Fri, 21 Jan 2005

Why are there several dealers offering the exact same stone?

jewelers and diamond dealers have for decades shared in a system called
memorandum or memo. If a customer goes into a store looking for a
particular item that the store doesn’t have in stock at the moment,
they will ring up one their suppliers and borrow a few stones for long
enough to make a sales presentation. This is based on the good credit
of the jeweler with their supplier. If the customer chooses one of the
stones, they both make a sale and if the customer opts out, then the
stones are returned where they wait for the next possible buyer. It
works pretty well and both the dealers and the wholesalers benefit by
it. The dealers by not having to carry a large inventory and putting up
with all of the costs associated with that. The wholesalers gain by
having their stones sold by many different stores that have different
selling styles and in many different marketplaces.

This is
not a free service although it is rarely separately billed. Wholesalers
are effectively offering a financing service to the jewelers as well as
absorbing all of the costs of inventory tracking, security and similar
expenses that are associated with this process. The result is that memo
stones generally cost more. Put another way, the jewelers who pay cash
and carry inventory can get better prices, and consequently better
markups. The smart jewelers want to buy for inventory the items that do
well in their store and that will sell quickly and prefer to ‘memo’ the
ones that are more unusual for them. This turns out to work nicely
because not every store does equally well with the same kinds of
merchandise. The stores that do well with low quality but inexpensive
goods are rarely the same stores as the ones that do well with
super-premium ideal cuts.

The internet has put this whole
system on steroids. Wholesalers can make detailed lists of what they
have available at any given time and share these lists with their
customers on a more-or-less real time basis. Dealers can offer this
‘virtual’ inventory where they list information like weight,
dimensions, grading, even photos, certificate scans and Sarin results,
but where they’ve never actually seen or held the stone. If a client
wants to see a particular stone, the dealer can order it in by FedEx or
similar carrier with a memo and the presentation happens with the
customer exactly as with any other stone. The wholesalers that do well
with this and offer accurate, timely and useful data are growing and
the ones that cause problems for their dealers are suffering under the
competition. There’s a whole art form to it.

The best dealers,
both internet and storefront, still want to carry an inventory. They
get a better markup on owned merchandise and it prevents their
competitors from having that same stone. This also gives them more
personal control over the whole process and they can make a sale
immediately if the opportunity arises. It’s also much easier to be sure
that the stones meets their specific requirements and they don’t have
to deal with the possibility that some competitor will buy it while
they are in the midst of a sale. The more specific the dealer is about
what they sell, the more likely it is that they will simply buy it and
carry it in inventory when they find one. Since each dealer does
business with a different assortment of suppliers and they do not
always list every stone that is offered to them, each dealer will have
a different list of stones but there is often some overlap in those
lists. Certain stones will be available almost everywhere while others
may only be available from only a few different dealers. The stones
that are in inventory are usually proudly listed as such or, in the
case of storefront dealers, available for your immediate examination.

by Neil Beaty
Professional Appraisals in Denver

American Gem Registry