Independents
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Gold-buying parties help jewelers offset slow sales
By Michelle Graff
May 22, 2009
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| Retailers Jim and Julianne Paulsen of Rocks the Jewelers in Virginia, Minn., run a company that facilitates gold parties, like this local gathering held in March. Gold parties, which some media reports have described as the recession equivalent of Tupperware parties, allow attendees to trade old gold jewelry for cash in a social setting. |
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It was a sign of the times: After a sluggish holiday season, not a single jeweler paid money to run an advertisement during the Super Bowl.
But gold buy-back company Cash4Gold scooped up one of the high-priced spots and ran a commercial featuring celebrity spokesmen Ed McMahon and MC Hammer, an odd couple who--flanked by gold-plated toilets and records--encouraged consumers to send their gold into the Fort Lauderdale, Fla.-based company.
The pitch was no surprise: After record-setting per-ounce prices in 2008, gold is set for a repeat performance this year.
And, not to be outdone by Cash4Gold's past-prime rapper or a gold-coated commode, retail jewelers are still hanging out banners letting consumers know they can turn their 1980s-style gold chains and old wedding bands into quick cash.
In fact, for Craig Curtis of Downtown Jewelry and Engraving Shop in Belfast, Maine, gold buy-backs have been the only bright spot in his business.
"The first two months, I'm up 0.1 percent and that's because of gold," he says. "That's the only thing that's been keeping it on the plus side."
Fueled by economic uncertainties brought about by job losses, a volatile stock market and general economic weakness, investors will continue to seek out gold, analysts predict. This will increase demand and pump up the precious metal's prices.
Couple the lofty prices with the American consumer's newfound distaste for conspicuous consumption and the result is more public interest in selling unwanted or outdated gold jewelry than in buying new. [Jewelers usually need licenses to buy secondhand jewelry. See "Jewelers buying secondhand jewelry need licenses."]
Getting the party started
Clued in to this, retailers are not only buying back gold at their stores but branching out by facilitating gold-buying parties in private homes, gatherings being dubbed as the recessionary equivalent of the Tupperware party.
Pat Coughlin, owner of Coughlin Jewelers in St. Clair, Mich., was ahead of his time when he started holding gold parties about two years ago. Today, he is grateful for the enterprise.
"Honestly, it's life support," he says. "I don't know where I'd be without it."
While there are variations, gold-buying parties typically work like this: Using a network of trained representatives (think Mary Kay), gold-party companies hold gatherings at the home of the party host, bringing along all the equipment necessary to test and weigh gold.
As attendees socialize, representatives evaluate and weigh each attendee's gold jewelry and cut checks based on the price of gold that day, minus the amount owed to the party host, sales representative, gold-party company and any other entities involved.
Coughlin admits that the home gold-party concept was not his own, but that of a regular customer who asked the retailer to visit her house and meet with a group of women eager to unload their gold jewelry.
"I'm always willing to do a little out-of-the-box marketing," Coughlin says, acknowledging that it seemed like an unusual request at the time.
Coughlin says he went in expecting to collect about $600 in gold jewelry and ended up gathering $5,000 worth instead. His business, Gold Party US, boomed from there.
"We were the first ones to get it fired up, I think," he says. "It's definitely been a challenge, doing the retail side and then doing the home party side, but we've been able to manage it well."
Since its debut event, Gold Party US has facilitated 400 to 500 parties, taking in more than $3 million in gold through a network of hired representatives in nine states, according to Coughlin.
He says for Gold Party US gatherings, the host personally invites people she knows and the guests sit around a dining room table while one or two trained representatives evaluate the gold.
While a few novelty pieces might get passed around, Coughlin says the risk of someone slipping a piece into their pocket is low because everyone knows everyone else, and the jewelry is not extremely valuable.
It is much less risky than handing diamond engagement rings to customers over a jewelry store counter.
"It's much more social than in a store environment," Coughlin says. "In a jewelry store, it's a totally different environment than at a house party."
Retailers Jim and Julianne Paulsen, who own Rocks The Jewelers in Virginia, Minn., and Get Rocked, Inc., a fine-jewelry company that sells jewelry at house parties, also have made a side business out of gold parties.
Julianne Paulsen says the gold-party business started in March 2008 with a charitable event.
A family in the couple's small Minnesota community lost everything in a fire, and Paulsen says the jewelry store hosted a charity gold buy-back event to help the victims get back on their feet. At the time, the price of gold had risen above $1,000 an ounce.
From there, Paulsen and her husband realized that the gold parties could help pull their store and its sales consultants through the tough times, while simultaneously generating new customers who the Paulsens hope will remember their name when the economy turns around.
"The point was to generate a promotion for Get Rocked," Paulsen says. "And it's also helping our consultants' networking, and they're making a little money where maybe they wouldn't be making any money."
Today, the jeweler has a network of 12 consultants hosting gold parties called "Good as Gold" in five states, providing what Paulsen believes is the perfect salve for these trying economic times.
Not only does it help business but it allows customers to socialize and forget their troubles for an evening while putting a few extra dollars in their pockets.
"[People's] pockets are tight," Paulsen says. "They have a hard time spending ... they're not as liquid as they were a year ago."
Cleaning out jewelry boxes
While retailers such as Paulsen and Coughlin have chosen to step out from behind the counter to take advantage of high gold prices and cash-strapped consumers, others opt to stay inside their stores and keep the gold-buying banners waving outside.
Curtis, of Downtown Jewelry, says while he has heard of the gold-party trend, it isn't something that would work in his sparsely populated location.
So, instead, he sticks to buying old gold at his store.
He says a range of customers across all income brackets continue to trickle in to sell their unwanted gold pieces, a trend he attributes to the recession worsening in the Maine town where the store is located. Local mills have been shutting down and many small retail stores have been forced to lay off staff and close shop for the winter because business has gotten so slow.
"It's becoming more of a need to get rid of [old jewelry] to make the money," he says. "It's going to get worse up here before it gets better."
Another reason Curtis does not do home gold parties is the security risk involved with publicizing a jewelry party.
"Anybody who wanted to get your stuff knows where you're going after you're done," he says. "To me, it's not worth the risk of opening yourself up that way."
While Paulsen admits security is a concern, she says the measures the company takes for its consultants are similar to those it takes for the Get Rocked sales representatives.
Each consultant documents the gold they take in and stores it in a locked case. They are encouraged to call their local police for an escort if they feel uncomfortable for any reason when heading home.
"It's a little [bit] of a nerve-wracking thing to have to deal with," Paulsen acknowledges.
At Brownlee Jewelers, a North Carolina-based chain of seven stores, Harold Rousso, president and owner, has had a gold-buying banner waving outside six of his stores since Christmas.
In addition to the banner, the store advertises its gold-buying offers heavily in the newspaper and on television.
Doing so has paid off. Rousso estimates that gold-selling customers currently account for about 50 percent of the store's foot traffic. Most of the clients are women eager to purge old class rings or wedding bands from broken marriages.
"They're just cleaning out their jewelry boxes," he says. "They're bringing in a lot of broken jewelry and just outdated jewelry."
Many do not appear desperate for money--they just want a little extra cash for things like car repairs, new drapes or electronic items such as iPods or cameras.
The one thing they are not spending the cash on, unfortunately, is more gold.
"It's not jewelry that they're going out and buying," Rousso says.
Not-so-shiny outlook
A retreat from big, bold gold jewelry purchases is a trend that analysts expect will continue in 2009.
According to the Gold Yearbook 2009, released in late March by precious-metals research firm CPM Group, consumer demand for gold jewelry will remain "weak."
Gold fabrication demand--a category that consists mostly of jewelry but also encompasses electronics, dental, medical and other uses--declined 6.6 percent last year, from 82.9 million ounces in 2007 to 77.4 million ounces in 2008.
The 2009 forecast calls for demand to fall 7.9 percent to 71.3 million ounces.
While gold might not attract much interest in jewelry display cases, the Yearbook forecasts that the metal will remain in high demand among stock market-shy investors who consider it a safe haven for their money.
Investor gold buying is expected to ratchet up to a record 52.3 million ounces in 2009, up from 43.3 million ounces in 2008.
In its Gold Demand Trends report released in February, the World Gold Council (WGC) stated that the jewelry sector "should continue to be cushioned by an over-spill of investment demand, and any significant dips in the price level are expected to release some pent-up demand."
Mike Pace, vice president of marketing for the WGC, says what this means for the retail jeweler is that consumers will buy more gold jewelry if the price of gold comes down.
Gold prices went on a roller-coaster ride in 2008, peaking at $1,020 per ounce and dropping as low as $695 per ounce.
As of early April, gold prices had ranged between $810 and $990 per ounce, according to Kitco.com.
Though the WGC is not allowed to give guidance on gold prices, Pace's advice to jewelers is to stock classic pieces, as well as more fashion-forward, trendy jewelry so consumers looking to buy gold can find something new.
"People at the moment are just waiting and saving up until they can buy the piece that they want," Pace says. "They still have their standards in terms of what they want. They just realized that they have to save up money to be able to buy that piece."
Getting them to buy
Buying back old gold is all well and good, but how can retailers actually sell their latest merchandise? The World Gold Council offers some selling tips:
--Emphasize intrinsic value. Make sure sales associates play up gold's enduring value as De Beers does in its "fewer, better things" ad campaign for diamond jewelry.
--Don't compromise quality. Jewelers tempted to trade down in karat and gram weight, shouldn't give in. Those buying in this economy are truly loyal customers. Sell them low quality and you run the risk of losing them forever.
--Know what's hot. Trends in gold include a continued interest in yellow gold, especially hammered pieces.
Other trends include natural motifs, such as bamboo, flowers and leaves, bold gold rings worn on the forefinger of the right hand, and pieces inspired by styles from India, Africa and Russia.
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