“Keystone state: An up-close look at margins” |
| Keystone state: An up-close look at margins Posted: 20 Aug 2010 07:41 AM PDT By Michelle Graff June 03, 2010
Not only did the jewelers who participated in National Jeweler's exclusive "Profit Margins Survey," maintain their profit margins over the past year, a healthy percentage actually climbed to a higher margin bracket, with retail markups at keystone and up pushing gross margins above 50 percent. At first glance, though, our latest "Profit Margins Survey" results seemed to indicate that However, a closer examination of the numbers shows that the majority of jewelers who fled this middle ground did so because they moved up to higher-margin territory. A total 29 percent of jewelers reported achieving margins of 53 percent or more, up significantly from the 19 percent who reported margins in this range in 2009. Meanwhile, the percentage of jewelers whose margins were on the lower end, between 20 percent and 47 percent, declined slightly, from 48 percent in 2009 to 45 percent in 2010. So what contributed to this margins shift? Has there been less discounting in the midst of the slow economic recovery? It seems that the answer is no, at least according to Ira Kramer, owner of the Diamond Exchange of North Florida in Tallahassee, Fla., and the Diamond Exchange of Maryland in Rockville, Md., a by-appointment-only showroom. What's going on with margins, Kramer says, is that jewelers are selling fewer higher-priced items--which typically yield lower margins--and more sterling silver, which a retailer can comfortably mark up three times or more and still move out the door. "We jewelers have lowered our standards, but through necessity," he says. Case in point: Kramer hasn't carried sterling silver in his retail stores since the 1960s, when showcases were filled with sterling crosses, lockets and bracelets, and retailers still sold flatware. "[Now,] I carry a little bit and the markup is great," Kramer says. "Even an expensive piece of jewelry that costs me $300 or $400 I can still get better than keystone [50 percent margin] because it's a lot of play for $300." Overall, margins in his store hover between 48 and 52 percent, a range that is in line with the majority of the retailers who participated in the Profit Margins Survey. "But only because I do a lot of secondhand buying, not just gold but diamonds especially," he says. Kramer says he is honest with a customer about how much a diamond is worth, how much he is willing to pay for it and how he came to the price. Usually, the sellers--mostly women who didn't buy the stone in the first place and are looking to chuck the last relic from a ruined relationship--take his offer. "It's beyond my comprehension why any jeweler doesn't buy secondhand goods," Kramer says. Buying what sells In analyzing the 2010 survey results, National Jeweler separated out the responses of those who said they "don't carry" certain product categories, a move that allowed us to consider only those who sell certain types of merchandise when determining which merchandise category yielded the greatest percentage of margins in the 48 percent-and-above range, with markups of about keystone or above. For the second year in a row, sterling silver jewelry snagged the top margin-earning spot in the survey. All-metal silver pieces and those that boast either diamonds and/or gemstones, garnered margins of 48 percent or higher for a whopping 90 percent of respondents. At Gold Concept in Aurora, Colo., margins on silver jewelry sales hover above 50 percent, says owner Muzaffar Shah. Customers buy a mix of designs, from bold jewels crafted into geometric shapes to pieces with more nature-inspired themes. "They like the style, they like the price and they buy it," he says. Rex Solomon, owner of Houston Jewelry in Houston, has similar success in his store, where silver margins stand at 60 percent, and two lines, Elle Jewelry and Black Hills Gold--which makes a sterling silver line with a hint of gold--are hot sells. "I personally think it's not the most stylish line in the world and I thought it would never sell here," he says of Black Hills Gold. "It's in the same showcase as Elle and it does really well." Lesson learned from this surprise hit? "Don't buy what you like, buy what sells," Solomon says. Silver wasn't the only top margin-making metal for survey-takers, the results show. Wedding bands in the category known as "contemporary metals"--Scott Kay's BioBlu 27 cobalt line is the latest entry--and palladium semimounts performed well , though it should be noted that many of the respondents did not carry either of the categories. Still, for those who do stock other metals--or perhaps are looking for a profitable addition to their display cases--the margins are immense. Eighty-four percent of retailers who carry wedding bands crafted of "other metals," besides gold, platinum and palladium, make margins of 48 percent or more on them, and 83 percent of retailers achieve such margins for palladium semimounts. At Gold Concept, Shah says he has upped the selection of contemporary metals such as titanium, tungsten carbide and stainless steel for wedding bands, and has expanded his collection of men's fashion jewelry. Notably, men's fashion jewelry other than rings was a strong margin-maker, with 73 percent of survey respondents achieving margins of 48 percent or greater for that category. "Alternative metals are doing well because [they hit] a price point," he says. Men's wedding bands crafted of titanium or tungsten achieve margins upwards of 50 percent, as compared to the 30 to 40 percent margins Shah makes on white gold wedding bands, he says. No bargains for gold While high gold prices and price-conscious consumers have prompted retailers to stock plenty of sterling silver and affordable non-precious metals, it appears that those jewelers still offering gold jewelry are holding firm on prices. Plain gold chain necklaces without gemstones garnered margins of 48 percent or greater for 75 percent of respondents, while 74 percent reported margins in the same range for gold wedding bands. In addition, 74 percent of survey respondents achieved 48 percent or higher margins for gold pendants without gemstones and 72 percent made margins of 48 percent or more on gold earrings. Indeed, retailers who spoke to National Jeweler confirmed that consumers are not buying much gold jewelry. When they are buying, though, there is only so much retailers are willing to give when it comes to discounting. Shah says his customers still believe that gold jewelry should cost what it did five or six years ago, and those long-ago prices are just about all that many of his clients are willing to pay. He has some room to play with margins on pieces he bought when the metal's price was lower but, in the end, there's only so much of a markdown he can make. "I am trying to deal with people on price," he says. "Still, I see that people are not buying gold. You cannot give it away. You have to consider what you would have to pay if you had to replace the same piece." The only other product category to perform as well as gold was colored gemstone jewelry, which boasts a rainbow of products among the top margin-makers. Colored stone earrings scored margins of 48 percent or more for 76 percent of retailers; loose colored stones earned that margin level for 77 percent. Colored stone pendants/necklaces and colored stone rings achieved margins above 48 percent for 74 and 73 percent of respondents, respectively. Kramer says he makes "huge" margins on loose colored stones, which he buys at the annual jewelry shows in Tucson, Ariz. Meanwhile, he makes 50 percent margins on his colored gemstone jewelry sales. How? He says it is because it is nearly impossible for consumers to compare prices between two jewelry stores on something like a tourmaline bracelet, and it's even harder to do such comparison shopping with online retailers. "They cannot price it," Kramer says. Diamond doldrums Well into the age of widespread Internet competition, it's certainly not news that diamond engagement rings and loose diamonds are among the worst margin-makers for jewelers. Overall, 83 percent of respondents make margins of 47 percent or less on loose diamonds. Kramer willingly admits that he loses margin on both diamond engagement rings and loose stones by engaging in Internet price warfare. But he's willing to do it if it means snagging a customer for life. For one customer, he matched Blue Nile's price on a 1-carat, radiant-cut diamond, taking a slim 11 percent margin. That customer has since returned to Kramer to purchase the engagement ring mounting, a diamond wedding band, a pair of diamond stud earrings and--when he and his wife had a baby--a strand of pearls. "He doesn't cross-price me anymore because he knows he got a good deal on the first one," Kramer says. "If you make a customer [for life], is there something wrong with that?" While diamond engagement rings and loose stones may not provide margin manna to retailers, diamond rings that don't involve a walk down the aisle prove more profitable: 72 percent of survey respondents reported margins of 48 percent or more on non-bridal diamond rings and anniversary rings. At Houston Jewelry, Solomon is able to boast margins of 50 percent on diamond necklaces, fashion rings and bracelets. The difference: much of the manufacturing is done in-house. "We do make the fashion rings and we do make up our diamond tennis bracelets," he says. Another booster: Solomon has his staff spend time removing the diamond melee from pieces they buy off the street. It's a pain-staking, time-consuming process that requires extra staff but is ultimately well worth it. "It's not a quick process, but it adds up over time," Solomon says. About this survey: National Jeweler conducted this survey via e-mail in early May in conjunction with Zoomerang.com, an online market research service owned and operated by MarketTools Inc. of Mill Valley, Calif. Results for the 2010 survey are based on 110 completed surveys, while results for the 2009 survey were based on 107 completed surveys. Roughly 93 percent of the survey respondents were independent retail jewelers; 3 percent represented jewelry chains; 1 percent represented online retailers and the remaining 4 percent fell into "other" categories, such as wholesalers. No respondents identified themselves as being from a department store or discounter. Grouped geographically, responses fell into four U.S. regions: Northeast> CT, ME, MA, NH, NJ, NY, PA, RI, VT Thirty percent of respondents were from the Midwest; 17 percent were from the Northeast; 25 percent were from the South; and 28 percent were from the West. The survey also characterized respondents by annual per-store sales: 18 percent of the retailers queried generate less than $250,000 in annual per-store sales; 20 percent have sales of $250,000 to $500,000 per store; 7 percent have sales of $500,000 to $750,000 per store; 12 percent have per-store sales of $750,000 to $1 million; 16 percent have per-store sales of $1 million to $1.5 million; 6 percent have per-store sales of $1.5 million to $2 million; 15 percent have per-store sales of $2 million to $5 million; 3 percent have per-store sales of $5 million to $10 million and 2 percent have per-store sales of $10 million and up. National Jeweler also cross-tabulated some survey questions by region and annual This story first appeared in the June 2010 print edition of National Jeweler. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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