JCK Special Report: Cash for Gold

This article originally ran the spring 2009 issue of JCK Luxury magazine.

 It’s a sign of the times, and, literally, a sign that luxury jewelers are posting more often: “We Buy Gold.” High gold prices and a weak economy equal more consumers looking to unload old pieces for cash. But how do luxury jewelers participate in an activity that is often times associated with pawn shops. Luxury offers seven steps from retailers nationwide on how to buy gold from customers without tarnishing a luxury image.

 In a sharp departure from Super Bowl ads of the past, the one that had people talking the most this year wasn’t promoting beer. Instead, celebrities Ed McMahon and MC Hammer encouraged viewers to send their old gold jewelry to Florida-based Cash4gold.com to cash in on high gold prices.

“With gold at an all-time high, now’s the time to send your unwanted gold for cash,” said McMahon. He and Hammer then detailed all the unusual karat gold items—records, golf clubs—that they could surrender for cash. “We melting gold, baby!” Hammer added.

The ads did more than generate laughs; they also cast a spotlight on a little-talked about and lately booming side business among many jewelers: buying gold from customers. The trend is helping to offset slow sales at many stores, and, according to industry insiders, is the primary reason many are even able to pay their bills now.

For certain, storeowners buy gold to make a profit. Consumers sell pieces to jewelers, who sell items to a refiner, who refines the gold and often markets it as “recycled” to an ever-growing green-minded customer base. According to interviewees, the jeweler’s take is about 30 percent—not bad for inventory that can turn in a couple of days or a month (depending on state laws for holding merchandise), unlike traditional inventory that can sit for years before it’s purchased or marked down. “Luxury stores are just dying right now because merchandise is sitting in cases,” says David Bowie, president, David Bowie Jewelers, San Diego.

Drawbacks exist. Purchases can temporarily crimp cash flow until items are sold to a refiner. There’s also a small chance—less than half of 1 percent, according to the National Pawnbrokers Association—that a buy is stolen property. Then there’s the awkwardness of buying back merchandise that you originally sold. Many expect to receive what they spent. “You have to explain that jewelry is not just precious metal, but there’s workmanship involved, and profit,” says Margery Bauman, director of advertising, Walter Bauman,
West Orange, N.J.

Perhaps most important for posh stores is image control—how does a luxury outfit buy gold without looking less than tony? Ron Samuelson, CEO, Samuelson’s Diamonds, Baltimore, says his downtown store has been in the gold-buying business for years. “It fits our image,” he says. But for higher-profile operations, he questions the logic of possibly tarnishing a brand. “Does Harry Winston buy gold [from customers]?” he asks.

Perhaps not, but other high-profile jewelers do. Case in point: Smyth Jewelers, Timonium, Md., has built up gold buying as a lucrative sub business—profits total in the millions for the year-old division. Smyth already had an estate business and decided to boost advertising for buying gold.

“Our reputation precedes us,” says Laura Burkhart, Smyth’s gold-buying manager. “There’s so much out there in the media about being thrifty, there’s a call for others to be resourceful,” she says. Plus, who could confuse Smyth with a pawn shop? “[Smyth] is the hometown jeweler that you can truly trust,” she adds about the 100-year-old community fixture.

If you want to buy gold and still look like a luxury store, consider the following seven tips.

1. Treat everyone like a potential customer for jewelry. Buying gold can bring in new customers, some of whom may not be typical luxury consumers. Don’t let that affect your attitude. “You don’t know who their families are,” says Vicky Young, manager, Abla Jewelers, Olivehurst, Calif. “Treat [gold sellers] as well as you would someone who is buying high end. I hear stories all the time about stores who look somebody over and decide what to pay [for their jewelry].”

Buying gold is also another way to expose customers to your store. “It’s a professional courtesy,” says Richard Huntington, owner, Huntington Jewelers, Las Vegas, who says he’s gained friends and clients by advertising the service. Alternatively, he’s also had one-time customers that he’s “never seen again.”

Bowie takes an objective approach to buying gold. He contracts with appraisers nationwide to buy on his behalf, paying them a commission for acquisitions. He employs lots of Internet ads and Web sites like www.usajewelrybuyers.com and www.sandiegojewelrybuyers.com, along with postcard mailings and hosted events, to attract gold clients. “I don’t tie [gold buying] in at all to my store,” he says.

Patiently walk sellers through the process. Explain what you’re doing, from weighing jewelry to testing metal to determining how much pure gold is in the alloy. Let sellers know that gold is traded at pure gold prices, which is virtually never the content of consumers’ jewelry (explain, for example, that 14k gold is 58.5 percent gold). Educate customers and tell them the truth. “Transparency [for every step] is important,” says Samuelson. 

Transactions can be particularly difficult with regard to designer merchandise because, inevitably, sticker shock occurs when the jeweler states the amount he can pay (unless businesses sell estate pieces, in which case more money might be given).

Let sellers know that you’re in business for the long term and that the store’s reputation is an important part of the transaction. “There’s a fine line that exists between someone who sees you as someone who’s helping and someone who’s ripping you off,” observes Bauman.

A word of caution: Don’t overpay; gold could be $950 on the day you buy and $800 a few weeks later—just when you’re ready to sell to the refiner (a reliable outlet like Engelhard or Kitco). “[These refiners] will give you a buying chart for what they pay, and you can figure out what you’ll pay back [to consumers],” says Huntington.

Position gold purchases as an incentive to defray costs of custom jobs or new jewelry. This encourages customers to shop and make purchases in the store. “[Jewelers] have a great opportunity, once checks are in hand, to turn that [gold] purchase into a sale,” says Bauman. 

In fact, many jewelers offer higher values (such as double) on trade-ins—or even layaway—when customers are purchasing new pieces. “If [customers] are using [old gold] toward a retail purchase, they get a better return—20 percent more,” says Mike Hollingsworth, owner, Hollingsworth Jewelers Gallery, Petaluma, Calif. Occasionally, Smyth hosts weekend buying events during which it gives a 50 percent premium for customers’ gold. During these events, 25 gold-buying stations are set up in the store. 

Theresia Oreskovic, president, Peter & Co. Jewelers, Avon Lake, Ohio, doesn’t advertise her gold-buying service but offers similar benefits. When regular customers inquire, they are typically offered 20 percent more if they spend the money in the store. For an upcoming remount event, she’ll offer up to 50 percent more on trade-ins.

“There’s a fine line that exists between someone who sees you as someone who’s helping and someone who’s ripping you off.” —Margery Bauman, director of advertising, Walter Bauman, West Orange, N.J.

Be honest. Pawn shops have earned a negative reputation because of a few dishonest ones; clearly, jewelers want to avoid that. If certain pieces of customers’ jewelry can be resold for more in estate cases, tell them. “[Fine jewelers] have to clean up from what pawn shops have done,” says Young.

Young says her five stores don’t sell estate jewelry, so she advises some gold customers to try other jewelers if she suspects a piece will command a better price as an estate piece than as scrap. That earned her a new customer when a mother trying to help her son with a down payment on a house wanted to sell a gold and diamond watch. Young told her it was “too pricey” to scrap and suggested she take it to another store for resale and a better price. And for customers who thought they could get more money selling items to the public, Young has suggested they try eBay, Amazon, and Craigslist. “They’re back in two weeks saying ‘I had a good offer,’” she adds.

Some of Bowie’s clients have told him tales of other jewelers’ misconduct. An elderly woman with jewelry to sell was instructed by a competitor to “say how much she needed.” The jeweler hoped the woman would ask for a low amount—lower than her jewelry was worth. This method is a sure-fire way to ruin reputations and enrage and insult customers.

5. Conduct purchases in private. Evaluate and weigh items in front of customers, preferably in an office with the door closed. In fact, have clients schedule appointments—don’t encourage walk-ins. That helps stores retain their aura of exclusivity and avoids the spectacle of people lined up as if they’re in a supermarket checkout queue, awkwardly making exchanges within earshot of others.

Setting appointments also helps screen potential clients. For example, a jeweler that doesn’t sell estate pieces won’t want a customer to bring in a 5.00 cts. t.w. diamond tennis bracelet, since most of the value is in the stones, not the metal. “I don’t pay much for melee,” says Bowie. “You waste a whole lot of time if you don’t screen your clients.” Finally, appointments will save some people a trip, thus reducing frustration all around.

View gold buying as a sub business; your store sells new jewelry and recycles old items. When gold sales started to rise about a year ago, Ryan Blumenthal, general manager, Corinne Jewelers, Toms River, N.J., mailed a letter to several thousand customers to tell them the store offered the service. “We felt like it was the classiest way to [let customers know],” he explains.

Afterward, marketing efforts encouraged customers to unload useless items—broken chains, single earrings, and outdated styles. And while customers can take advantage of store credit, others set monies aside for unrelated buys (including a new horse for one of Smyth’s clients). “Clients aren’t just using the money to pay bills, it’s more a fun thing—it’s found money,” says Burkhart. Recycling gold also helps the public understand the ecological aspect: recycling cuts down on mining.

Smyth conducts about 10 gold-buying parties each week. Most new clients come through word of mouth, and Smyth brings all necessary equipment into homes. Other tactics include hosting events in malls and in private businesses—including mortgage firms—where Smyth has a connection. Charities and schools like gold-buying events because Smyth donates a portion of proceeds to them. Also unconventional: Smyth has shared event space with Tupperware and Arbonne.

“Don’t just close your eyes and hope for the best,” advises Burkhart. “[Smyth] is healthy and thriving because of [gold buying]—because we tried something new. Don’t be snobby about trying to be a big luxury store right now when that’s not what the market wants.”

Show respect and demonstrate compassion. During a down economy, empathy is particularly important. Some customers will relate sad stories about medical problems, lost jobs, and broken engagements that forced them to sell heirlooms; some will cry. This is the reason Hollingsworth doesn’t pursue more buys: “We’ve had a few situations where people [selling items] had to pay mortgages,” he says.

But beware of getting involved in others’ problems. Says Young: “Being nice to your people is really all you can do.”

Stay Legal When Buying Gold
* Establish anti-money-laundering programs pursuant to the USA Patriot Act if you buy from the public and sell it in an aggregate amount of $50,000 or more in one year. The calculated annual amount would not include any trade-ins. See “Money on the Line,” JCK Luxury, spring 2008, for more information on AML compliance.
* Contact local police regarding stolen property. For example, many jewelers who buy from the public fill out police sheets—detailed descriptions of items purchased and who sold them—for law enforcement. Then during a mandatory holding period of anywhere from two to 30 days, depending on state law, police check stolen property records for possible matches. Helpful guidelines are available from the National Pawnbrokers
Association (online at www.nationalpawnbrokers.org), which states that brokers must obtain the following information from sellers: names and addresses, dates of birth, gender and ethnicity, copies of government-issued forms of identification (such as driver’s licenses), dates and times of transactions, and descriptions of collateral including available serial numbers or identifying markings.
* Contact state consumer protection agencies and offices of attorneys general regarding local requirements for secondhand dealers’ licenses.
Source: Jewelers Vigilance Committee and JCK Luxury research

How to Buy Gold Without Looking Like a Pawn Shop
1. Treat everyone like a potential customer for jewelry sales.
2. Walk sellers patiently through the process.
3. Position gold purchases as an incentive to defray costs of custom jobs or new jewelry.
4. Be honest.
5. Conduct purchases in private.
6. View gold buying as a sub business; your store sells new jewelry and recycles old items.
7. Show respect and demonstrate compassion for the person selling jewelry.

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