Jewelers making 'we buy gold' offers

Jewelers making 'we buy gold' offers
May 07, 2008

In response to retailer demand, Lafayette, La.-based supplier Stuller is offering a metal scrap-for-credit program to its customers, allowing them to exchange scrap for new merchandise.

By Michelle Graff

New York—High precious metal prices, combined with an economic slowdown, have retailers reverting to gold buy-back programs to generate revenue and foot traffic.

The trend is gaining so much momentum that it is even visible on the streets of New York's Diamond District, says 47th Street diamond dealer and The Diamond Registry Bulletin publisher Joseph Schlussel, a 40-year industry veteran.

"We've noticed a drastic turn in the retail market downstairs on 47th Street," he wrote in the March 31 Bulletin. "The hawkers on the street no longer say 'Buy from us.' They now say 'We buy gold and diamonds.'"

And it seems that consumers—hit hard by stock losses and the sluggish housing market—are responding.

When asked in an online poll conducted by National Jeweler how higher gold prices are impacting sales, 43 percent of respondents said customers are bringing gold jewelry in to sell in response to the sky-high prices.

This response topped the other choices: gold jewelry sales dropping (32 percent), customers choosing lower-priced metals (13 percent) and gold jewelry sales holding steady (12 percent).

Retailers are using a variety of methods when it comes to getting the word out to customers about their gold buy-back programs.

At Minster's Jewelers in Wilmington, Del., William Minster decided not to post any signs on the store windows or run advertisements in the local newspaper. Instead, he opted to send out a direct-mail piece to his customers, explaining the increase in the price of gold.

Minster also contacts local bankruptcy lawyers to see if any of their financially struggling clients might be interested in converting their jewelry to cash.

"In these times, you have to be creative but hold onto your ethics and keep your name in a good light, rather than just hanging out a shingle saying 'We buy gold,'" he says.

Minster says he bases how much he gives customers on the price of gold that day. Most of his customers have brought in out-of-style items, like heavy necklaces.

Minster says the price of gold is at a level where he is able to give the customer a fair amount of cash in return, while still making a small profit, even after covering the costs associated with refining.

Striking gold on Craigslist Other jewelers are using the Internet to advertise their gold buy-back programs. Meridian Diamond Co. in Roswell, Ga., and Michaels Jewelers in Pennsylvania both placed ads on popular consumer buy-and-sell site Craigslist.

Michael Kanoff of family-owned Michaels Jewelers, with stores in Yardley and Fairless Hills, Pa., says he took his parents aside after a tough holiday season and together they made the decision to launch heavily into a gold buy-back program.

In addition to Craigslist, Michaels Jewelers now runs spots in a daily newspaper.

Buying gold jewelry from customers and shipping it off for refining is one way retailers are coping with the downturn in jewelry sales.

Kanoff says the program has generated a lot of foot traffic for his store, with customers bringing in a wide variety of items, from an 1800s cane to an 18-karat enameled bangle.

"I had expectations on this," he says. "This far exceeded my expectations."

Michaels has had success with buy-back programs in the past, notably when gold prices soared in the early 1980s.

"I specifically remember saying to my family, 'I'll never see those times. Gold will never go that high again,'" he says. "And here we are."

Between Jan. 1 and April 9, gold prices peaked at more than $1,020 per ounce on March 17, precious metals Web site Kitco.com says. If adjusted for inflation, that's still below the highs of the 1980s.

Roger Harjani of Meridian Diamond Co. says he started advertising his gold buy-back program about nine months ago, after finding a trusted refiner. If the customer wants cash in exchange for the gold, he gives them about 20 percent less than the price of gold that day and nets about a 10 percent profit after the cost of refining.

But, if customers want to buy something in his store, Harjani gives them 100 percent of the value of what they are trading in, based upon the price of gold that day.

Harjani says while business boomed for his buy-back program in the beginning, it has dropped off lately because of increased competition.

"It was good, but now it's kind of saturated," he says. "Everybody's doing it."

Suppliers also are responding to high metal prices. Lafayette, La.-based Stuller has launched a scrap program for metals that allows customers to trade in scrap silver or gold and, in exchange, receive credit toward Stuller products.

Kerry Hand, the executive director of marketing services for Stuller, says 30 retailers signed up for the program when it was introduced in January, and so far, it has met the company's expectations.

Retailer Bob Gholson of Gholson Originals in Waco, Texas, was one of the original retailers to join the program at the beginning of the year.

"After December...you have a lot of bills," he says.

Gholson says he orders an average of about $1,260 in merchandise from Stuller per week. Since January, he has sent in two shipments of scrap: one was worth between $3,000 and $6,000, and the other was valued at about $4,000.

Stuller returns about 97 percent of the value of the scrap to the retailer, so for the store, the scrap program is the equivalent of eliminating a bill, Gholson says.

Hand says Stuller determines the worth of the scrap based upon the second London fix on the day of the settlement. The amount is then credited to the retailer's account and can be used to buy new products.

"We're really converting their old product into new product by virtue of this program," Hand says.

—E-mail: michelle.graff@nationaljeweler.com

Editor's note: This is the second in a series of stories in which National Jeweler will examine ways to combat various retailing challenges this year. This story first appeared in the May 1 2008 issue of National Jeweler.

National Jeweler

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