial post taken by members of the JCK Retail Panel.(Industry Snapshot) 2005.

 

THE BUSINESS OF DIAMONDS

What is your average profit margin for diamond items?

Margin Percentage of respondents 10-20% 7.1% 21-30% 13.5% 31-40% 16.1% 41-50% 30.3% 51-75% 19.4% 75-100% 11.0% 101% more 2.6%

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If you believe you can get a better deal from a Diamond Cutter then by all means you should definitely explore this possibility.

 

Insofar as to your comment that "many individuals coming in to buy a ring will walk out with nothing", that has as much to do with the lack of knowledge, homework, and preparation on the part of the purchaser as it does with the inferior quality merchandise, lack of product knowledge, and education of the selling Jeweler.

 

Diamonds are individualistic like fingerprints; two diamonds with the same exact specs on paper can look completely different to your eye. They are not a standardized commodity as are cars where you need only to reference Consumer Reports or Car & Driver and just choose your price range, options, and color.

 

Caveat Emptor applies to all industries, services, and types of merchandise.

 

It is unfortunate that after two years of research you are still uneasy, uncomfortable, and very suspicious.

 

I would advise you not to make a purchase until you do get more comfortable and get to the point where you are confident that you can buy a quality diamond that will make you happy with no Monday morning buyers remorse.

 

Barry,

 

You are absolutely right. I'm not suspicious at all...it is what it is. Business need to make a proft understandably. I work for a company that has profit margins of 20 % and 20 % profit margins in todays business world is alot. I did look at some of the link under your name and honestly, some of theose prices were cheaper than what I have seen on other sites and deffinetly cheaper than the malls. I'm not looking for the buying experience. I dont want to go to a place and be swooned and showed my diamond under a microscope but some people do and it's all good. I just want to find a reputable dealer and buy a diamond that looks great on the hand...sparkle, fire, clarity and color......he makes some money, I get a great deal and he gets some awesome word of mouth from me.

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Are we talking about the same thing?

 

I am sure we have all heard of the cost of a 2k stone selling for 10k retail and etrading at 6k.

What do you mean by the above comment? At the bottom of the ‘food chain’ someone just picked it up out of the dirt. For him it cost nothing. All of those other costs are the entirety of it.

 

The mining companies aren’t getting rich off of this either. DeBeers has become steadily less valuable for decades. They don’t public report their profits but their biggest competitor, BHP Billiton is very upfront about what they are doing, how they do it and how much they are making by it. Profits are slim. Other ‘competitors’, like the governments of Botswana and Namabia are fairly upfront about their cash flow and neither the people or the elite are rolling in money in either of these places. If not the jewelers, where does your research all of this excess money is going? The cutters? The diggers? The tax collectors? DeBeers?

 

Where have you been doing this research?

 

Neil

 

Neil,

 

De Beers doesnt have to report their profits because they are a private company, publicly traded companies report profits but sometimes even that can be disguised if they are owned by another company. BHP Billiton is a publicly traded company thus the reason why you are able to see "their" profits

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So you’re saying that it’s the retailers?

 

Your stats suggest that the average responding jeweler makes on average about 50% gross margin on all diamond jewelry sales (not just diamonds). I think that’s a tad high but I’m willing to go with it. That’s an average of all diamond bearing products, not just stones. Cheap stones, say stones under 0.10cts. and products containing diamonds but primarily consisting of other things command a far better profit margin than the major for obvious reasons. They simply wouldn’t get the sales, even at the mall. In the bridal business it’s closer to 20%-30% at retail for the major diamond. That means that a stone that ‘costs’ $2k will retail for $3k, right? To be sure that leaves room for the discounters to slip in and that’s definitely what’s been happening. Etailers are almost always cheaper, as I’m sure you’ve observed. $2,200? $2,400? That’s a far cry from the numbers you listed in your first post. Where’s that other $7k going?

 

Neil

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So you’re saying that it’s the retailers?

 

Your stats suggest that the average responding jeweler makes on average about 50% gross margin on all diamond jewelry sales (not just diamonds). I think that’s a tad high but I’m willing to go with it. That’s an average of all diamond bearing products, not just stones. Cheap stones, say stones under 0.10cts. and products containing diamonds but primarily consisting of other things command a far better profit margin than the major for obvious reasons. They simply wouldn’t get the sales, even at the mall. In the bridal business it’s closer to 20%-30% at retail for the major diamond. That means that a stone that ‘costs’ $2k will retail for $3k, right? To be sure that leaves room for the discounters to slip in and that’s definitely what’s been happening. Etailers are almost always cheaper, as I’m sure you’ve observed. $2,200? $2,400? That’s a far cry from the numbers you listed in your first post. Where’s that other $7k going?

 

Neil

 

Neil,

 

Your talking markup, as I discussed earlier the topic was profit margin...big difference, especially once you consider overhead. , I believe I stated " I am sure we have all heard of the cost of a 2k stone selling for 10k retail and etrading at 6k." You have never heard people talking about the mark-up of jewelry whether it be true or not? My chances of finding out the actual cost are slim to none. Taxes alone on small business alone eat 35-50% from profits.

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Neil,

 

De Beers doesnt have to report their profits because they are a private company, publicly traded companies report profits but sometimes even that can be disguised if they are owned by another company. BHP Billiton is a publicly traded company thus the reason why you are able to see "their" profits

I understand. They were actually public for a while but went private again a few years ago. Why did they go private? Because their stockholders were pissed that profits were too low because of their expensive distribution model and BHP, Alrosa, Rio Tinto and others were eating their lunch. They went private and have subsequently changed the model. Presumably the stockholders were right. We can't directly tell how that's working out but there is indirect evidence available both in the personal reportings and behavior of the Oppenheimer family and in the 'profits' of the competition.

 

Neil

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Again, I’m confused about what we’re talking about.

 

I’m using your quoted study and statistics. Markup is what they asked about. EBITDA (earnings before interest, taxes, depreciation and amortization) is nothing like that high and, again, pubic filings can be very helpful. Zale corp, Helzburg (a division of Berkshire Hathaway), Sterling (aka Jared and others) Blue Nile, Tiffany, Findlay and several others are all public companies. An 8% EBITDA is doing extremely well. Tiffany & Co, one of the highest priced jewelers out there reports a 24% EBITDA with a 12% profit margin. That's HUGE. Zales reports a 4.77% EBITDA and profit margin of just over 1%.

 

Neil

Edited by denverappraiser
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Neil,

 

De Beers doesnt have to report their profits because they are a private company, publicly traded companies report profits but sometimes even that can be disguised if they are owned by another company. BHP Billiton is a publicly traded company thus the reason why you are able to see "their" profits

I understand. They were actually public for a while but went private again a few years ago. Why did they go private? Because their stockholders were pissed that profits were too low because of their expensive distribution model and BHP, Alrosa, Rio Tinto and others were eating their lunch. They went private and have subsequently changed the model. Presumably the stockholders were right. We can't directly tell how that's working out but there is indirect evidence available both in the personal reportings and behavior of the Oppenheimer family and in the 'profits' of the competition.

 

Neil

 

 

Neil,

 

We can speculate all we want on business models and profitability with De Beers. If I were a betting man, I would think that the recent class action suit could be a major role in that decision. It would be terrible to be a publicly traded company with that kind of news about the company's conduct....but thats just a guess.

 

If you have any ideas on indepndant cutters that I could have independant appraisals done, please let me know. I honestly respect your thoughts and input. I want jewelers to make money I just dont want to pay a large majority of their retirement :)

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There are lots of jewelers out there who can fix you up with a ring. Some of them call themselves independent cutters, some call themselves wholesalers and others use other terms. I don’t put a whole lot of stake in this sort of descriptor. Look at each deal on it’s own merits.

 

It would be a terrible conflict of interest for me, as an independent appraiser, to be recommending specific dealers for the same reasons that it’s a conflict for them to be recommending me but I would start with the advertisers connected to the database here as well as the folks who give their time and experience in this forum. Click the link at the top of the page titled ‘find online jeweler’ or just read the forum for others that seem like the sort of people you would be interested in doing business with.

 

Meanwhile, short sell Blue Nile. Not a big enough profit margin. :)

 

Neil

Edited by denverappraiser
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Here is a partial post taken by members of the JCK Retail Panel.(Industry Snapshot) 2005.

 

THE BUSINESS OF DIAMONDS

What is your average profit margin for diamond items?

Margin Percentage of respondents 10-20% 7.1% 21-30% 13.5% 31-40% 16.1% 41-50% 30.3% 51-75% 19.4% 75-100% 11.0% 101% more 2.6%

 

While I don't dispute the validity of this study (I've actually contributed to JCK's studies), I think you're reading this very wrong.

 

"Diamond Goods" and "Loose Diamonds" are two very different things. Diamond goods are finished products such as diamond bracelets, diamond earrings, diamond pendants, etc, etc. Generally speaking, it's diamond jewelry consisting of many smaller diamonds under 0.10cts each. Profit margin for say some cheap 0.03ct diamond heart pendant made of some super light 14K gold mounting may be 50%, or even say a diamond tennis bracelet with 2cts of total diamond weight. But a 2ct high quality loose diamond has very little markup.

 

The car dealers roughly get 10% profit +/- depending on the make and model, and that is a healthy profit margin without discounts. Now you can bend your salesman's arm and maybe get that Lexus for $45k instead of $49k, and possibly the same thing can be said for a loose diamond depending how competitively priced it was from the beginning and it's size (larger stones have much less profit). But you'll never get the lexus for $20k no matter how much you shop around any more then you'll get the same amount of a discount on a loose diamond. Don't think for a second the "diamond cutter" will sell you a stone for $20k that retails at the best competitive retail price for say $45k. It just doesn't work that way.

Edited by Adylon
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Just Looking,

 

Try moving from generalizations to specifics. Find an offer or a few. Make the deal stand on it's own merits. What are you looking for? You say you want to buy from someone who calls themselves an 'Independent cutter'. Why? In particular, is it because your research suggests that this will result in a better stone for a better price or is it something less gemological like a desire to 'buy American'?

 

Neil

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Just Looking,

 

Try moving from generalizations to specifics. Find an offer or a few. Make the deal stand on it's own merits. What are you looking for? You say you want to buy from someone who calls themselves an 'Independent cutter'. Why? In particular, is it because your research suggests that this will result in a better stone for a better price or is it something less gemological like a desire to 'buy American'?

 

Neil

 

Good Morning Neil ( and everyone else):)

 

My thoughts about an "Independant cutter" As with anything, finding a qualified cutter would be the key, someone who is reputable and has the skills. My thought is that I could reduce the cost of the diamond rather than going the traditional way. I did have an oppurtunity to talk to a cutter and I am still in contact with him and he did give me some numbers to go by.. He sold to some small jewelry stores, nothing in large quanity but it was something that he said he enjoyed doing in his spare time. He made some cash, enough to support his "hobby" and his wife's love affair with precious stones :)

By the way, I fully understand the confict of interest you noted on one of my previous posts. Hope all is well on your end.

 

Regards

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Here is a partial post taken by members of the JCK Retail Panel.(Industry Snapshot) 2005.

 

THE BUSINESS OF DIAMONDS

What is your average profit margin for diamond items?

Margin Percentage of respondents 10-20% 7.1% 21-30% 13.5% 31-40% 16.1% 41-50% 30.3% 51-75% 19.4% 75-100% 11.0% 101% more 2.6%

 

While I don't dispute the validity of this study (I've actually contributed to JCK's studies), I think you're reading this very wrong.

 

"Diamond Goods" and "Loose Diamonds" are two very different things. Diamond goods are finished products such as diamond bracelets, diamond earrings, diamond pendants, etc, etc. Generally speaking, it's diamond jewelry consisting of many smaller diamonds under 0.10cts each. Profit margin for say some cheap 0.03ct diamond heart pendant made of some super light 14K gold mounting may be 50%, or even say a diamond tennis bracelet with 2cts of total diamond weight. But a 2ct high quality loose diamond has very little markup.

 

The car dealers roughly get 10% profit +/- depending on the make and model, and that is a healthy profit margin without discounts. Now you can bend your salesman's arm and maybe get that Lexus for $45k instead of $49k, and possibly the same thing can be said for a loose diamond depending how competitively priced it was from the beginning and it's size (larger stones have much less profit). But you'll never get the lexus for $20k no matter how much you shop around any more then you'll get the same amount of a discount on a loose diamond. Don't think for a second the "diamond cutter" will sell you a stone for $20k that retails at the best competitive retail price for say $45k. It just doesn't work that way.

 

Adylon,

 

First of all thank you for your reply. I agree with you, the numbers given were not an exact breakdown of the market place . YOur exaclty right about the size of the stone as well, from my perspective. Not sure about the price of new cars and the mark- especially in todays econimic conditions. I can tell you this, a used car has a mark-up of around 3k for an avg. late model american made car. The higher you go in price and typically with brands such as Lexus, Merc and BMW the markup can go up even higher ( 5k tops, typically) This is a generalization, but you can find that information out in a black book sold at the auctions, but even then the price given in the black book is a rough, it can be slightly higher or lower. I dont have to research this topic much, my best friend is a car auctioneer for a major company in the midwest.

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I'd probably slap my own mom if it meant I could get a 50% markup on a loose diamond over 1ct..

 

 

Steve,

 

Thats too funny. actually, you arent too far from me, maybe 40 miles. You will get a kick out of this story. I was on Grape Road at one of the majors stores in a town near you. I was first talking to the store manager trying to get some thoughts from my girlfriend about clolor, cut, clarity, style. Well, I asked alot of questions and was able to expand on alot of his remarks. Some of the questions he couldnt fully answer, we;; I was soon passed off to a sales rep and given the "show". My girlfriend even commented after that the manager seemed very nervous during the whole process. I'm definetly not the same buyer I was 15 yrs ago when I bought an "off the rack" diamond.

 

By the way, I looked at your sight and that was a very nice design on the plat. 5 stone ring in the photo gallery. My first profession was in invesment casting ( lost wax) so I can appreciate the work that goes into it.

Edited by just looking
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The cost components in a diamond are a bit complicated but the biggies are:

 

The rough stone

Cutting labor

Lab services

Shipping/insurance/security

Distribution

 

The large cutting houses have several advantages over the small hobby type. For starters, they are using less expensive labor in India and similar low wage countries. Secondly, they have a much better supply of rough. They have enormous buying power with the mining companies that results in a lower cost of goods to them. Next, they are able to stay on top of the curve for the best equipment and techniques. Much has changed in the last decade that result in better yields, better cuts or both. Lastly they have broader distribution. Their super-ideal type goods end up in the hands of dealers that specialize in this sort of thing while their more promotional type production goes somewhere else, perhaps to jewelry manufacturers or the late night TV folks. This is significantly more efficient than a single dealer trying to sell all possible stones.

 

This brings us back to the distribution channels and I agree that this is the key area to be looking if your target is minimizing the price. Every US cutter I’ve ever met who is in the business of selling stones to consumers is getting the majority of their goods cut elsewhere for the above reasons so the whole ‘cutter’ gig is largely a matter of décor. I don’t really have a problem with this and some of them are pretty good stores but this is not what makes them good. It’s the character of the people behind the keyboard/counter that’s going to make the difference.

 

Neil

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Thanks JL :)

 

I understand exactly what you mean.. I'm not a diamond person myself.. I understand the basics, but never bothered to learn the fine level details that some on this forum, or in our store, have taken the time to learn.. I think it comes down to me just not liking diamonds (gasp) and being more involved in the design side of things than the selling / purchasing side..

 

As for the nerves on Grape Road, I think you will find that a lot over there.. That whole area is hurting right now even though it is still the go to shopping area around here.. I know of at least two stores that direction that are struggling quite a bit right now just to keep the doors open.. The need to close larger sales, combined with the fact that anyone that sells jewelry is considered a "jeweler" adds to the problem..

 

Then you have people like Neil and Dave and Barry here.. People that have learned and forgotten more about diamonds than I'll ever know.. I spend as much time here learning from them as I do offering help with metal work and design.. Probably more..

 

Oh, I talked to my mom and she said for 10% I can slap her all I want.. :)

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Thanks JL :)

 

I understand exactly what you mean.. I'm not a diamond person myself.. I understand the basics, but never bothered to learn the fine level details that some on this forum, or in our store, have taken the time to learn.. I think it comes down to me just not liking diamonds (gasp) and being more involved in the design side of things than the selling / purchasing side..

 

As for the nerves on Grape Road, I think you will find that a lot over there.. That whole area is hurting right now even though it is still the go to shopping area around here.. I know of at least two stores that direction that are struggling quite a bit right now just to keep the doors open.. The need to close larger sales, combined with the fact that anyone that sells jewelry is considered a "jeweler" adds to the problem..

 

Then you have people like Neil and Dave and Barry here.. People that have learned and forgotten more about diamonds than I'll ever know.. I spend as much time here learning from them as I do offering help with metal work and design.. Probably more..

 

Oh, I talked to my mom and she said for 10% I can slap her all I want.. :)

 

I can imagine the current situations economically with the stores we are talking about. With the present economic slowdow I have read a few articles that suggest prices could be dropping, in fact, they said this past xmas stores were reducing prices because of the lack of demand. Of course, this slowdown just isnt here in the states, its a world wide issue that is starting to multiply. For me personally, its getting the most bang for my buch and getting quality as well but maybe more importantly its putting the heart felt time into it to make sure if I present this stone sometime in the future I put some heart felt thought into it. Iv'e even changed my mind on design...the pear shape w/ baguettes on the side it really attractive but I would imagine you need a large center stone that looks impecable to pull this off.

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