Is it a true statement that jewelers make 100-200% mark-ups on the jewelry they sell?
While reviewing a couple of sites for selling jewelry (see my post here), I ran across a statement on the I Do Now I Don’t.com site that got me thinking. In the founder’s story, he tells about going back to the jeweler he bought the ring from to sell it back after his engagement didn’t work out. He said that he was shocked and appalled at the amount they offered him, about 1/3 of the retail price he had recently paid. I know that he’s not making that part up: that is about what a retail jeweler would offer someone as a cash price for a piece of jewelry from a customer needing to sell. He states that the reason he was offered so little is that the true cost of the item for the jeweler was 1/3 to 1/2 of the retail, and that the jeweler made a 2-3 time mark-up on the cost of the ring. There are a couple of reasons why the jeweler probably offered him so much less than retail (which I outline here), but their cost in that ring was probably considerably higher than the offer amount, for reasons I outline below.
So is it true that jewelers make 100-200% mark-ups on the jewelry they sell? The accurate answer is…it depends.
It’s possible that there are a handful of jewelers out there in pockets of the US that are still making the circa 1980’s profits of marking something up 3 times what they paid for it. But their customers better not have Internet access! Since the mid-1990’s and the advent of real-time diamond pricing online, diamond margins have steadily been declining. By selling diamonds with laboratory certificates from reputable grading labs like GIA and AGS that outline the diamond’s 4 main components of quality (carat weight, color, clarity and cut grade), the Internet makes shopping for diamonds, in theory at least, relatively transparent. Mainly due to the Internet, physical jewelers have been forced to reduce their profit margins on their loose diamonds as well.
Internet Diamond Prices
Most competitively-priced diamond retailers online have margins (profit divided by price) of around 8-12% on their loose diamonds. So on a $10,000 loose diamond, the retailer is likely making a gross profit of about $800-1200 for that purchase. Online retailers have relatively low overhead, since many (like Blue Nile) do not actually stock their substantial diamond lists in-house. The diamonds come from multiple suppliers, and those suppliers provide a real-time feed of available diamonds to the retailer. When you select a diamond from a Blue Nile or Amazon.com loose diamond list, that diamond is shipped from the supplier to the retailer, then inspected and–if you selected a setting–set into the mounting, inspected again, boxed and shipped to you. It’s an substantial advantage, capital-wise, for these online retailers to never have to carry these diamonds in-house. If they bought them outright, they could likely negotiate slightly better costs on the diamonds, but it ties up enormous amounts of cash until they sell.
Physical Retail Diamond Prices
If you compare this to a physical independent jeweler, these jewelers have a different diamond merchandising strategy. It can vary a great deal from jeweler to jeweler, but they typically have a margin of around 20-35% on their loose diamonds, so on a $10,000 diamond, they are making a gross margin of roughly $2000 to $3500. Really savvy, competitive physical jewelers are often within about 15% of the final price of an online diamond. They can come close to online retailers, but it’s hard to beat those prices for a couple of reasons. They don’t do the volume that the online merchants do, and if a customer is in the store, customers want to SEE the diamond to make a decision. So most physical jewelers buy a few diamonds to keep their suppliers happy and negotiate great cost prices on some stones, and carry some others on memorandum, which basically means consignment from their suppliers. Memo goods give jewelers more selection, and they don’t have to pay for them until they sell them, but the cost won’t be as competitive as the diamonds they buy outright. Plus there is a lot of overhead cutting into the profit: the salesperson who shows you diamonds has to get paid, rent or mortgage on the store itself, and the capital costs of all the other inventory. But you might make the best decision by seeing those diamonds in person.
How Much Did That Setting Cost?
The setting for the rings does allow for some profit for both on-line and off-line retailers. If we’re talking about a simple platinum solitaire setting with a retail of about $550, the cost to the retailer is probably around $275 to $300. But they also have to cover the costs of setting and sizing the ring out of that profit (plus their regular overhead), since the diamond profit might not allow for that. If you choose a designer setting with lots of diamonds and side gems, then the mark-up percentage is likely the same. But hey, this is what makes it a business, no one said it’s a philanthropy!
So, it is HIGHLY unlikely that your on- or off-line jeweler is making a killing on your engagement ring.
And, the good news for consumers is that due to the economy right now, and the continued pressure of competition, diamond prices have gone down by approximately 15% in the last 12 months. It’s pretty remarkable, and actually a good time to buy. So go out there and shop like an informed consumer!