RESALE VALUES AND PROFIT MARGINS
Closely connected with the discussion above are resale values and the profit margins of the dealers who sold the gems. These must be discussed together since one depends upon the other. Only the naive person could believe that a $500 diamond bought today can be sold for the same price tomorrow. While some jewelry stores will give full value on a trade-in toward another purchase of higher value, or perhaps even stretch a point and give credit toward the purchase of an item of equal value, they cannot buy gems at retail value and expect to stay in business. This is not a unique situation by any means, even though the customer may argue that the diamond he wishes to sell is not damaged in any way, as would be the case with furniture, automobiles, or other items which suffer wear and tear. The jeweler must pay for his stock in trade, the services of his sales personnel, advertising, rent, upkeep, and a host of other expenses which are unavoidable. He cannot support all these expenses without requiring a profit on each sale.

The amount of profit varies considerably even within the same class of establishment, the tendency being to “mark up” fast-selling items at a lower rate than those which sell only occasionally. Markups on diamonds, for example, may be quite uniform over much of the country because a steady demand exists for those which are to be used in engagement rings; on the other hand, colored gems, such as the emerald, ruby, and sapphire, may bear variable markups because qualities are less standardized and the demand less steady. Keen competition exists among retail jewelers and the likelihood of getting a “steal” in one store as compared to another is remote, especially if diamonds are being bought.

Important variables in the amount of profit taken by the dealer are costs, as mentioned above, volume of business, overhead charges, and the class of clientele being dealt with. A popular fallacy is that small decrepit stores, with obviously cheap furnishings and low overhead, offer better bargains than the larger long-established stores doing business in hand¬somer environments and higher rent districts. The sad truth is that one is more likely to be fleeced in the smaller store than in the larger and more impressive one. Many small stores deliberately cater to clientele who represent less trustworthy members of the community, and usually those less informed. To protect himself from bad debts, the proprietor handles merchandise upon which there is a large profit margin, and in many instances, he will not hesitate to ask prices fully as high as those being asked in higher-class establishments for precisely the same merchan¬dise, despite the fact that his overhead and other costs must be much lower.

Particularly to be avoided are those stores which habitually use mis¬leading advertising terms, some examples of which are “genuine syn¬thetic” in reference to ordinary inexpensive synthetic ring stones, or “the home of the blue-white diamonds,” when blue-white diamonds are so exceedingly rare that the average reputable jeweler neither has one in stock nor could find one if he were asked to do so. Advertising of this sort causes the prudent buyer to suspect the integrity of the shop owner. On the other hand, large, long-established stores have risen to their prominent positions mainly by fairness and honesty in their dealings, for only by these means can an enviable reputation be won and a steady clientele assured. Reputable stores commonly join self-regulating associa¬tions such as the American Gem Society or the National Retail Jewelers Association. By joining, they commit themselves to following rigid rules of business ethics and conduct, and customers may be more assured that they will be able to get better value for their money.

While profit margins are variable for the reasons mentioned above, some general statements can be made at this time in respect to the mark¬ups on individual gems, engraved gems, and other classes of finished lapidary objects. The markups are almost always on a sliding scale, with higher markups, in per cent of cost, placed upon lower-priced items, and diminishing as the price of the item goes higher and higher. The most usual exception is when low-priced items sell quickly and in quantity. Another exception is when a dealer deliberately stocks a large variety of items in order to cater to the interests of as many persons as possible, but many of these items move only slowly. In such a situation it is usual to place much higher markups on the slow-moving items to compensate the dealer for the capital tied up in them. Such markups may be several hundred per cent of cost, but for normal, steady-selling items, the markup is usually 100 per cent for items costing about $200 to $300, decreasing to about 50 per cent for items costing $1000 and to 30 per cent or less for items costing about $2000. The markup is lower still for higher-cost items, but conversely may be more than 100 per cent for items in the range of several dollars to $200.
It is emphasized that the above markups are only approximate and can¬not be construed as being the rule for all sales of gemstones. However, it can now be appreciated that as far as resale values are concerned, one is more likely to recover a larger share of his costs from higher-priced gems than from lower-priced ones, in particular if the gems happen to be of very high quality.