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Diamonds, Discounting, MP3 Players, Replacement and More!

Whilst I wouldn’t say spam is a huge problem in our inbox, we do get our fair share of spam (about 10-20 messages per day). Most of it is deleted straight away, but about once a month, someone from China sends a spam email trying to sell their latest electronic gadget.

The most common products that they are selling are MP3 players, that is, iPod clones. Curious to find out what they are selling them for, I usually open these emails and find these iPod clones are selling for between $12-15. The catch is, you have to buy a minimum of 1000 to get these prices.

MP3 Players

A quick check on Ebay reveals that such MP3 players are selling for an average of $45 – meaning that there is a 200% markup between the cost price and selling price. Now, if I didn’t know better, and was browsing Ebay for an MP3 player, then I would be thinking these MP3 players were a bargain – despite the fact they are being marked up by 200%.

What this essentially means is that I could spend $12-15000 and buy 1000 MP3 players from my spamming friend in China, sell them on Ebay and get back $45,000. Not only that, I would hopefully have 1000 happy customers thinking they’ve got a true bargain.

What is worrying about this situation is that if I were to spend the same amount of diamonds, say between 0.5 and 1ct, I would get no where near $45,000 back on my investment. On a good day, I could get just under $20,000 – still under half what the MP3 players would have returned. Furthermore, my customers would definitely not walk away thinking they got the bargain of the century.

This brings me to my main point, which is, for the most part, larger diamonds, 50pts and up, in their loose form, are not high margin items compared to just about anything else that sells on a retail level. Therefore, in order to survive, jewellers have to be jewellers and make up the margin on the finished product, which in this case would be the piece of jewellery.

Secondly, one of the topics of discussion with a wholesaler that visited us last week was discounting and replacement. I argued that I hated giving discounts off our advertised prices, as replacing stones may cost a little more, they may be stuck in the lab or in transit for a few weeks and may not even be available! His argument was that as long as you’re making a decent margin, then it was alright to discount. We did both agree that if we were selling a stone that wasn’t ours or didn’t need replacing, then it was OK to give the customer a discount.

Therefore, in general, we don’t discount the diamonds we have in stock for the following reasons:

  • Replacing them will cost more. For example, if we make $1000 profit on a diamond and it costs us $500 more than before to replace, that leaves us with $500 cash to spend on other things or return to shareholders. Therefore, discounting such a diamond would be very unattractive to us.
  • Replacing the stone may involve sending it to the GIA or AGS for grading or laser inscription. This can take between one day and two weeks. Add to that an extra week spent in transit.
  • The diamond may not even be available to replace. For example, we would unlikely be able to replace this 0.91ct F/SI2 AGS Ideal Princess if someone bought it.

To sum up, just because diamonds cost thousands of dollars, it doesn’t mean that there is a huge margin in them. Furthermore, unlike televisions or cars, replacing them can be a real hassle for the vendor.

Foot Note: Whilst we wont be selling MP3 players any time soon, we will hopefully be selling jewellery-related electronics soon…

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