Retail Surveys
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Jewelers: Need some good news?
By Michelle Graff
June 03, 2009
Consider this: Despite a dismal economy that has most Americans bypassing luxury items, jewelers who responded to National Jeweler's exclusive "Profit Margins Survey" say they have been able to maintain and, in some cases, even grow their margins.
Using a variety of tactics--from investing in more profitable colored-gemstone and sterling silver jewelry to cutting deals with struggling suppliers--retailers are making the most of each and every sale they manage to ring up.
For retail jewelers, figuring out how to price pieces is a bit like trying to solve a Rubik's cube.
It's a complicated puzzle that is both irritating and time-consuming, but it simply can't be put down. And, just as there are countless configurations for a Rubik's cube, there are multiple ways of manipulating margins. Bumping up prices on popular products while marking down those on less-hot items is one way to achieve the ultimate goal: a healthy, perfectly aligned bottom line.
At Spence's Fine Jewelers, with stores in Edgewater and Savage Mills, Md., Stuart Spence is using the current economic situation to his advantage to maintain 48 percent margins. He's not proud of it, but one way he has been cutting costs is by striking deals with desperate suppliers while holding the line on prices in his store.
"I try to beat up on suppliers," he says. "I hate to say it, but that's what I do."
Spence leverages long-standing relationships, some 25 or 30 years old, to get the best price possible, knowing that his suppliers are in a tight spot themselves. Stung by the bankruptcies of big-time jewelry retailers that took millions in memo goods down with them, suppliers are working overtime to salvage their own businesses.
Right now, Spence says, suppliers see the independent jeweler as a safe-haven investment of sorts.
"Everybody knows that the economy is in the toilet right at the moment," Spence says. "They [suppliers] understand, and they don't want to lose any more dealers than they possibly have to."
Rex Solomon of Houston Jewelry in Houston uses a blend of markdowns and steadily held prices to make sales at his Texas store.
"If we have to discount more to close a sale instead of letting people walk, we're able to do that because we have enough sales at approximately a keystone markup that we can afford to sell at 10 percent over to close a sale," he says.
What Solomon avoids is shaving margins too close on all his products all the time, a tactic that leaves little room for bargaining when it comes time to push a piece.
Overall margins at Houston Jewelry are at 48 percent, he says.
While their margin methods might differ, Solomon and Spence seem to have found the trick to solving the pricing puzzle at their stores.
Other retail jewelers who took part in National Jeweler's 2009 exclusive Profit Margins Survey appear to be finding similar levels of success.
In the survey, the greatest percentage of respondents, 33 percent, reported achieving margins of between 48 and 52 percent, up significantly from the 25 percent that reported margins in this range in 2007, the last time National Jeweler conducted a profit margins survey.
The levels are in line with the results of Jewelers of America's Cost of Doing Business Survey, 2008, in which retailers reported average margins of 48.7 percent.
The second greatest percentage of respondents taking National Jeweler's survey, 21 percent, reported margins of between 34 and 43 percent, while 17 percent reported margins of between 20 and 33 percent.
Overall, 52 percent of jewelers surveyed reported margins of 48 percent or higher, up from just 46 percent who reported margins in this range in 2007, a 6 percent jump.
Factoring in metals prices
Inevitably, at the forefront of any pricing discussions in the jewelry industry, is the high price of gold, which, as of press time, hovered at around $978 an ounce.
Faced with such costs, jewelers are forced to either shrink their margins or subject their customers to severe sticker shock.
Patty Wedemeier, whose overall margins at Elegant Jewelers in Sugarland, Texas, stand at about 48 percent, hates to raise the prices on her customers, but says she can't afford not to charge more for gold, given that her own costs are up.
"We work with the price of whatever the gold is doing," she says.
Survey results indicate that other jewelers are following suit.
For six of the seven gold product categories included in the survey, the majority of jewelers said they managed to obtain margins of between 48 and 52 percent, on par with the margins reported by jewelers who took the same National Jeweler survey in 2007. At the time that survey was conducted, though, gold was priced at about $670 an ounce.
Gold earrings (without gemstones) even generated a slight increase in margins, with the greatest percentage of respondents, 18 percent, reporting margins of between 53 and 56 percent, up from 17 percent reporting margins in this range in 2007.
Four plain gold jewelry categories--bracelets, earrings, pendants and chain necklaces (all without gemstones)--were among the survey's top margin-makers.
After separating out responses from those who said they "don't carry" certain product categories, National Jeweler was able to establish a ranking that showed the categories that garnered the greatest percentage of margins in the 48 percent and above range.
A total of 69 percent of respondents reported margins of 48 percent or greater for gold bracelets (no gemstones), and 67 percent achieved the same on gold pendants (no gemstones), making the golden duo among the top 14 margin-makers.
John Hayes, who owns Goodman's Jewelers in Madison, Wis., says his overall margins are about 52 percent, but he has seen his sales of gold pieces, specifically gold chains, decline.
But, like Wedemeier, he can't afford to budge on price.
Hayes recalls a similar situation in the 1980s. When the price of the metal soared then, so did the price of gold chains, but people still bought them because they were the "in" thing (Remember Mr. T?).
Today, that's not the case.
"With this price change, people aren't [still buying gold chains]," Hayes says. "But the economy is a completely different animal today too."
At the other end of the metal pricing spectrum is sterling silver.
Priced at around $15 an ounce at press time, the metal has been the savior of many jewelers during these tough economic times.
And these pieces make margins too.
In ranking the survey's top margin-makers, a total of 83 percent and 82 percent of respondents, respectively, cited margins of 48 percent or greater on plain silver jewelry and silver gemstone jewelry. Non-precious jewelry, plain gold bracelets and colored-gemstone earrings rounded out the top five.
Breaking down bridal
The fact that today's consumer can find the price of almost anything online isn't news. As Spence points out, consumers will look online to compare prices on the car of their dreams, or a house in their ideal neighborhood, so why should it be any different when it comes time to pick their engagement ring?
"It's logical that diamonds follow suit," he says.
It's also not news to jewelers that Internet retailers, free of the overhead costs associated with operating a physical store, are able to offer extremely competitive prices on loose diamonds and diamond engagement rings, thereby putting the squeeze on brick and mortars' diamond margins.
When asked about their margins on diamond engagement rings, the greatest percentage of jewelers--35 percent--reported margins of between 20 and 33 percent, and 18 percent reported margins of between 34 and 43 percent.
Margins on loose diamonds, the category arguably the most pillaged by online retailers such as Blue Nile, were even more dismal.
A total of 53 percent of retailers reported margins of between 20 and 33 percent on loose diamonds, and 17 percent recorded margins of between 34 and 43 percent in this category.
Only 15 percent of those surveyed reported margins of 48 percent or greater on loose diamonds, with only 1 percent of respondents reporting margins of between 60 and 66 percent on loose diamonds, and another 1 percent citing margins of 66 percent and up.
Retailers reported similar results when this survey was conducted two years ago, and for some, the situation certainly hasn't improved.
Since 2007, "it's gotten worse," Spence says. "Blue Nile has really, really screwed up that market. You're forced to either beat the price or lose the deal."
This happens even when Spence pulls out all the stops.
He says he tries explaining to customers superior cuts, or the difference in fluorescence between two stones.
In the end though, he finds that it still all boils down to dollar signs, even with customers who were referred by satisfied buyers.
"It's hard because people are price-driven," Spence says. "The general public is concerned about price."
The slight success he has had with making margins on bridal jewelry comes through custom work. The jeweler says he can still achieve margins of 50 to 51 percent on a custom mounting, compared with just 20 to 25 percent for the center stone alone.
Spence says a lot of young men come into his store with a picture from a magazine, usually torn out by girlfriends who know exactly what they want in a ring.
"They'll say, 'This is what I'm looking for. Do you have anything like this?'" he says.
At Elegant Jewelers in Texas, diamond margins are right in line with the survey results.
Wedemeier says her margins are about 22 percent for diamond engagement rings and about 25 percent for loose diamonds.
In her bedroom community just outside Houston, she finds herself competing with not only the Internet but also with diamond wholesalers who sell directly to the public.
"It hurts us every time when we go to sell a big stone," Wedemeier says.
Like Spence, though, she has found solace, profit-wise, in custom bridal work, which sets her apart from competitors and is done in-house, which gives customers a sense of security.
"People like that," Wedemeier says. "They feel more comfortable that we're working on their ring and it's not being shipped somewhere."
Another custom success at Elegant Jewelers has been Gemvision's Matrix 3D Jewelry Design software, which allows customers to watch as their special piece is created on screen right before their eyes.
"That's probably helped us a lot because people can actually see the virtual product before we make it," Wedemeier says. "And they are getting involved with it too, because they are seeing it be made."
While margins on diamonds for bridal remain down, other diamond jewelry categories held their own, as designs that are more original prohibit shoppers from conducting direct price comparisons.
Of the five other categories of diamond jewelry that were evaluated within the survey, outside of loose diamonds and diamond engagement rings, four garnered margins between 48 and 52 percent, on par with what jewelers reported in 2007.
Only diamond bracelets experienced a margin meltdown.
The greatest percentage of respondents, 26 percent, reported margins of between 34 and 43 percent on diamond bracelets, compared with 2007, when 29 percent of respondents reported margins of between 48 and 52 percent on diamond bracelets.
Crazy for color
While margins on diamonds are often difficult, the arena of colored gemstones appears to be one area in which jewelers can pull away from the competition.
Survey results show that 68 percent of respondents reported margins of 48 percent or higher on loose colored gemstones, colored-gemstone earrings and colored-gemstone pendants, making all three some of the top margin-makers.
Other colored-stone categories making waves in the margin world included rings, with 67 percent of respondents achieving margins of 48 percent or higher for that category. Sixty-two percent of respondents reported margins of 48 percent or greater on colored-stone bracelets.
Colored gemstones offer jewelers the chance to offer unique pieces that are beyond price comparison, Hayes says.
"Colored stone and pearl are areas where we can do better on margin," he says. "Something that has a little bit more distinctive look to it is easier to sell at a higher price so people have a feeling that they are getting a little bit more bang for their buck."
While "colored stones" is a broad category, covering everything from emeralds to tourmaline, Hayes says there is no one stone that is a standout in his store.
His strategy, therefore, is to keep a wide, colorful variety in stock so he can satisfy as many customers as possible, whether they are looking for a blood red ruby or a purplish piece of tanzanite.
"Color is such a personal thing," Hayes says. "One person might like blues, another person likes greens and yellows."
As for pearls--another product that makes margins at Goodman's Jewelers--Hayes says he's been selling a lot of freshwater pearls set in sterling silver.
In the survey, pearl strands and pearl jewelry (outside of necklace strands) each garnered margins of 48 percent or greater for 68 percent of respondents.
Ratcheting up repairs
Although not included as a survey question, several respondents told National Jeweler that they were getting great margins on repairs.
Both Wedemeier and Solomon cite David Geller's Geller's Blue Book to Jewelry Repair and Design as the industry standard for pricing repair and custom work.
Wedemeier, in fact, says improving her pricing on repair and custom work is one of the main reasons she's been able to boost margins.
The jeweler realized she was charging too little for both repairs and custom work because she was not factoring employees' time into the cost equation.
But all of that changed after she plowed through her copy of the Blue Book.
"That taught us a whole lot," Wedemeier says. "Sometimes, when you're a mom-and-pop store, you forget your time is valuable."
Solomon says the Blue Book is "absolutely the best thing out there."
He adds that many independent jewelers don't know how to properly price custom work and repairs, which, in the end, costs them money.
"If you follow his program, you will increase your margins substantially in your shop," Solomon says, noting that 10 to 15 percent of the average jeweler's sales volume is repair work.
"That has a big effect on your bottom line," he says.
And even with margins on the mend these days, jewelers need all the help they can get.
Goodman says the situation at his Midwest store is still very touch-and-go. His first quarter was flat, and April was soft, but business picked up a bit in May.
He expects the roller-coaster ride to continue for the foreseeable future.
"It think it's going to be a little bit of a yo-yo kind of economy until toward the end of the year," he says. "Hopefully, things will get a little more solid."
In the meantime, Goodman is sticking to his current pricing strategy, pleased that he is able to maintain his margins.
"That's the one real key factor," he says. "Even though our overall sales aren't as high as we'd like to see, the bottom line looks OK."
To see the complete results of National Jeweler's Product Panel survey on profit margins, click here.
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