IDEX Online Research: U.S. Specialty Jewelers’ Margin Pressures to Intensify
May 21, 06
Sharply rising costs of diamonds, gold, platinum, and silver will push wholesale jewelry prices higher at the upcoming
In April, jewelry manufacturers’ wholesale prices for jewelry posted their largest monthly increase in the history of record-keeping, according to the latest data released by the U.S. Department of Commerce. During April, wholesale jewelry prices rose by a record 7.9 percent year-over-year. The graph below summarizes the Producer Price Index for “Jewelry & Jewelry Products” on a monthly basis since the beginning of 2004.
 Source: BLS |
Wholesale prices for precious metal jewelry – primarily gold and platinum-based jewelry where gemstones are not the primary component – rose a record 9.0 percent in April, which is the latest data available. Escalating gold and platinum commodity prices drove the increase in precious metal jewelry. Since the beginning of 2006, gold has risen 40 percent from about $500 per ounce to more than $700 per ounce. Platinum has risen as high as $1,335 per ounce, a 42 percent increase since the beginning of 2006.
Assuming that it takes 60 to 120 days for goods to move through the jewelry pipeline from producers to retailers,
Have U.S.
While wholesale prices of jewelry have been rising sharply since the beginning of 2006,
In April, retail prices of jewelry in the
Source: BLS
What can jewelers do about rising wholesale costs?
- Absorb the price increases – This is not a viable long term solution, because eventually it will bankrupt the merchant.
- Reduce in-store discounting – Too many jewelers offer discounts too early in the sales process. If the customer does not object to the price, don’t discount it. Further, reduce the level of discounting that sales associates may offer. Instead of approving all discounts up to 20 percent, reduce automatic discounts to 15 percent.
- Reduce price-based promotions – Instead of posting a sign that says “50 percent off”, put up signs that say “40 percent off.” Better yet, find a new believable competitive differential.
- Increase promotions based on value – Emphasize brands. Emphasize service. Emphasize any competitive differential except price.
- Increase the number of sales associates – Rather than trying to cut costs, try to increase revenues. Rising revenues absorb relatively fixed overhead costs much more efficiently, generating more overall profit dollars. Even if jewelers must absorb a smaller margin, higher sales can generate greater profits.
- Ask vendors to bid on your requests – If vendors know they are bidding for your business, they may offer lower prices.
- Form a partnership with key vendors – Work with vendors to create programs to produce higher average margins. For example, a vendor could supply a mix of goods with low and high margins. Based on the anticipated sell-through (and the skill of the jeweler’s sales associates), it may be possible to generate higher overall margins.