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Dealing with $1000 gold
Letters to Chuck
Chuck,
I enjoy your “Retailer’s Perspective.” You do a great job. Regarding how to handle the possible down turn in the price of gold. In the early ‘80s I began building a sample line we call “Brass & Glass.” Over the years it has served us well. Over time we have reduced our “Live” inventory by approximately 75%. You would be amazed at the effect this has had on our bottom line. Dennis Newton Newton’s Jewelers Graham, TX Dear Chuck, As usual, your Southern Jewelry News article was quite enjoyable and informative. I would add that my refining experience with United Precious Metals Refining has been one of perfect service. They provide free prepaid insured Fed Ex pickup of my scrap. You can not beat them for accurate assay and return on scrap. When they refine gold scrap I calculate to the dollar what my settlement check will be and they are right on the money. They pay 98% of market less a $40 assay which is often reduced with a $25 coupon offer. I enjoy getting calls from my United Precious Metals rep, Karen Love, who with an unforgettable lovely voice, has consistently seen to my customer satisfaction for years. As to how do I deal with rising gold prices? Well as your article mentioned many jewelers have melted down old stock for cash. But what happens when we need more inventory? If anyone thinks prices are going down they aren’t aware of the long term consequences that China is no longer buying our T-bills to underwrite the Bush deficit. The Chinese and others will continue to exchange excess dollars for gold. Of late though I have taken my refinery settlement in gold sheet and solder which is a perfect wash on exchange. I will always need raw stock to work with in my custom order business. To buy it is increasingly costly when prices are escalating due to foreign commodities speculation. Even if prices eventually go down, I still have the same amount of gold to work with. By taking my settlement in stock I am hedging against inflation and the continuing worldwide trend of exchanging declining value dollars for precious gold and other commodities. As I explain to my customers, it is not that gold is growing in value, it is that the dollar is decreasing in value that raises the price. No one likes to hear that, but it is the truth and what underlies the economic problems facing this nation. Good luck, and if you want to hear a purrrfect voice, give Karen Love a call. Carl Buehler The Jewel Gallery Plantation, FL Dear Chuck, As usual your Southern Jewelry News article was quite enjoyable and informative. I would add that my refining experience with United Precious Metals Refining has been one of perfect service. They provide free prepaid insured Fed Ex pickup of my scrap. You can not beat them for accurate assay and return on scrap. When they refine gold scrap I calculate to the dollar what my settlement check will be and they are right on the money. They pay 98% of market less a $40 assay, which is often reduced with a $25 coupon offer. I enjoy getting calls from my United Precious Metals rep, Karen Love, who with an unforgettable lovely voice, has consistently seen to my customer satisfaction for years. As to how do I deal with rising gold prices? Well as your article mentioned many jewelers have melted down old stock for cash. But what happens when we need more inventory? If anyone thinks prices are going down they aren't aware of the long term consequences that China is no longer buying our T-bills to underwrite the Bush deficit. The Chinese and others will continue to exchange excess dollars for gold. Of late though I have taken my refinery settlement in gold sheet and solder which is a perfect wash on exchange. I will always need raw stock to work with in my custom order business. To buy it is increasingly costly when prices are escalating due to foreign commodities speculation. Even if prices eventually go down, I still have the same amount of gold to work with. By taking my settlement in stock I am hedging against inflation and the continuing worldwide trend of exchanging declining value dollars for precious gold and other commodities. As I explain to my customers, it is not that gold is growing in value, it is that the dollar is decreasing in value that raises the price. No one likes to hear that, but it is the truth and what underlies the economic problems facing this nation. Carl Buehler The Jewel Gallery Plantation FL Hi Chuck, Its nice to see that we all go through the same stuff in business. Regarding the 1980 price of gold, what we did. I didn’t buy anything that fall and got through the year fine. My dad was a coin dealer since 1962, so I saw the metal prices all over the board. I’ve had my store in a small farming town for 32 years. I am really afraid that the prices of metals will not go down right away like they did in 1980. My thought is that if it stays at these prices for 2 years, were going to lose over 20% of the stores. I think to offset these prices, a couple things a jeweler can do if possible is; buy overstocks from companies at 20-50%. They will not usually just give that out, so the jeweler has to ask. The other thing is to put your buying money into loose diamonds. If you can find the better prices from some good sources. Have a good one, Ed Mays The Gem Den St. James, MN Chuck I enjoy your "Retailer's Perspective" You do a great job. Regarding how to handle the possible down turn in the price of gold. In the early ‘80s I began building a sample line we call "Brass & Glass". Over the years it has served us well. Over time we have reduced our "Live" inventory by approximately 75%. You would be amazed at the effect this has had on our bottom line. Dennis Newton Newton's Jewelers Graham, TX Dealing with a dynamic gold market $924.70/oz for gold! $2,141.00/oz for platinum! Those are the NY closing prices as I sit down to write this on Feb. 20, 2008. Gold has tripled in price since 2002. Platinum has almost quadrupled since 2001! Who would have ever thought we would be considering these prices? Outsiders to our industry see these increases and think our profit has tripled as well. Those of us making, selling and repairing jewelry for many years know that this is far from the truth. From 1982 through 2005, jewelers enjoyed a fairly stable gold market hovering around $450/oz. freeing them from the worry of constantly re-pricing their inventory or adjusting their pricing for custom work and repairs. As 2007 came to end, all jewelers began to feel the pain of ever rising prices as old merchandise was replaced. Many jewelers are now faced with the question of what to do about replacing their inventory while the price of gold and platinum seems to be in a never-ending upward spiral. The concern is what to do when the price of these metals eventually falls as most think it surely will. Back in 1978, as gold prices were making an unprecedented steady climb, we elected to solve our pricing dilemma by selling our gold by weight, simply changing the price each week as the price of gold changed. What seemed to be an easy to implement solution turned out to be a less than ideal methodology. As a small business thirty years ago, computerization was not even on the horizon for us. Even without the complexity of a computer system to mange our inventory, it wasn’t too difficult to realize that selling by weight made it much more difficult to track the cost of what we sold each month. More importantly, we realized that as gold prices took a dip, so did our selling price. That dip in selling price negatively affected our profit margins. Gold that we bought at the first of the month at one price, we were now selling based on a lower gold price, thus our profit margin was reduced. As the early ‘80s came and went, we saw a noticeable increase in the number of phone calls asking what price per gram we were selling our gold at. As more jewelers jumped on the same “sell by weight” bandwagon, consumers reduced their selection process to more of a pursuit of the lowest price per gram rather than a search for the best quality. For a small, family-owned and operated business, selling by weight was not too risky from the standpoint of managing the selling prices used by the staff. In many cases, the staff is family and only family, all with the same vested interest in the success of the business. However, how does a business owner prevent less personally-invested staff from using unauthorized discounts when selling by weight? Even frequent inventory checks would be inefficient at accurately managing the selling price of gold based on its cost. After several years of selling by weight, we found that we no longer wanted to market ourselves to the type of client looking only for the lowest possible price. We reverted to pricing our gold by our standard markups and kept our prices quite competitive with the most upscale jewelry retailers in our region of Western New York. By pricing all of our merchandise based on its actual cost, using our standard mark-ups, we are assured of maintaining our profit margins despite changes in the gold market. As we begin our fiftieth year in business, we find that our “no perpetual discount” policy has served us well. A majority of our competition offers routine discounts on all of their merchandise ranging from 10% to as high as 70% during special promotions. Our clientele has come to appreciate our no nonsense pricing policy. Our clients freely refer their friends to us knowing that no special request need be made to get fair pricing. So, in light of current market conditions, how have we dealt with the rising prices of our merchandise? Display samples, like wedding bands, must be adjusted because invariably they must be ordered in the correct size and thus their cost will be based on current gold pricing. Existing inventory, however, is approached differently. As our customers compare prices of existing merchandise, they often notice significant price differences resulting from more recently purchased inventory. We simply indicate how much of a bargain the existing merchandise is since we don’t change our prices on existing merchandise as the market increases. They are benefiting from the pricing based on a gold market that has almost doubled in the past twenty-four months. We have found very little resistance to this strategy. It has had the added benefit of freshening up our inventory by moving out older pieces. A friendly reminder that once the piece is sold, the replacement will be significantly more expensive often helps to clinch the sale. This meshes well with our low-pressure, non-commission atmosphere. Leaving currently tagged inventory as is also saves the time and cost associated with re-tagging. I find more benefit to leaving existing prices as they are than raising them to meet the current market pricing. Let the rising market prices make your goods look increasingly more affordable and competitive while maintaining your profit margin. If you are in the fortunate position of turning over your entire inventory every few months, then arguably it may make sense to raise all of your prices to dramatically increase cash flow. However, few jewelers, if any, are in such a position. What to do with merchandise not yet added to inventory? Most custom jewelers have dozens, if not hundreds of castings, stones and findings lying around waiting to be assembled. Now is the perfect time to assemble those pieces and price them just below current market levels. This puts new pieces into inventory while increasing your profit margin and still maintaining competitive pricing. Ah, the dreaded question... What does one do with the higher priced merchandise once market levels subside? History has little to teach us about market pricing of gold, silver and platinum relative to spikes in pricing. The 1980 anomaly of the meteoric rise in gold was followed by an immediate decrease that remained somewhat steady for more than fifteen years before beginning its current, seemingly unstoppable, upward surge. We have no precedent for platinum. After remaining around $400/oz until 2000, it has also begun a steady climb. Silver, palladium and rhodium have all increased steadily during most of the past ten years leaving us with no hint of what is to happen in the future other than little hope of any decrease. These are questions best left to finance and investment experts. We will continue to purchase conservatively, gradually replacing our inventory at pricing levels which someday soon may become the new normal. In the meantime existing and old inventory will look increasingly more attractive to our customers. By Paul R. Cassarino, FGA, DGA, GG, ISA CAPP Paul R. Cassarino, FGA is Vice-president of The Gem Lab in Rochester, NY where he assists his father Joseph A. Cassarino, FGA managing a staff of eighteen, including six full-time bench jewelers, in the custom design, repair and appraisal of fine jewelry. E-mail Paul at info@southernjewelrynews.com. | ||||||||||||||||||
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