Consumers looking for value often turn to sellers who advertise themselves as “wholesalers”, implying that the consumer is purchasing from the same source a retailer would, thereby eliminating the middleman. However, in diamonds as in most products, the truth is somewhat more complicated.
Wholesale is the (often) tax free purchase of large quantities of goods for eventual resale. Therefore, by definition, the sale of a single item directly to an end user fails on each count. The meaning of the term “wholesale” has been blurred in recent years by use in retail businesses such as wholesale clubs; in many states it is now illegal to use the term “wholesale” in advertising taxable products to consumers.
In short, unless you have a personal connection with a manufacturer (cutter) of diamonds, who allows you to purchase direct and tax free, you are not buying wholesale. You can leverage the relationship that the retailer has with the cutter by helping the retailer place a larger order for a better discount (for example) and then include your large volume order, make it worth his time. This is how you buy at true wholesale prices from a cutter.
Retail sales are (generally) taxable transactions made to end users of a product or service. While a traditional retail sale carries a higher price than wholesale, it is often accompanied by value added services such as:
- Personal, professional service
- Generous return and exchange policies
- Flexible payment terms (the use of credit cards, deposits, layaways, etc.)
- Product warranties and guarantees of service
Lumera: The Best of Both Worlds
Lumera is not primarily a wholesaler. The majority of our sales are to end consumers. When a retailer does purchase from Lumera, the pricing and terms are the same as they are for an individual consumer. Where Lumera is most similar to a true wholesaler is in pricing. The average markup on a Lumera diamond is less than 9%, which means the end consumer is paying very close to a true wholesale price (the price charged by diamond cutters around the world). This compares favorably to a traditional jeweler, which might mark a diamond up 100% or more. See the comparison below for more information.
While Lumera pricing follows a wholesale philosophy, we also offer valuable services and benefits more often associated with a better retailer. These include: 30-day returns or exchanges, delayed payment, free shipping, quality guarantee, lifetime trade-in, and refer-a-friend. Lumera is able to offer this compelling blend of wholesale and retail attributes by taking a unique approach to diamond sales.
Lumera vs. Traditional Jewelers
Often, customers will assume the reason Lumera has lower prices is driven by quality or service compromises. In reality, the difference is primarily due to the lower cost structure for Lumera vs. traditional retailers, especially in the areas of occupancy, selling, and inventory costs.
The table below illustrates the difference between the Lumera and the traditional approach. The traditional retailer estimates are based on information provided from four large public jewelers. For a typical diamond (1.50 ct. GIA Round, H color, VS2 clarity, EX cut):
|1||Retail (Purchase) Price of Diamond||$18,000||$10,860|
|2||Actual Cost (to Retailer) of Diamond||$10,000||$10,000|
|3||Expenses (Selling, General, Admin, etc) for Retailer||$7,000||$450|
|4||Operating Income (line 1 minus lines 2 & 3)||$1,000||$410|
Explanatory notes for above table:
- The same diamond will retail for a substantially higher price in a traditional retailer to cover increased costs of doing business (line 3).
- In each case, the actual cost (to Lumera or the traditional retailer) of the diamond is the same ($10,000 in this illustration).
- The costs of selling a diamond are substantially higher for a traditional retailer. Examples include:
- Occupancy: Traditional Jewelers are often located in the highest rent areas of malls (the intersection of two or more corridors) or shopping centers (free standing store near the road).
- Selling: Often you will find more salesmen than customers in a traditional jeweler. This is necessary to cover unpredictable fluctuations in traffic throughout the day. Because each customer is so profitable, it makes sense to be fully staffed at all times.
- Inventory: If a retailer owns their diamonds, the inventory is high dollar and slow turning, incurring substantial carrying costs for the retailer.
- The operating income tends to be higher for a traditional jeweler because the costs and risks of doing business are higher, necessitating a greater return.
A note on Diamond Trade-Ins
Lumera offers a lifetime trade-in guarantee on every diamond we sell. Often, customers will ask about taking a diamond purchased elsewhere in trade. A customer expecting to receive something close to the full price paid for a trade in diamond will be disappointed; and the comparison above illustrates the reason. Since the original diamond was purchased at an inflated markup, Lumera cannot afford to give the full retail price allowance. A traditional retailer can often come much closer, since the customer will also be paying an inflated mark up on the new diamond purchased.
While a customer may then be tempted to stay with the traditional retailer, a quick analysis of the costs involved highlight the potential benefits of buying from Lumera even when you have a trade-in agreement with a traditional retailer.
Diamond Trade In Example:
|Purchase of First Diamond||Traditional|
|1||Purchase Price of Diamond||$7,200|
|2||Actual Cost (to Retailer) of Diamond||$4,000|
|3||Profit for Retailer||$3,200|
In this example, the customer paid $7,200 for a diamond that cost the retailer $4,000 (before other expenses). With the purchase, the customer receives the customary trade-in agreement.
Trade In Option 1: Customer trades in for a larger diamond, using the same retailer.
|PURCHASE OF SECOND DIAMOND (WITH TRADE)||Traditional|
|1||Purchase Price of Second Diamond||$18,000|
|2||Less Trade In Allowance from First Diamond||$7,200|
|3||Net Purchase Price (line 1 minus line 2)||$10,800|
|4||Actual Cost (to Retailer) of Second Diamond||$10,000|
|5||Cash Profit for Retailer||$800|
In this option, the customer purchases an $18,000 diamond, but only pays an additional $10,800 (since he received $7,200 for the trade-in diamond). The retailer’s immediate profit is only $800 in cash, but this excludes the $4,000 (actual cost value) trade-in diamond the retailer also received. The final result for the customer is $18,000 in total dollars spent, and one diamond worth $10,000 at cost.
Trade In Option 2: Customer chooses to purchase the second diamond from Lumera without a trade in.
|PURCHASE OF SECOND DIAMOND (WITHOUT TRADE)||Lumera|
|1||Purchase Price of Second Diamond||$10,860|
|2||Less Trade In Allowance||$0|
|3||Net Purchase Price (line 1 minus line 2)||$10,860|
|4||Actual Cost (to Retailer) of Second Diamond||$10,000|
|5||Cash Profit for Retailer||$860|
In this option, the customer spends a near identical amount for the second diamond ($10,860 vs. the $10,800 in option 1), but in addition to receiving the second diamond, the customer is able to keep the first diamond as well.
Trade In Option 3: Customer chooses to trade in the first diamond with Lumera, even though it was purchased elsewhere. In this case, the customer might receive $3,200 for the first diamond (substantially less than originally paid, but close to the actual cost value of the diamond). As in option 1, the customer is left with only the second diamond; however, unlike option 1, the customer has paid a total of only $14,860 (original purchase of $7,200 + Second purchase of $10,860 less trade in of $3,200), compared to the $18,000 total purchase price in option 1.