How to Boost Your Gold-Selling Business

With the precious metal’s price rising and store sales falling, can you reclaim your Midas touch?

Graphics by Rod Little

You’re all familiar with the myth of King Midas, who wished everything he touched would turn to gold. For a while he was a happy man, but in the end the wish became a self-inflicted curse. Most retail jewelers are seeing echoes of that tale in their stores, where gold has, in some ways, turned into a liability.

With the price of gold slightly less than $1,300 per ounce at press time and increasing by more than 20 percent per year in four of the past five years, those who have been holding on to old gold inventory have seen a healthy increase on their investment. Some of the product has nearly offered a better return by sitting on the shelf and growing in replacement cost than by being sold to customers and replaced by new product.

Unfortunately, jewelers make their fortune by trading gold, not investing in it, and this is where the story arrives at a less-than-happy ending. The increase in price has deterred many customers from purchasing gold, and ­jewelers who have been making sales have subsequently found that replacing their good sellers is cost-prohibitive. If they want to maintain price points, they must either increase the retail price of reorders or face a cut in margins.

In uncertain times, gold has always been a safety net for investors to protect themselves against economic storms and currency fluctuations—and it has been a long time since we’ve seen the levels of economic uncertainty we have in the past two years. The speculative nature of gold has impacted the cost of doing business for many store owners; items are often being replaced for twice their original purchase price, and consumers are beginning to adopt the attitude that gold is simply too expensive.

The first graph on this page illustrates the average ­jewelry store’s gold sales over the past 16 months.

As the figures show, jewelers have encountered an approximately 25 percent sales drop from an average of $120,000 per annum down to around $90,000. Unfortunately, this graph doesn’t date back to the onset of the financial crisis in September 2008, but our research indicates an initial increase in gold sales at the time. As we can see from the graph, sales of gold product dropped as the price of gold escalated. One might expect that to ­correspond with a sharp fall in the number of gold items being sold. However, the second graph—which shows the average number of gold items sold per store on a rolling 12-month basis—tells a different story.

There doesn’t appear to have been a drop in demand for gold. In fact, there was actually a sharp increase in July 2009 and, save a dip in January 2010, demand has remained high and has even risen. But there’s one thing that is on the decline: The average sale per gold item—illustrated by this graph (right)—has dropped from more than $250 to around $170 since February 2009. Given that this is a rolling 12-month figure, we can safely assume the monthly average sale over this period has gone considerably lower.

So with the price of gold going through the roof, why is the average sale plummeting? If items were to double in value and customers were to spend half as much, then it would be fair to say they are taking away gold—on a per-ounce basis—at only a quarter of the weight they were buying previously. Since February 2009, the price of gold has increased nearly 50 percent (from just over $800 per ounce to more than $1,200 per ounce) and the average spend has dropped from $250 to $170—a fall of 32 percent. Thus, we can assume the average weight of a customer’s purchase has fallen by more than half during this time. Now, if you’re a smart retailer, you won’t be selling your gold on a per-ounce basis. But from the customers’ point of view, they are now getting less than half the value from the shopping experience that they got more than a year ago. By this, I don’t mean monetary—I’m ­talk­ing about the actual weight of the item they’re taking home.

The gold-buying experience has become more about price than the quality of the item. As jewelers, we have to accept responsibility for this. Sure, the price has increased by 50 percent—but why should customers spend 32 percent less than they did in February 2009? Because, in many cases, we’ve decided gold has become expensive and are now showing them only what we think they should buy.

If your average gold sale has fallen, ask yourself why. Are you or your staff making assumptions? Show your customers the best you have to offer and let them decide the value. As the old saying goes: The pleasure of an item is remembered long after the price has been forgotten.

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