Tuesday, June 21, 2011

Trading with Gems

Sometimes I can be a ditz.  It took me a while to figure this out: among many other things, 47th Street is a commodities exchange for gems and diamonds.  This only occurred to me after one of the gemstone dealers I know, who was set up at his booth at a local show, said to me “if you see any great gem deals around here, let me know.”  “Why do they buy from each other?” I wondered.  “Aren’t they there to sell their own stuff?”  Yes, but they also buy from other vendors, mark up the gem and sell it again.  Sometimes on the same day, in the same hour even.  A buyer like me falls into a totally different category for them.  I’m more or less their end user, the person who actually makes jewelry with the gem.  So most people like me are basically at the end of the scale for wholesale prices.

Some gemstone dealers, it turns out, don’t keep any stock at all.  They are brokers.  They borrow gems from a source, from “a guy down the street” (it’s improper to ask who that is), and show them to another dealer at a slightly higher price.  If the deal doesn’t go through, they bring the gems back.  Others may actually buy a parcel, then break it up and sort it into smaller parcels and resell those (all the gems of a certain size, shape, or cut together, for instance).  Yet others are more like runners.  They show up on the street one day, maybe get an introduction through a friend, or just start hanging around and make friends on their own.  At some point, a dealer may ask such a guy to make a run: bring a gem over to another dealer, perhaps to show to a customer (someone like me, that is).   So the guy walks the gem or parcel to the address he’s given, and if the other dealer buys, he will get a percentage.  Said guy (I’m not being sexist, it’s mostly a guy), will be given cheap gems at first, larger parcels eventually (up to perhaps a thousand dollars, probably not much more than that).  The runner may not know even the name of the gem, it’s not his job to make a price judgment, he just passes on gems and messages (“too expensive, customer won’t pay that kind of money, too small, too large,…”).  And it’s his job to collect the money at the end.  To make his delivery, he may have to circumvent customers standing at the booth.  He may have to wait at the door until the dealer sees him and walks over, he may meet the dealer outside in front of the exchange, or he may wait until the end of the day.  That way he can pass on relevant information without the customer overhearing.  And unless you pay attention, you, the customer, may not even be aware any of this is going on.  Meanwhile, the dealer will not tell you he only borrowed the parcel for your viewing. 
How much money do people make that trade in gems?  Well, a runner might make five percent on a deal.  A broker will make the same, unless he’s very good.  If he knows his gems, he might know he can get a lot more for something, and then he will mark up what he borrowed accordingly.  Some brokers make a lot of money that way.  The price of a gem also varies according to how urgently someone needs it.  For custom orders the price may be higher.  To help out a setter who broke a stone, a price can be lower.
But the dealer who hangs on to his stock, who has old stock, or a secure supply line, will make the most money.  He also has the most risk.  Gems can get lost or stolen (insurance for gems is exorbitant, so it’s better to have a good safe), parcels don’t get returned (it’s rare but it happens), or demand for what he has decreases.
When the economy was at its lowest, perhaps a year and a half ago, nobody was buying anything.  It was “survival mode” only.  Markups were low, sales quick, and everyone was looking for a customer like me (= inexperienced and pays at once).  Now business has picked up, a little at least.  And the demand for untreated stones is returning.  Ceylon and other nice sapphires have increased in price, in some cases as much as double.  Alexandrite has gone up.  Tourmaline has gone up. 
A good dealer can get a feel for the market at a show, and he can size up a customer or another dealer in minutes.  If someone is desperate for money, he pushes the purchase price down.  If a customer really needs the gem, the price goes up.  The dealer might also hold on to a parcel on memo for a while and negotiate.  In the meantime, he tries to get a feel for its current market value by showing it around.  If he finds a potential buyer for a couple of pieces, he’ll firm up the deal.
So if business is good, everyone wins, a little at least (every trade ups the value of the gem, all the way to me who sells it to you in a piece of jewelry).  But if business is bad, it’s very bad.  A dealer can sit on a mountain of glitz that could just as well be glass.  Hundreds of thousands of potential dollars of gems won’t add up to a single meal.
Columbian Emeralds, Pear Shaped, Unoiled

Sunday, June 5, 2011

Broken Stones and Custom Orders

Many of you have heard it from me: “ok, I’ll do this custom order for you, but the gem may break.  In which case, you can pick an alternative or your money back.” 

Setters don’t like custom orders.  They know if they break the stone, you don’t make any money, and your customer might get mad at you.  But they still put their time into it.  So did you, plus materials.  You’ll try to re-use those, of course.  Still, botched orders have to be worked into your overall cost.

But who should pay for the broken stone?  The setter?  Not necessarily.  Consider another question first: why do so many Etsy sellers work only with certain gems (garnet, amethyst, citrine, peridot, diamond).  There are three answers: availability (also of different cuts and exact calibrations), price (except for diamonds), plus risk of breakage.  And certain stones break very easily.  Just last week, my most talented setter cleanly sliced through the middle of my stone when attempting to fold the bezel wall.  “I barely touched it,” he defended himself.  Well, it was kyanite!  Soft as butter.  It is the same with apatite, Mexican fire opal, and some other gems.  I no longer risk custom orders with those, unless I have a replacement handy.  And bezeling stones with corners is the worst.  Just a little pressure makes them crack.

In April, one of my customers bought a beautiful, large – and expensive – emerald from me.  She was going to have it set by a local jeweler, or someone else on Etsy, because she had a design in mind that I couldn’t replicate.  Her local jeweler quoted her $800 for the job and was willing to assume the risk.  Well, I hope so, because by my estimates, that price included the replacement of the gem at nearly retail value.    Meanwhile, nobody on Etsy wanted to set her stone, or assume the risk of breakage.  (So in the end, someone else made the ring and it is being shipped back to me for setting.  Lucky me.) 

Last week, someone asked me to bezel set her gem, an emerald cut (which has corners).  It was an expensive gem that the customer was still paying off.  I said “no.”  By contrast, I said “yes” to another customer who sent me two cheaper (cornerless, replacable) stones, which she assured me she is able to live without.  So if I break it I can give her something else in exchange. 

Last anecdote: this May, I sold an alexandrite to someone in Canada.  It was a gorgeous, and costly, pear shape with one slight inclusion in the tip.  The customer found a setter willing to set it in white gold for a fair price.  But: he would not assume the 5% chance of breakage.  All went well in the end.  Phew.

So, back to our question: should you ask your setter to pay for the broken stone?  I will give you a threefold (and hedged) answer.

1.      For cheap or easily replaceable gems (and especially cheap gems that are hard to set): you cover the cost, and don’t argue.  Have a replacement handy.  But pay for one setting job, not two.

2.      For tiny gems (what they call “melee’s”), including diamonds: they rarely break but they have a habit of vanishing.  They get stuck inside your plastic bag and thrown out, they fall off the workbench or disappear into a crack.  Do everyone a favor and include a few extra with your order (one extra at least, even if you’re just having a couple of stones set).  And don’t ask for them back.  Some setters will give them back to you anyway, others may have long forgotten when you pick up.  If you like your setter, drop the matter!

3.      For very expensive stuff (let’s say $100 and up): first, consider hiring an experienced setter.  Setters are like mechanics.  On 47th, everyone thinks they can do it.  But some are good and some are terrible.  Some charge just a few bucks.  If they do, that means they expect to set a couple dozen gems in an hour.  You’re abusing the cheap prices if you ask them to set a $100 stone for $5.00 and then ask them to cover the cost if it breaks.  Another setter may charge $100 but may take an hour or so to do it.  I once heard of a guy getting paid $1000 – he was setting a peridot of a $100,000 value.  He freed his entire afternoon for the “10 minute job,” and took hours bending each prong.  (Why? – Because no affordable insurance in the world can cover the gem, and most setters don’t have insurance anyway.)  Second: offer the setter extra money, perhaps double his rate.  Ask him to take more time.  Say it’s a valuable stone.  But don’t freak him out with the price or rarity of the gem because then he cannot work calmly.  Also, ask him to look at the stone and setting first to see if he anticipates problems.  If the risk of breakage is high, perhaps you should forget about it.  You might also discuss what happens if it breaks, and negotiate something ahead of time.  I.e. free work.  And last but not least, consider your own replacement cost when you price your item.  (This is something I continuously fail to do, but it is excellent advice.)

Let’s say you did everything right but the gem broke.  What now?  The setter, if he’s nice, will take it upon himself to refuse your pay, and be willing to help you replace the gem.  If he didn’t tell you it broke and he thinks he will lose you as a customer, he may try to find a replacement before telling you, and often, a gemstone dealer is willing to help him out with a low price if he knows what happened. 

But if that happens, keep in mind that may not get back the same type of stone you gave to the setter.  I once had a small unheated square Burma sapphire broken during channel setting and the setter replaced it without asking me first.  But he replaced it with a heated Thai sapphire.  I had him take it out.  The customer paid for Burma, not Thai.  The setter meant well, but he didn’t realize what you worked with was unusual or rare (and in so many cases, it isn’t).
Custom ring where Burma square was replaced

Princess cuts - notoriously hard to set

I once heard of a jeweler thinking he lost a $30,000 diamond.  That’s a whole other blog entry.  Anyway, he found it, but not before considering to mortgage his house.  Stones like that I cannot afford to work with, and very few people can, although some do it anyway, hoping that nothing happens.

The moral is this.  Most of the time, all goes well.  But occasionally, it doesn’t.  And in a very small number of those cases, there’s just isn’t a solution.  You work something out, but it won’t make anybody happy.  Personally, I try not to get too attached to a gem that’s not yet in a piece of jewelry.  And even then, I try not to, because I, too, can lose or break it!