WHO’S BETTER AT BUSINESS: a coin/bullion dealer or a jewelry store owner?
Odd question, right?
I recently had a conversation with a store owner whose operation did $3 million in total sales, which were divided into two income streams: $1.4 million in fine jewelry sales, and $1.6 million in coin and bullion sales.
I asked this store owner a few questions, and his answers were intriguing.
“What’s your margin in jewelry sales?”
“About 45 percent.”
“What’s the margin selling bullion and coins?”
“Anywhere from 8 to 12 percent.”
“OMG, really? That low?”
“Yep, you buy it, turn it fast and make a quick 8 to 12 percent profit.”
“When it comes to coins and bullion, when do you consider them old?”
“Two weeks. At such low margins, we can’t hang onto them. If a Canadian Maple Leaf coin stays here for two weeks, we’ll melt the sucker!”
I did not ask what percent of inventory is scrapped versus sold. But let’s assume one-third is sold a tad above cost and the rest at break even, and see what kind of money we could make if that’s all we did.
Let’s average the profit to an even 10 percent. Calculating one-third of 52 weeks means we will make a 10 percent profit 17 times a year. So say we buy a one-ounce coin for $1,300 and make 10 percent profit ($130). $130 made 17 times a year means we make $2,210 in gross profit.
Jewelry has its own “numbers” like coins/bullion do, just different ways of counting. So, similar to the coin example, let’s start with a ring that costs $1,300. Let’s say that $1,300 ring after a year sells for $2,600 and we make a gross profit of $1,300.
The coin dealer is doing better by almost twice as much, even though he only made 10 percent per sale and the jeweler made 50 percent.
Most jewelers look at the gross margin only. “Yeah, I made keystone.” But they’re not considering the turn ratio. And what if it took more time — like, say, two years? When you wait that long, the bad stuff starts showing up as debt. Your accounts payable go way up, as does credit card debt.
A coin dealer is better in business because he is forced to liquidate quickly. They think in terms of money, whereas jewelers think in terms of “it’s gold and diamonds; it will be in good shape and salable long after I’m in the ground.”
Jewelry is old in 12 months. Coins are old in two weeks.
Jewelers just shove their old crap to the left side of the case and stuff more crap in the case. I had a jeweler friend to whom I explained this, and he said he had a buddy who owned a furniture store. The furniture store guy said he never had a problem with old inventory. He said, “Where in the hell am I going to put extra beds???”
Learn something from the coin/bullion dealer. The faster you turn the item, the better for your cash flow.