Historically, only a small number of retail jewelers bought diamonds from the public. In the 1990s, however, the advent of Internet price lists and online retailing began to put the squeeze on margins for brick-and-mortar merchants, so traditional jewelers, looking for ways to compete with their Web-based peers, began to give the secondary market a closer look.
More recently, supply issues have made diamond buying from the public more lucrative. But the real trigger was this year’s tremendous price volatility. “Never before in my 26 years of buying diamonds have I seen diamond prices rise so sharply, so fast,” says John Sabet, owner of Charleston Alexander Diamond Importers, with two stores in Bethesda, Md., and Falls Church, Va.
Over the past year or so, retailers have gone from buying melee-size goods at deeply discounted take-in prices from the public to buying single stones starting at a half-carat in size, says Patti Geolat, founder and CEO of Geolat & Associates, an appraisal and brokerage firm.
Lasker Jewelers vice president Nicole Lasker is a prime example of the new breed of diamond-buying retailer. The Eau Claire, Wis., jeweler has always taken trade-ins, but about five years ago, she began buying diamonds from customers. Recently, she added diamond-buying copy to print ads that tout her store’s gold-buying service.
“Even with high gold and diamond prices, buying diamonds still allows us to provide diamond engagement jewelry at today’s popular price points,” says Lasker. “If I buy a 1 carat diamond off the street and make it salable [by re-cutting and polishing the stone] for around $3,000, then set it in a reasonably priced semi-mount, I can still offer a decent engagement ring for around $5,000.”
Lasker admits buying diamonds from the public is “an extra” purchase in addition to the diamonds she’s buying from diamond wholesalers and manufacturers. But a 40 percent profit margin on stones from 90 points to just over 1 ct. makes it worth the effort to aggressively negotiate with customers.
In general, diamond wholesalers have become more involved in the process. In addition to providing retailers with valuable information on prices, they will often purchase diamonds from a retailer’s customers to fill gaps in their own inventories.
This has made diamond buying more liquid, helping to grow brokerage services like Geolat’s and CIRCA, the world’s leading buyer of gemstones and jewelry from the public. “By 2015, CIRCA will have $450 million to $500 million in diamonds from the public worldwide,” says CIRCA chairman and CEO Chris Del Gatto.
But buyers beware. Even with the comfort of increased liquidity, buying diamonds from the public is a risky endeavor. “With gold buying, you have one metric: spot prices,” says Geolat. “With diamonds, a retailer needs to rely on a number of metrics, from internal—the diamond grading expertise and cash flow—to external—in-depth knowledge of the market.”
Geolat and Del Gatto say it’s crucial to have the proper diamond-buying infrastructure in place, including at least two diamond graders on staff, an appraisal department, and instruments such as a gemological microscope and the latest diamond testers.