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Unscientific dealer markup survey.

What's a reasonable dealer markup?

  • 10%

    Votes: 3 11.1%
  • 20%

    Votes: 11 40.7%
  • 30%

    Votes: 5 18.5%
  • 50%

    Votes: 0 0.0%
  • double

    Votes: 1 3.7%
  • whatever the market will bear

    Votes: 7 25.9%

  • Total voters
    27

denverappraiser

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People often come onto the forum or into my office with questions about 'fair' pricing. The same issues come up on the other side of the counter. What's reasonable? There are some steep differences of opinion here and obviously dealers can and do charge whatever they want. We get no vote in the matter but I'm curious. What do you all think is a fair markup for an item that costs a store, say, $5000 to deliver?
 

diamondseeker2006

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I think it depends on the item. A bracelet or other jewelry items are probably often marked double the wholesale cost. But I don't think diamonds should be. At least we can compare diamond prices pretty easily.
 

denverappraiser

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It's pretty hard for a dealer to get double these days, even on fairly inexpensive things, but the big concern people have is about getting 'ripped off'. Obviously dealers are making a profit, that's why they do it, and it's equally obvious that consumers are looking for the lowest prices they can find, but there's a threshold where people aren't just declining to buy, they walk away feeling like the dealer was trying to cheat them.
 

diamondseeker2006

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Yes. I make it a practice to (almost) never pay full retail price for anything. The only exception I can think of are high end designer brands that never go on sale, and the second hand items are often still 90% of retail. So I won't be having much of that kind of jewelry, but it is an example of items that carry more brand value than value of materials. There are apparently enough people keeping them in business!
 

Texas Leaguer

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Much depends on the overall value proposition. Is the item in-stock, fully evaluated, detailed information provided, offered with other benefits such as trade-up, buy-back, service warranties etc. Or is it an item that a dealer is merely "flipping" and offering with limited protections, information or benefits?

While the actual markup may not need to be different, the cost basis is significantly higher for the more comprehensive offering. And that "appears" to some shoppers to be a higher markup. As they say, the devil is in the details. Or, if the shopper is someone who values the added protections and benefits, the "angel" is in the details. :saint:
 

diamondseeker2006

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Bryan brings up a good point. I have top quality diamonds and have been willing to pay the premium for them. I have used upgrade policies. Totally apples and oranges comparing prices on specialty cuts and H&A versus generic ex cut diamonds. Some don't appreciate the added value, but some do. I credit and appreciate PS for teaching me the difference.
 

denverappraiser

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Markup is a loaded word and I used it here advisedly. I picked it because people have a feel for what it means, even if it is imprecise. This too comes down to those details. Cost, for a jeweler, includes everything from inventory to rent to security to sales commissions, and any sensible accountant includes these in the profit calculation. People looking at markup in isolation generally do not.
 

Texas Leaguer

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denverappraiser|1467386594|4050469 said:
Markup is a loaded word and I used it here advisedly. I picked it because people have a feel for what it means, even if it is imprecise. This too comes down to those details. Cost, for a jeweler, includes everything from inventory to rent to security to sales commissions, and any sensible accountant includes these in the profit calculation. People looking at markup in isolation generally do not.
True. And frankly, markup is not all that relevant to the consumer. Value is. Comparing prices between like kind and quality and taking into account added value components is the way to arrive at an accurate value determination. And as DiamondSeeker astutely points out, not everyone sees value in the same things. That personal calculus, after the details have been parsed, is the ultimate bottom line.

It sounds like a lot to ask. Should being a smart consumer be that hard? Well, if the purchase is important enough then you will put in the work. And many here do!
 

oldminer

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The question asked in the poll sounds simple enough. In fact, it is way too simple a question to be answered by making a choice in a single fill in the blank response. Such a question cannot be honestly or properly responded to without some understanding of the vast range of economic realities sellers of varying type have to deal with. A small sample of issues which make the question unanswerable in a single way are such things as:

Does the seller have their own money invested in the item, or is it one they have access to on a short term memo? What mark-up does the memo owner need to make on their investment plus what does the seller need to make on the stone with very little investment?

What is the overhead style of the seller? Is the seller a full service store with beautiful and costly fixtures, reasonably paid and presentable staff, insurance costs, heating and cooling, etc? Is the seller a moderate cost operation with lovely office space, a staff of service individuals making reasonable wages, insurance, shipping, furniture, heating and cooling, etc? Do they own any inventory> Do they own all their inventory, do they own nothing of what they offer to sell?

How about individual or nearly individual sellers? Do they even own a desk and a chair, or are they heavily invested in inventory insurance, travel costs, computer and web fees? Possibly they take consigned goods as well as buy their own stocks. Mark up will vary as investment costs rise, just as it will rise when overhead rises.

Another issue is what perception of value added does the seller possibly have by virtue of their name, reputation or other earned attribute which is intangible, but potentially of vast importance. Some sellers have products now which command some premiums by virtue of general consumer recognition of their high quality of workmanship.

These are limited examples of why no one can give you a valid response which actually means much. The economics of being a seller cannot be pigeon holed in the framework of the question. It would be nice to be able to explain the complex with a simple response, but reality is elsewhere. In all the time I had a large business of selling jewelry and gems, we tried to maintain a 15% to 20% net profit every year after taxes and all overhead including salaries for everyone. When thing were good in the 1970 and 1980's, it was easy enough, but from the mid 1990's and onward it increasingly difficult and finally impossible. Costs rose faster than profit margins and the willingness to pay slowly decreased, while incomes stagnated. A business has to do a lot more selling to maintain profit margins under lower mark-up conditions and heavy competition. I applaud the great efforts some vendors are making to please consumers and work on tight margins. It is a whole lot nicer and more pleasant for sellers to have it a little easier, but it is not the way the system works so sellers who are doing well are working hard and making the best of it. That's one of the reasons I support Pricescope. It brings consumers who want to perfect their skills together with some of the best vendors in a common marketplace where competition and integrity are reasonably assured. Buying from those who only stress low price are best left to those consumers who believe in fairy tales, or like to have poor overall buying experiences. You do get what you have not paid for most of the time at the bottom of the barrel.
 

Rockdiamond

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Super interesting discussion Neil!
It's important to remember that there's a large percentage of sellers nowadays that really aren't technically jewelers- they are internet marketers.
These are companies with zero interest in diamonds, or even their clients- they want to have the next "twitter"- a popular website they can sell.
In such a case, margin, or markup on any given sale makes little difference.
On the surface, this might seem like a win for consumers- and it is if all they want is the lowest price.
As others have brought up, service counts, and costs.
So if a consumer wants no service, the markup number will be a lot lower than if they want full service.
 

oldminer

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The largest hotel chain in the world today is AirBnB and owns no properties. The largest taxi company in the world owns no taxis, UBER. Much of the same applies to some very low margin diamond and jewelry sales. Does low price make either of these operations the "best"? That could be a good matter for discussion in some other thread or another venue.
 

Rockdiamond

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Great points Dave- I thought this might be a good place to discuss it....
There's a lot of changes taking place in retail selling in all segments- and there's a lot of destruction associated with it. Sometimes constructive, sometimes not.

I believe in the specific case of diamonds and jewelry, the margins are integral to these changes. We can look at the largest internet sellers, and consider them something like AirdiamondBnb.
Such site may very well cause some traditional hotels to close.
Just like internet sites have caused jewelry stores to close.
If enough consumers demand a higher level of service, hopefully there will still be "real" diamond and jewelry sellers to accommodate them.
But for that to happen, there needs to be enough margin.
 

denverappraiser

Ideal_Rock
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In much of the US retail market, retail prices are about double the dealer's superficial cost. This would be for products that range from coffee mugs to hardware to clothing to furniture. Some are more, some are less. Out of that the dealer pays all of that other stuff that seems 'free' to the consumer. Some make it, some don't but it may be worth noting that retail, in general, isn't a very good gig these days. The perception for jewelers, and particularly the sort of jewelers who are selling diamonds, is that's a ripoff, even though they mostly aren't getting that much. Dealer margins have plummeted in the last decade. Obviously cheaper prices are available for those who want to do the legwork, but are uneducated customers who pay 'retail', being cheated?
 

Texas Leaguer

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Oldminer|1467390466|4050494 said:
The largest hotel chain in the world today is AirBnB and owns no properties. The largest taxi company in the world owns no taxis, UBER. Much of the same applies to some very low margin diamond and jewelry sales. Does low price make either of these operations the "best"? That could be a good matter for discussion in some other thread or another venue.
This is an interesting analogy and, I agree, may be better discussed in another thread rather than hijacking Neil's topic.
I do think there are some important distinctions between benefits that consumers look to capture when temporarily renting or accessing a service versus purchasing a product of high economic and emotional value.
 

denverappraiser

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One of the lessons from my grandfather was that only a dope would pay retail. He wasn't a very sophisticated shopper and he wasn't very sensitive to the problems of the merchants, but he had a solid idea of what he thought 'retail' meant, and it meant a sucker deal. He would have loved the Internet. =)
 

Texas Leaguer

Ideal_Rock
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denverappraiser|1467391453|4050504 said:
One of the lessons from my grandfather was that only a dope would pay retail. He wasn't a very sophisticated shopper and he wasn't very sensitive to the problems of the merchants, but he had a solid idea of what he thought 'retail' meant, and it meant a sucker deal. He would have loved the Internet. =)
Indeed, there has never been a tool like the internet to empower consumers and to force merchants to become better at delivering value.

Thanks Al Gore. :lickout:
 

Rockdiamond

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If we consider other products we can see that there's a segment of consumers that are willing to pay more for service. BMW is a good example.
Without a doubt, there's plenty of folks that follow Neil's Grampa's line of thinking.
Personally, I prefer to pay a little more to get increased service.
 

smitcompton

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Hi,

I answered 20%. That meant total profit after all expenses. I now think that was too low, maybe 30% would be more realistic.
Is that too low?

Annette
 

Rhea

Ideal_Rock
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That's a hard one. Does it mean after all expenses or does the markup cover the expenses? Owning or renting a premises is costly. There's the jeweller's tools from showcases through to microscopes. And photography equipment, photo editing equipment and someone with the experience to put photos on the internet. The cost of designing the website, making updates and keeping it secure for card processing and against hackers. Insurance for items being stored, displayed, stones being set, and in shipping on it's way to the customer. Free returns and free resizings which aren't actually free but cost the dealer something. The cost of the occasional lost diamond from a pave setting or chipping a gemstone while it's being set. Salaries of trained professionals on staff such as CAD artists, designers, casters, engravers, gemmologists and stone setters. Continuing education for all those staff and the ability to cover holidays, sick leave and maternity leave and health insurance. Advertising costs to let people know who you are and what you do.

I'm thinking you'd need a fairly large markup to take the risk and make it worth your time. Running a business could be very expensive!
 

denverappraiser

Ideal_Rock
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Well, this is a question of opinion, so there is no right answer. The reality of how people actually price is what the market will bear. They can ask whatever they want, but that's not the same as getting it. :naughty: I'm asking about consumer perception of what seems fair, which is a totally different question. (thanks for anwering by the way).

A company that makes a net profit of 20% on sales is seriously profitable indeed. As an example, Tiffany reports that in 2013, their best year ever, they made $180M on $1.2B of sales. That's a 15% net. Costco reports show that they consistently have 1-2% left at the end of the day.
 

Dancing Fire

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denverappraiser|1467410003|4050583 said:
Well, this is a question of opinion, so there is no right answer. The reality of how people actually price is what the market will bear. They can ask whatever they want, but that's not the same as getting it. :naughty: I'm asking about consumer perception of what seems fair, which is a totally different question. (thanks for anwering by the way).

A company that makes a net profit of 20% on sales is seriously profitable indeed. As an example, Tiffany reports that in 2013, their best year ever, they made $180M on $1.2B of sales. That's a 15% net. Costco reports show that they consistently have 1-2% left at the end of the day.
15% net is good profit. I really doubt internet dealers can net > 10% selling loose diamonds nowadays.
 

oldminer

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If one nets only 2% net profit on each sale, but turns their inventory over 8 to 12 times per year, the profits end up in very good shape. When we used to net 15 to 20 percent we could not get a two time turn of inventory annually, it was closer to a 1 time turn so every item was then able to carry a very decent margin with not all that much work. In these times, volume sellers make next to nothing, on individual sales, but make it much more often by their inventory turn. That's one of the most powerful tools in the profit basket of tricks. Lots of traditional retailers just don't want to turn over good for low margins because they would have to work so much more to reach their profit requirements. Dealers have had to learn turning over for low margins or close shop. The most successful internet sellers turn inventory over rapidly AND have figured out how to sell that extra service component which earns them a bit more on top. No question that service with a smile and goodwill can add to the satisfaction of a purchase and the retention of customers while painlessly adding a bit to the bottom line.

I also vote with my money for good service at a fair price over the lowest possible price with expectation of little to no service for many things. We each need to seek out our own balance in such matters of personal taste when buying.
 

denverappraiser

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Dancing Fire|1467415395|4050611 said:
denverappraiser|1467410003|4050583 said:
Well, this is a question of opinion, so there is no right answer. The reality of how people actually price is what the market will bear. They can ask whatever they want, but that's not the same as getting it. :naughty: I'm asking about consumer perception of what seems fair, which is a totally different question. (thanks for anwering by the way).

A company that makes a net profit of 20% on sales is seriously profitable indeed. As an example, Tiffany reports that in 2013, their best year ever, they made $180M on $1.2B of sales. That's a 15% net. Costco reports show that they consistently have 1-2% left at the end of the day.
15% net is good profit. I really doubt internet dealers can net > 10% selling loose diamonds nowadays.
This isn't the sort of question you can ask your friendly neighborhood Internet dealer and expect a straight answer, but Blue Nile public filings report that they were UP last year, to 3%.
 

susief

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Whatever the market will bear IMO. Buyers will vote with their feet (or wallets), and this will be based not only on the product itself but the added value and protection as previous posters in the trade have rightly pointed out.

Whenever I buy something, I consider carefully what I need from the vendor. If it is something that could easily go wrong and need recourse, a complex item that demands high quality and expertise, etc, I will happily pay extra to buy from a shop with a reputation for impeccable quality and excellent customer service. If it's something simple that I am very knowledgeable about and can pick out good quality myself, and am unlikely to ever need to return it or have a problem with it, then I'm more likely to seek out rock bottom price with fewer protections. Most times it's somewhere in the middle.

There isn't a one-size-fits-all answer as buyers vary in their expertise and tolerance for uncertainty and risk, depending on their personality, circumstances and the item in question. Diamonds are luxury, non-essential items (not comparable to essential services or goods where I do think there should be regulation against over-charging). So I think vendors should charge what they like, buyers should educate themselves, and then the market tends to sort itself out.
 

Rhea

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Markup is different to net profit.

When I worked retail years ago the owner of that shop did x 2.3 for markup on the things they sold. My understanding is that it was to take into account all the things I mentioned above. I wasn't privy to information about their net profit.
 
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