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|Diamonds - Beyond The 4 C's - Consignment|
Reasons for Consignment
No jeweller can possibly keep in stock every diamond, every ring, every necklet, every single thing that his customers could ask him for. Even if he could, there are some customers who don't want to buy something that is already available, they want something designing or making for them. What's more they don't always know what they want.
Most retail jewellers carry only stock which will give them a good return on capital invested, so one of their aims in life is to maximise their stockturn (how many times per year they sell the same item divided by the quantity in stock). Diamonds are the slowest stockturn items in a jeweller's stock. To counter this, he needs to make a bigger profit margin on them, or carry less in stock.
How Consignment Works
About once or twice in a lifetime, a person might go into a jeweller's and ask about buying an expensive diamond. As we explained above most retail jewellers don't carry vast stocks of large, high quality expensive diamonds. The stores which do carry such stocks are usually the large, high quality expensive stores.
The consumer might decide quite wisely to shop around, after all they probably know very little about diamonds and understandably might want to compare prices, so they go and ask in three, four or more stores, perhaps even in four score and more stores!
The stores discuss the customers requirements and then probably make an appointment for the customer to return at a later date when they have arranged to have a number of suitable stones, or possibly rings, for the customers to see.
When the customer returns, they can view the diamonds, and maybe make a purchase; if not, the jeweller simply returns the stones to his suppliers with a polite "thank you" note, and nothing much has been lost.
The Advantages of Consignment
The advantages are fairly obvious, most diamond brokers, wholesalers, or ring manufacturers, are happy to lend out some of their stock to retailers who they have come to trust, and are regular customers. They know that if they don't send out approval parcels on sale or return they will lose some sales. By sending approval parcels out, they get their stones seen by a larger audience of potential customers. A reasonable proportion of consignments are going to result in sales, so they make a profit. The retailer doesn't need to keep huge stocks, but can get back up supplies on request, the consumer can see a greater selection than a local store could normally show him. Everybody is happy.
Another advantage to the customer is that they can deal with "their" jeweller if they have one jeweller from whom they regularly purchase because they have formed a relationship and come to trust them.
Retailers can afford to work on less mark-up than if they had the expense of carrying the extra stock.
Disadvantages of Consignment
A proportion of would-be customers don't bother to keep their appointments with retailers. This involves the stores in an amount of time, postage, insurance and other costs, not to mention some disappointment. Each purchase might be the result of perhaps half a dozen selection viewing visits. Obviously not every viewing appointment results in a sale, so more time and expense are involved. Some stores may fail to get enough information from their enquirers, so that they fail to acquire the optimum selection. Brokers may keep records of percentage success rates from different retailers, and refuse to co-operate with any with too low a rate. This creates pressure on the retailers to close a sale even if the items are not completely suitable for the customer.
If the consumer doesn't state their requirements clearly enough, they may come under pressure from retailers to make a purchase anyway.
Smaller retailers may find it difficult to get consignment goods from suppliers, especially if they are high value goods, the retailer has no purchase history with the supplier, the supplier has a more important customer in the retailer's area. The store may need to get a temporary increase in its insurance cover.
The extra costs of providing consignments, including postage, administration, extra stock and insurance, have to be recovered in some way, and it is usual for the broker to charge a higher price for consignment goods than he would for straight purchase. This premium can easily be 20% or more. Some brokers work almost exclusively on a consignment basis because their prices are so high that they would make few sales without consignment, many "designer" jewellers come into this category.
Many retailers don't care how expensive the goods are, provided they make a sale, so they don't scrutinise the goods as closely as they would if they were thinking of buying them for their own stock.
If customers miss their appointments, the retailer may be tempted to retain the goods for longer than the agreed consignment period, often seven days, so that the goods sit in his safe, and the supplier has to make telephone calls to chase up slow returns from retailers.
Some retailers abuse the system by taking every consignment they can get their hands on to make their stock windows look impressive.
Long Term Consignment
We have used the word "consignment" to mean short term loans of stock to service specific customer enquiries. Some consignment supply is done on a longer term basis. For example, a manufacturer may agree to provide a substantial quantity of stock to a retailer for a longer period, say six months. At the end of this period, the retailer returns any unsold stock, pays for any sold stock, if he has not already done so, and obtains a new parcel of stock in return. This can obviously work well in principle, although there are certain obvious constraints. The retailer is expected to sell or retain a minimum percentage of the goods at the end of each period. This may typically be as low as 25%, or may be 50% or higher. This guarantees the manufacturer a profitable return on his investment. He is probably being financed by a bank or factoring company, and will need to pay their charges. The benefit is that the customers get to see a larger selection of goods, because it automatically changes every six months, the retailer gains in the same way, and also because when customers, or merely window shoppers see that the stock changes frequently, they realise they have to commit themselves to a purchase when they see the object of their desire because they are afraid it may disappear forever.
The main drawback to long term consignment on this model is that the retailer gets less choice about what he takes, and at each change, there may not be enough different material at sensible prices for his liking. Overall prices to the consumer may increase as a result of this system.
Chard's Policy on Consignment
We prefer to avoid borrowing large diamonds on approval unless we can do so at sensible prices. We are always prepared to buy larger and better diamonds for cash at the right prices. Because we buy our stock at sensible price levels, we can offer good deals to our customers while still making a reasonable profit. In fact, we frequently lend out some of our stock on approval to other jewellers. On occasion, this means that some of our stock gets offered by our local competitors, although the local retailers prefer to get their approval goods from elsewhere, and they seldom realise that they are actually dealing with our goods, because we have lent them out to other dealers, who have in turn lent them out to our local competitors.
One Final Story - With an Amusing End
Some retailers are slightly devious, They will take a parcel of rings on approval, then phone to report that they were unsuccessful, but that if we would agree to a cash price on a particular piece, they would consider buying it anyway. The more mentally agile of our readers will suspect that they have in fact made a sale, and are just "trying it on" to squeeze more profit for themselves. On one occasion, we realised we had made a mistake after sending a parcel out. It wasn't drastic, but we had priced a particular stone too low. We did nothing about it, but quietly hoped that the stone would be returned, although we were prepared to honour the price we had quoted if the stone was purchased. The retailer failed to make a sale, and asked about buying the diamond at a discounted price. Once we ascertained that it had not been sold, we told him apologetically of our error, and informed him of the new higher price. He still bought the stone!
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