JOE VALENTINE ALWAYS considered himself a bit of a rebel. His dad was a sales rep who used to refer to himself as a “road warrior” — one of the old-school traveling guys who carried several higher-end lines through the territory surrounding their home state of Arizona. Joe learned enough about the business at an early age to make himself valuable to a few of his dad’s associates as part-time help throughout high school and college. It was great experience, and Joe learned a tremendous amount about both the retail and the wholesale sides of the business.
ABOUT REAL DEAL
Real Deal is a fictional scenario designed to read like real-life business events. The businesses and people mentioned in this story should not be confused with actual jewelry businesses and people.
ABOUT THE AUTHOR
Kate Peterson is president and CEO of Performance Concepts, a management consultancy for jewelers. Email her at firstname.lastname@example.org
After graduating from Arizona State with a communications degree (and a G.G. designation earned in 2016), Joe took six months off to travel Europe. When Joe got home, he was not surprised to find that there were several industry jobs waiting for him. He was surprised to discover, though, that he really didn’t want to commit to any of them. It seemed that the restlessness that took him to Europe had followed him home. As much as he loved diamonds and enjoyed working with people, he just couldn’t get excited about being an employee tied to a fixed schedule and a limited inventory.
About a month later, Joe got a text from one of his old high school football teammates asking for help picking out an engagement ring for his girlfriend. Joe asked him to pass on some details about what he had in mind and offered to help put together a deal with one of his wholesale contacts. With a few phone calls and a couple hours of work, a beautiful, custom 1.5-carat emerald cut diamond engagement ring was born. His friend got a great deal, and Joe made a $3,500 profit! Shortly after the ring was delivered, the first referral call came in from a local acquaintance in need of an anniversary gift. He’d heard that Joe helped their mutual friend and wondered if he might give him a hand as well. After delivering a fabulous diamond pendant and working with a couple more friends and friends of friends, sourcing everything “as needed” through his industry connections, it occurred to Joe that he might be on his way to starting his own business as a private jeweler. He liked the sound of that.
About a year and 15 or so transactions later, Joe sourced and sold a 1.71-carat cushion cut diamond (H, SI1, with a GIA report) to Adam Everson, the brother of a college friend. He also sourced a platinum halo setting matching the picture of what Adam said his girlfriend wanted, making the total for the ring $11,300 — Joe’s biggest private sale so far. When the mounting came in, Joe sent it, along with the diamond, to the local jeweler he typically used for setting. Joe looked at the ring briefly when it came back from the shop, then contacted Adam to pick it up. The ring was delivered May 10 with the GIA report and a printed-from-Excel receipt that noted a 10-day money back guarantee in the fine print at the bottom.
Adam’s girlfriend Julie was absolutely thrilled with the ring when he proposed on June 21. Once she said “yes” and he knew the ring would actually be worn, Adam reached out to his insurance agent to add it to his homeowners’ policy. His agent said he needed an appraisal and referred him to a local appraiser.
When Adam and Julie met with the appraiser on July 5, the appraiser pointed out a chip in the diamond under one of the prongs. Julie was devastated, believing that she somehow damaged her engagement ring within just two weeks of getting it. The appraiser showed it to both Julie and Adam under a microscope. He pointed out that the seat of the prong (like two of the others) didn’t align properly with the thick girdle of the diamond and that there was no way Julie could have damaged the diamond in that fashion, even with rough wear. He assured them that the diamond was chipped in setting and said that the damage was enough to reduce the clarity grade to an SI2 at best.
After taking the ring to a second appraiser for confirmation, Adam called Joe, demanding a full refund. Joe agreed to meet with Adam to look at the ring himself. After seeing the chip and the diamond apparently separated from the prong’s seat, Joe told Adam that a refund wouldn’t be possible. He said that the ring was in perfect condition when it left his hands and that Julie must have hit it hard to do that kind of damage. He also pointed out that it had been nearly two months since the ring was delivered — well past the 10-day return window. Joe did offer to look into options for recutting the diamond, and as a gesture of good will, offered to split the cost of the job. Adam was not happy, but since Julie loved her ring and was heartsick at the thought of giving it up, he agreed to wait until he heard what Joe found out.
Covering his bases, Joe contacted the jeweler who set the diamond to see if he recalled anything strange about the job, and to see if the jeweler had insurance that would cover damage to customer property. The jeweler completely disavowed any responsibility for the chip, saying the ring was in perfect condition when it left his shop — and told Joe that he’d never had insurance in over 25 years and never needed it since he never damaged a diamond.
Joe called Adam to let him know that a recut would cost about $500 total, and that based on his best guess, the recut diamond would lose about 10 percent of its weight in the process. Adam was not happy and threatened legal action. He reminded Joe that when asked about the reliability of the grade on the report, Joe had said he would offer a full refund if the diamond was found to be of lower quality than was stated on the GIA report. Adam pointed out that he now had two appraisals that said that his diamond was actually an SI2.
Joe was not interested in taking the ring back, since, despite the appraisers’ contrary view, he was sure the damage had been done after the ring was delivered. Besides, he had already used Adam’s money to pay his diamond supplier, the mounting manufacturer and the jeweler who set the stone. There wasn’t much profit in the deal either. He didn’t have the cash to just buy Adam a new diamond, and he didn’t sell “ready-made” rings, so even recut, the piece wouldn’t be of any use to him. The bigger issue, however, was that while Joe had enjoyed earning a few extra dollars from time to time over the year, he never quite got around to taking care of the business setup paperwork. While he was known as a “wholesale dealer” within his circle of friends, he was technically a reseller that just didn’t charge (or pay) sales tax — and that made any potential legal action seriously problematic.
The Big Questions
- What should Joe do at this point?
- What should he do to better protect himself and his customers going forward?
Classic case of someone trying to make a quick buck in the jewelry industry while having no business sense or real experience. Joe needs to borrow some money from his dad or a friend and give this guy his money back. Whether the jeweler chipped it in setting or the customer did it wearing the ring, he’s in some trouble if he doesn’t appease this customer. If he had an actual business set up, he would probably have more options like replacing the diamond and having the chipped stone re-cut. Then he could resell it and make his money back. But he doesn’t. He tried to beat the system, and that never works out well. Get a real job, Joe!
Joe should have offered to have the diamond re-cut at no cost to Adam. It’s just a cost of doing business when ALL he has is word-of-mouth referrals. Going forward, form an LLC, start charging and paying sales tax, and be sure to personally inspect every single item and diamond that he has his name on before and after setting.
OK, too much of this transaction, and this business is too loose. If you are going to operate at this level, you need (at least) to set up an LLC. The seller should have known better than to just pretend to go into business. There is no way you don’t get caught eventually. You are either in business or not. One of the reasons for a business’ level of pricing is the panoply of hidden costs a buyer never sees. The seller was playing at this and got caught. If the dummy goes to court, he’ll soon be in another court re: unpaid sales taxes and untold fines. Borrow the money from Dad and work for him to pay it off. For this size transaction, examine the stone under the microscope with the buyer and have him sign a statement that the stone shows no damage. Be darned sure that it is set cleanly and properly. Your lawyer should prepare any statement of warranty or return; all parties should sign. You’re in the real world now.
This story kind of makes me smile. Everyone wants to be a jeweler but don’t do what it takes. If he was a professional jeweler, he would have known to check the stone before he sold it as well as after it was set. Take care of the problem before it becomes a problem. What I would do at this point is to contact the diamond dealer who sold it to him and try to return the diamond to him to be repaired, and then purchase another diamond to take its place. We all (professional jewelers) have had to do things like this. However, he most likely won’t take the loss and won’t do anything for the customer, therefore making the rest of us look bad. Shame on the diamond dealer for selling it to a non-dealer.
Joe should change his name and move to Europe or pay for a recut out of his own pocket.
The most important action from a store or wholesaler is always to have an appraisal done of the piece we are selling. The appraisal should be done by a known and reliable company. This action would have saved a lot of money for our friend, as well as maintained his reliability as a jeweler. When selling high price pieces, we should remember that our professional experience is only on what we know the most and not on everything.
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