Natural Diamond Prices – November 2024
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Memorandum System in the Jewelry Industry
Most jewelers and diamond dealers have for decades shared in a system called memorandum or “memo.” This arrangement allows jewelers to offer a wider selection of diamonds or other stones without having to carry a large inventory.
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How Does the Memo System Work?
When a customer visits a store looking for a specific item that the store doesn’t have in stock, the jeweler contacts one of their suppliers to borrow a few stones. These stones are provided for a limited time, long enough to make a sales presentation. This borrowing is based on the jeweler’s good credit with their supplier.
Sales and Returns
If the customer chooses one of the stones, the jeweler and the supplier both benefit from a successful sale. However, if the customer decides not to purchase, the stones are returned to the supplier, waiting for the next potential buyer.
Benefits for Jewelers and Wholesalers
The memorandum system works well for both jewelers and wholesalers. Jewelers avoid the need to carry a large inventory and the associated costs. Wholesalers, on the other hand, benefit from having their stones sold through various stores, each with its own selling style and presence in different markets.
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Costs of the Memo System
The memorandum system is not a free service, although it is rarely billed separately. Wholesalers, in offering memo stones, effectively provide financing to jewelers. They also absorb the costs associated with inventory tracking, security, and other expenses related to managing the stones.
Higher Costs for Memo Stones
As a result of these added services and expenses, memo stones generally come with a higher cost. Jewelers who pay cash and carry their own inventory tend to receive better prices and, in turn, enjoy higher profit margins.
Strategic Use of Memo by Jewelers
Savvy jewelers aim to purchase for inventory the items that sell quickly and consistently in their stores. They prefer to use the memo system for more unusual or specialty items that may not move as fast.
Different Stores, Different Strengths
This system works well because not every store excels with the same types of merchandise. Stores that perform well with low-quality but inexpensive goods are typically not the same ones that specialize in super-premium ideal cuts.
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The Internet's Impact on the Memo System
The internet has amplified the memorandum system to new heights. Wholesalers can now create detailed, up-to-date lists of their available inventory and share them with their customers in real time. This instant accessibility has revolutionized the way dealers and jewelers interact with inventory.
Virtual Inventory and Detailed Listings
Dealers can now offer what’s known as a “virtual” inventory. They list important details such as weight, dimensions, grading, photos, certificate scans, and even Sarin results for diamonds or gemstones that they have never physically seen or held. This allows dealers to showcase a vast selection without carrying the physical stock.
Image Source: Blue Nile
Seamless Access to Stones
If a client wants to view a particular stone, the dealer can order it via FedEx or a similar carrier through the memo system. The presentation process with the customer is identical to any other stone, despite the dealer never physically possessing it beforehand.
Success Through Data Accuracy
Wholesalers that provide accurate, timely, and detailed information are thriving in this digital era. However, those that fail to deliver precise data are struggling under increased competition. Mastering this system has become an art form for many in the industry.
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The Value of Carrying Inventory for Dealers
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The best dealers, whether operating online or through a storefront, still prefer to carry an inventory. Owning merchandise allows for better markups and prevents competitors from selling the same stone. This control over the inventory gives dealers an advantage in making immediate sales when opportunities arise.
Benefits of Owning Inventory
By having physical control of the stones, dealers can ensure that the merchandise meets their specific quality requirements. Additionally, owning the inventory removes the risk of a competitor purchasing the stone during an ongoing sale. This added security is especially important when dealing with high-demand or rare stones.
Specialization and Supplier Relationships
The more specialized a dealer is in what they sell, the more likely they are to purchase stones outright and carry them in their inventory. Dealers build relationships with various suppliers, and since not all suppliers list every available stone, each dealer often has a unique selection of inventory.
Overlapping Stone Listings
While dealers often have different lists of stones, there is some overlap. Certain stones are listed by many dealers, while others are more exclusive, available from only a few. When a dealer has a stone in their inventory, they typically highlight this fact proudly. For storefront dealers, the stones are often available for immediate examination.
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Final Thoughts
The memorandum system has been essential to the jewelry and diamond trade, offering flexibility to jewelers and extending wholesalers’ reach. While memo stones provide convenience, they come at a higher cost due to added services. The internet has further streamlined this process, enabling virtual inventories and real-time updates. However, many dealers still prefer owning inventory for better margins and control. Balancing memo use with inventory ownership remains key to meeting customer needs and maintaining profitability in the evolving industry.
