Can a B&M retailer significantly undercut online retailers?

[Blumustang]

So I'm nearing the time where I need to purchase a diamond. I have been looking at some of the reputable online dealers (James Allen, Whiteflash etc) and the prices for the diamond I'm looking for have been pretty consistently between $12.5k - $14k.

Now, my Aunt's buddy is close with someone on the Diamond Exchange and I'm being told he can beat that price and sell me a diamond that meets my requirements for around $10k.. While this is a connection I can't imagine him being able to beat the online dealers (where I assume there is less overhead) by that margin unless I'm really underestimating the markup. The specs I quoted him are below. Anyone think this is possible or not worth my time looking? Thanks!

Round Solitaire
Ct: 1.65 +
Cut: Excellent/Ideal
Color: I minimum
Clarity: SI1 minimum (must be eye clean)
Polish/Symmetry: Excellent
Florescence: Lower than Very Strong
HCA Grade: 2 or lower
Graded: AGS or GIA

 

[Gypsy]

Re: Can a B&M retailer significantly undercut online retaile

It's always worth your time. As long as you aren't on a deadline. You never know. You could have that one in a million "friend of the family" who isn't trying to talk you into a bad deal.

But when he comes back with an diamond with no lab report, one with fluorescence that makes it milky, a lab report from someone other than AGS or GIA, or a GIA "very good" or "good" cut and tries to tell you to trust him, don't be surprised.

Don't give him a deposit at any point in time.

And also, you should know that GIA Ex is too broad. There are quite a few diamonds with problems in that that category. You should do your homework on what angle combinations to avoid and make sure you include that information as well.

 

[Rhino]

Re: Can a B&M retailer significantly undercut online retaile

There are a number of possibilities Blumu.

Your specs from the outset are kinda loose with the possible exception of the HCA score which most jewelers are not familiar with. With that in mind you have to consider that when jewelers hear these specs they are going to perform a query and pull up a variety of goods (even within the same carat/clarity/color AND GIA CUT GRADE) and pull up diamonds that can effectively vary in value by over 20%. That being the case he can easily find you the *cheapest* ones in the query. All too easy for any of us to do. In fact EVEN if it has a great HCA score to boot. We see diamonds pretty frequently that are cut just lovely but have issues of graining levels that impact transparency, surface breaching inclusions, issues with light performance, etc. which you'd never know from a basic Report as there are so many variables that go beyond what you see on paper and even photography. My counsel would be if the deal seems to good to be true LOOK at it alongside of others that are more valuable. Have it appraised by a pro recommended on this forum like Neil Beatty, Dave Atlas, etc. to see if it actually lives up to the claim. If so, count your blessing but don't be surprised if there is sound gemological reason why it is "too good to be true".

All the best,
Rhino

 

[Christina...]

Re: Can a B&M retailer significantly undercut online retaile

I agree with Gypsy and Rhino. I would also encourage you to compare the 'add ons' that different vendors can offer. Many online vendors offer 100% return policies for a specific period of time, most between 14 and 60 days. They also typically offer better upgrade/trade-in, and buy back policies that you may find valuable. Compare these services with what your dealer can offer you and decide if any potential savings are worth what you give up (if anything) from another vendor.

 

[MichelleCarmen]

Re: Can a B&M retailer significantly undercut online retaile

Hi,

I'd stick with the online vendors. If your work with your aunt's buddy and the diamonds end up not being comparable to the WF, etc, ones, it'll be an awkward situation of trying to get out of doing business with the buddy. How do you tell the person that the diamonds are not as good as the online ones? After the person puts in hours of time hunting down stones, there will be the pressure to purchase and that will not be a good position to be in.

 

[Tekate]

Re: Can a B&M retailer significantly undercut online retaile

I was told by my jewler here in Austin, TX to replace my stone which I think is a 60/60 1.66 G/H round brilliant would be 18K...(I paid 7,800$ in '8 so I would wonder about this 10K number.....as my stone, while LOVELY and shiny etc.. it's not a GIA XXX, or an AGS 0 stone..

I think one of several reasons why I just bought a stone at GOG is their Lifetime Guarantee, should this stone not suit me in the future (as I want a BIGGER one I can do that with fees adjusted.. not everyone gives that kind of guarantee.. Good luck! and congratulations!

kate

 

[Gypsy]

Re: Can a B&M retailer significantly undercut online retaile

Advice from another thread summarizes good points for you:

I know the OP may not read my advice, but I will post it anyways because I know many lurkers silently read and follow these threads.

The term "diamond wholesaler" is often used by retailers who want to give the impression they are giving you a great price.Don't be fooled. If a diamond vendor is selling to individuals in the public they are a retailer in that particular transaction and usually a guided by the same need for profit as other retailers. Do not pay cash for the diamond. Get a receipt that clearly lables the item purchased. Make sure you have at least a 7 day unconditional return-for-cash policy. Do your homework. Only buy a diamond with a GIA or AGS lab report to ensure accurate valuation. And check Blue Nile for comparable pricing to ensure you are actually paying a fair price.

And I also never recommend buying from a "friend" or a "friend of a friend" or someone you meet through business. Those transaction often end badly because people don't follow the guidelines I listed in the previous paragraph.

 

[Blumustang]

Re: Can a B&M retailer significantly undercut online retaile

Thanks everyone for the advice. While I may listen to what this guy has! I will very likely be going the online route. Just seems safer.

I'll likely be back soon asking for some thoughts on potential diamond choices!

 

[heididdl]

Re: Can a B&M retailer significantly undercut online retaile

There are really no DEALS when buying a diamond....Stick to your budget and buy the best ideal cut stone you can find.....Research as you did the range from on line vendors so you know your in the ball park and that's it.

 

[GeorgeStevens]

Re: Can a B&M retailer significantly undercut online retaile

Buy from the guy in Ramat Gan, as long as your aunt knows him and trusts him well. He's buying from the same manufacturers who sell their stuff on the various online websites like BN, who take a half-hourly feed from the manufacturers and add mark-ons of at least 18% and often more. I once sat down and found the same diamonds on a certain manufacturer's Harmony site and on BN; the most common mark-up was 25%. So the price is pretty reasonable - about what a wholesale price would be. There are a lot of middlemen in the diamond business; they squeal when they're cut out, but why spend more than you have to? There are deals in the diamond business, and the easiest is buying as far up the chain as possible. You have a good connection. Use it.

 

[Gypsy]

Re: Can a B&M retailer significantly undercut online retaile

Buy from the guy in Ramat Gan, as long as your aunt knows him and trusts him well. He's buying from the same manufacturers who sell their stuff on the various online websites like BN, who take a half-hourly feed from the manufacturers and add mark-ons of at least 18% and often more. I once sat down and found the same diamonds on a certain manufacturer's Harmony site and on BN; the most common mark-up was 25%. So the price is pretty reasonable - about what a wholesale price would be. There are a lot of middlemen in the diamond business; they squeal when they're cut out, but why spend more than you have to? There are deals in the diamond business, and the easiest is buying as far up the chain as possible. You have a good connection. Use it.

This is pretty terrible advice and not accurate.

 

[WinkHPD]

Re: Can a B&M retailer significantly undercut online retaile

Buy from the guy in Ramat Gan, as long as your aunt knows him and trusts him well. He's buying from the same manufacturers who sell their stuff on the various online websites like BN, who take a half-hourly feed from the manufacturers and add mark-ons of at least 18% and often more. I once sat down and found the same diamonds on a certain manufacturer's Harmony site and on BN; the most common mark-up was 25%. So the price is pretty reasonable - about what a wholesale price would be. There are a lot of middlemen in the diamond business; they squeal when they're cut out, but why spend more than you have to? There are deals in the diamond business, and the easiest is buying as far up the chain as possible. You have a good connection. Use it.

This is pretty terrible advice and not accurate.

Agreed. I often compete with BN and other vendors for stones on the Rap list. The margins on the diamonds on that list are no where near 18%.

Wink

 

[MichelleCarmen]

Re: Can a B&M retailer significantly undercut online retaile

Thanks everyone for the advice. While I may listen to what this guy has! I will very likely be going the online route. Just seems safer.

I'll likely be back soon asking for some thoughts on potential diamond choices!

If you meet any diamond "wholesaler," bring your laptop or a device where you can look up diamonds online and comparison shop right in front of the person who claims he can give you a better deal. FWIW, I brought my phone into a B&M recently when looking at their stones and after 10 minutes, the sales person admitted he couldn't provide AGS stones of comparable quality for the prices I found online. It's better if they at least tell you up front so you're not wasting anyone's time.

 

[denverappraiser]

Re: Can a B&M retailer significantly undercut online retaile

Buy from the guy in Ramat Gan, as long as your aunt knows him and trusts him well. He's buying from the same manufacturers who sell their stuff on the various online websites like BN, who take a half-hourly feed from the manufacturers and add mark-ons of at least 18% and often more. I once sat down and found the same diamonds on a certain manufacturer's Harmony site and on BN; the most common mark-up was 25%. So the price is pretty reasonable - about what a wholesale price would be. There are a lot of middlemen in the diamond business; they squeal when they're cut out, but why spend more than you have to? There are deals in the diamond business, and the easiest is buying as far up the chain as possible. You have a good connection. Use it.

Rather few manufacturers are actually located in Ramat Gan, Antwerp or NYC these days but it mostly doesn’t matter. Let’s assume for arguments sake that the seller is standing right over the cutter waiting for the stone to come back from the lab so we’re right on top of the ‘source’. What savings are available. In decent quantity, shipping from Israel to the US is something like $50-100. Maybe less. There is no import tax here so that’s about it. The guy in Israel, or Belgium or India or whatever, may be willing to work for a lower rate but the assumption that their costs of goods is lower because of their address is simply false. The cutter doesn’t know any better? You can’t be serious? These are full time gigantic companies that are up to their eyeballs in the minutia of the diamond business and who are working on single digit margins. Why in the world would they give a broker in Israel a better deal than a customer who buys 100x as much but who has an address in the US? That makes no sense AT ALL.

You don’t have to believe me or any of the folks who posted before. In fact, I encourage you not to. Skepticism is good. As pointed in the post above, often multiple sellers are talking about the exact same stone, not just ones that are similar. Ask him for a quote on a stone and get the AGS/GIA number. Then show it to one of the dealers here and see how much they want for it. If he can't or won't do it (likely), pick one that you see listed in the database here by several of the sellers. That's an example of a ‘virtual’ diamond. Ask your Israeli guy how much he wants for THAT STONE. Can he undercut Blue Nile? Yes, he quite possibly can, if he wants. It’s usually not even all that hard. But there’s nothing like 25% on the table here, and BN is rarely the lowest cost seller. There’s a decent chance that most of these people can get it if you ask. As he pointed out, he’s buying from sources that work with a lot of partners and some of these Internet guys are extremely well connected.

 

[GeorgeStevens]

Re: Can a B&M retailer significantly undercut online retaile

BlueNile sells $400M of stuff a year, the majority of it diamonds. Their cost of sales is $325M, which is a 19% gross margin or a ~25% mark-up on their cost, exactly the mark-up I found in a comparison between a manufacturer's Harmony prices and BN for the exact same certification. Have a look for yourself, page 34 of this document:

http://edgar.sec.gov/Archives/edgar/data/1091171/000109117113000018/nile-20121230x10k.htm#s614F2AE21A7E3753CF5E1294E61C7B9A

According to BN, the typical internet retailer's markup is 33%, and for mall-based jewelers, 100% or more. (Remember you have to convert from gross margin to mark-up: a 50% margin is achieved with a 100% mark-up.) See page 8:

http://files.shareholder.com/downloads/NILE/2932224930x0x690143/07fdfcee-626e-427e-93a4-0e84b56a7067/DB_Tech_Conference_Sept_2013V3.pdf

So should you just cut out the 25% Blue Nile mark-up and deal directly with the manufacturer? Absolutely, as long as you're not a complete fool and know a bit about what you're buying.

 

[denverappraiser]

Re: Can a B&M retailer significantly undercut online retaile

George,

It's certainly true that BN is making a profit but 'virtual' diamonds is the LOWEST margin item in the store. That's why they're steering away from it. Again, the test is simple enough. It's possible to do comparisons with specific items. Generalizations about 'mall' stores, 'internet' stores or even the average BN product are both unnecessary and counterproductive. Variations of pricing within a particular grade are significant and it opens up a whole different can-o-worms that is completely unneeded, at least for the discussion at hand. You can usually compare dealers using the very same stone(s). It's hard to get more 'comparable' than that. Is there a particular Israeli dealer you're promoting here or just the concept of the Israeli diamond businesses as a whole?

In the spirit of disclosure, are you or are you working for, an Israeli diamond dealer?

 

[Gypsy]

Re: Can a B&M retailer significantly undercut online retaile

BlueNile sells $400M of stuff a year, the majority of it diamonds. Their cost of sales is $325M, which is a 19% gross margin or a ~25% mark-up on their cost, exactly the mark-up I found in a comparison between a manufacturer's Harmony prices and BN for the exact same certification. Have a look for yourself, page 34 of this document:

http://edgar.sec.gov/Archives/edgar/data/1091171/000109117113000018/nile-20121230x10k.htm#s614F2AE21A7E3753CF5E1294E61C7B9A

According to BN, the typical internet retailer's markup is 33%, and for mall-based jewelers, 100% or more. (Remember you have to convert from gross margin to mark-up: a 50% margin is achieved with a 100% mark-up.) See page 8:

http://files.shareholder.com/downloads/NILE/2932224930x0x690143/07fdfcee-626e-427e-93a4-0e84b56a7067/DB_Tech_Conference_Sept_2013V3.pdf

So should you just cut out the 25% Blue Nile mark-up and deal directly with the manufacturer? Absolutely, as long as you're not a complete fool and know a bit about what you're buying.

This is false a calculation.

Margin for finished goods is very different from loose stones. And MUCH higher. And the numbers you are basing your assumptions on is a number that includes finished goods. "Majority of it diamonds" doesn't get you there. You calculations are not based on accurate information. Settings, necklaces, earrings... all of the other items that Blue Nile sales would need to be separated from the numbers of the loose stones for you to get an accurate calculation. When Blue Nile says that the typical mark up is 35% that's a number that again, includes finished goods.

 

[denverappraiser]

Re: Can a B&M retailer significantly undercut online retaile

Back when I owned a retail jeweler we sold a lot of watch batteries. It was a pretty good gig. They cost about $0.40 each and we sold them for $8. Installation was ‘free’ and involved a low skill worker for a couple of minutes. That’s a 2000% markup! Whoo hoo!
The problem is that it’s still just an $8 sale. We actually sold quite a few of them but unless you’ve got a location where you can have a long line at the watch counter it’s tough to pay the rent with this. Repairs looked even better. Cost of goods was in the supplies category and the labor was under general and administrative expenses. Even breakage, the bane of the repair business, was accounted for elsewhere. It’s ALL profit!

The opposite happens on the other end. When we sold a big diamond, we did deals where our margin was below the sales tax. We were extremely aggressive and would do nearly anything to get the deal. Too aggressive actually. In hindsight I should have let more business walk away. Unseen costs would routinely eat up a deal. This would be things like the return shipping for stones that the client DIDN’T choose, or the hours upon hours of staff time spent educating the customers. I’m not bellyaching here, our margins and our marketing strategies were our business but if we filled out a form like this, we would have shown a gross profit margin of something like 80% because we got to average in all of those ring sizings, watch batteries, and silver charms for the tourists (another high margin item). Concluding from that form that we made an 80% profit on diamond sales would have been laughable.

It was good fun and I made a pretty good living at this. I was successful at it for years before I sold out to my successor in 2000. I dare say we would have been way below the Pricescope radar even if Pricescope existed at the time. This was what is now called a B&M jeweler or a Mom and Pop store and there are a ton of jewelers out there with just about this same business model. Could I have beat Blue Nile on price? Probably, and if pressed I probably would have. BN barely existed at the time so I don’t recall ever going toe-to-toe with them but it’s a highly competitive business and I went up against lots of people who quoted low low prices. How about those overseas diamond brokers or the friend-of-a-friend in New York or Antwerp who can get it for you wholesale? There were hundreds of them and nearly everybody seemed to know one. Actually they were usually pretty easy to beat out. The fundamental selling proposition that address is the difference was BS even then. FedEx offers a wonderful service and the difference between Denver, New York, Antwerp and Hong Kong is a short ride on a cargo plane.

 

[GeorgeStevens]

Re: Can a B&M retailer significantly undercut online retaile

I collect diamonds as a hobby for Mrs. Stevens and as a way to store value, but am not "in the trade" per se. References to Israel are shorthand because most of the people I know in the industry have some sort of connection back to Israel (trying to say that in a politically correct way, probably failed). Not to disparage Antwerp, Dubai, Mumbai, NYC, or anywhere else with one or more "diamond exchanges." Most of what I know comes from these people.

Yes, the margins on settings, wedding bands, etc., are higher than for loose diamonds. BN doesn't disclose what portion of its sales are diamonds vs. jewelry (at least as far as I can tell), but I think of it this way: a $10K ring is often $9K diamond and $1K ring. So even if that $1K is of higher margin, their economics are driven by the $9K, and the economics are a 19% overall gross margin (25% mark-on). In any other business, a 19% gross margin would be deadly, but BN has 241 employees, so their sales per employee are $1.6M and gross margin per employee is over $300K. The employees are mostly call center reps, IT, and marketing folks. BN requires very little capital. So they have little in terms of cost. They are the largest online vendor and have huge scale. So it's an extraordinarily profitable business, and yet their prices are often well below the typical B&M jeweler's.

My point is just that people shouldn't assume that BN is necessarily the cheapest or best way to acquire a diamond (it's not), that diamond prices are fixed (they are not), or that a friend in the business can't deal directly with a polisher to get a better deal. The OP was quoting figures about 25% below BN's price and ticked-off the important specs (e.g. GIA not EGL, no fluor), and to me that fits into the category of "good deal" that's not "too good to be true." Just don't expect them to spend hours educating you, giving you fancy high-tech pictures (or any pictures at all), showing you different stones in a store, taking your return, offering credit, or doing anything fancy. Service all has a cost that has to be reflected in the price and consumers' expectations. The question for a buyer is how much service you need and from whom. Some people can pump their own gas, invest their own 401k, and build their own house. Others need help, and the people providing that help will (legitimately) expect to be compensated fairly for that help.

 

[diamondseeker2006]

Re: Can a B&M retailer significantly undercut online retaile

Blue Nile sells ready made necklaces, bracelets, earrings, wedding bands, etc. out of materials that do not even involve diamonds. You in no way can assume that 90% of their sales are diamonds.

 

[denverappraiser]

Re: Can a B&M retailer significantly undercut online retaile

In the SEC report that George linked to, which is pretty interesting reading if you can choke through some accounting jargon by the way, they say that roughly 2/3 of their 2012 sales were in the category of engagement rings (it's on page 51) but they don't say how much of that is diamonds vs. other sorts of components. They also don't list what price points are doing well for them. The percent margins are generally better on cheap things than expensive things at every jeweler I know and surely this is true of them as well. This is not scandalous, it's just an observation of the way the jewelry business works.

 

[Gypsy]

Re: Can a B&M retailer significantly undercut online retaile

George, you come into this thread representing your opinion as facts backed by evidence. You tell this guy to trust this person he doesn't know and to go through that connection to buy a very high ticket item based on this evidence and your opinion.

When you point out that your evidence and calculations are flawed you back off and now say that you are merely saying that there might be deals out there better than blue nile.

We never said bluenile was the best deal out there. In fact, Wink even said that he has undercut Bluenile in the past.

All we did was counsel caution to the OP and offer him common sense advice on how to verify that any deal he is offered is indeed a good one.

I don't know if you are trying to help the OP, or merely show off your own knowledge and experiences, but advising caution is never a bad thing.

We want the OP, and all the posters here to have positive experiences when they are buying their jewelery and we are here to assist in that-- no matter where they buy from. That's our goal. I hope it is yours too.

 

[denverappraiser]

Re: Can a B&M retailer significantly undercut online retaile

George,

You’re absolutely right, inspections, techy pictures, tests and the like cost money. Sometimes it's even fair amount. The problem here is that lack of those things also costs money. I'm reminded of the saying that if you think education is expensive, try ignorance. You mentioned GIA grading and presumably this falls outside of your scope of unnecessary handholding. Why? It raises the price by $100-200 or so and it doesn’t change the stone one bit. The stone is what it is, right? A few hundred dollars could be saved right out of the gate by avoiding the lab entirely.

That’s a rhetorical question. The value of the lab inspection is that it supplies evidence and confirmation that what the dealer is saying is accurate. It doesn't change the stone but it changes the deal. Most people, including most dealers, are NOT prepared to do the grading themselves, and tiny details make big differences, as I'm sure you know. I point out the lab because with that we’ve already crossed the line of handholding. Presence of the ‘certificate’ is NOT a gemological property but it most definitely is a value characteristic.

The core assumption of Idealscopes, ASETS, H&A, light performance metrics, HCA scores and so on is that these show attributes that make one stone more or less desirable than another. Do they? Are there attributes that make one GIA graded stone better than another of the same grade and do these ‘tests’ demonstrate them? That is to say, is one stone worth more or less than another in the same place on the Rap grid? It’s an important question and it goes to the heart of what people talk about here day in and day out. You need look no further than one of the giant databases like the one attached to this site to see that this is obviously the case. Today a search for 1.00-1.05/G/VS2/GIA/round generates 876 offers ranging from $3894 – $9881. All are the same on Rap. Yikes! That’s nearly a factor of 3. Narrow it down to xxx only. 322 offers from $6645 - $9782. That’s still a 50% bump from the bottom to the top. What gives? Is it just a ripoff from certain dealers or is there something real going on here?

Well, 9 of the top 10 most expensive are from the folks at Blue Nile so let’s start there. That must be the problem. They’re just expensive. Except that 4 of the BOTTOM 10 are also from them. Hmmm. They're pretty well represented throughout the price points. Nearly all of the top ¼ are part of various ‘signature’ type lines and none of those bottom ones are. Those are the ones with all of those extra pictures and stuff. Many of the cheap ones also have at least medium fluorescence and none of the top ones do. Maybe that's it. It’s not easy to filter using fluro here but there are only 17 of those 322 that have greater than faint anyway. The cheapest with none is $6736 and there’s quite a few under $7000 so that doesn’t seem to be a big piece of it. Maybe a few percent.

That brings us back to all of those pictures and foofoo. Is it just marketing or does it show something meaningful? Again, one of the sacred cows of Pricescope is that these show something that matters. The idea is that pictures demonstrate a real and visible difference, and that your chances of actually getting that difference in a stone go way way up if you buy from a dealer who is prepared to prove it. Show the evidence or don’t make the claim. It’s not necessary to buy into this, and not everyone does. It’s a big world. The pushers of generics take the opposite position. All otherwise similar GIA/xxx’s are the same. A G is a G is a G, and the definition of a G is what GIA says it is. Excellent is the top of the cut scale. The rest of this is all crap. I’m solidly in the camp with the former but I do understand the position and a lot of people take it, especially the discount brokers. Generics are readily available and finding examples that are 25% or more cheaper than BN’s branded goods is usually pretty easy. Sometimes you can even buy them from Blue Nile.

What about the address? One of your premises is that the address of the dealer is important. That's actually the one that got me into this discussion at all and it's a bit of a hot button for me. There are about 20 dealers who advertise here and they range from India to LA in terms of location. They're brokering stones that are located all over the place. I don't think any of them are actually based in Israel but you can bet that nearly all of them have connections there and it wouldn't surprise me if some even have offices there. The list includes some pretty big companies. The database doesn't make it easy to sort on address, and the location of the stone isn't even usually at the offices of the dealer anyway, but there doesn't seem to be a bit of evidence that this makes any sort of difference. Have you got anything at all to support this?

 

[John P]

Re: Can a B&M retailer significantly undercut online retaile

Neil, I think an important separation here, as you illustrate, is the difference between those who see diamonds as generics versus those who see them as individual specimens.

Key to me: While many trade members adopt the generic approach (logical in big deals) consumers here are usually shopping for a single diamond. One for themselves, a loved one or a friend. That is why - even as a trade member - I always proceed with consumers as if I was seeking a single diamond for my wife.

... Today a search for 1.00-1.05/G/VS2/GIA/round generates 876 offers ranging from $3894 – $9881. All are the same on Rap. Yikes! That’s nearly a factor of 3. Narrow it down to xxx only. 322 offers from $6645 - $9782. That’s still a 50% bump from the bottom to the top. What gives? Is it just a ripoff from certain dealers or is there something real going on here? ...

I did a real-world exercise outside of Pricescope (B2B information) that's much the same. It may be an interesting addendum.

https://www.pricescope.com/community/threads/best-online-diamond-vendors.197395/#p3595974