The Prez Sez: Do you have a surplus of gemstones?
By Moss Aubrey, PhD.

Being a fairly active stone cutter results in having a surplus of gemstones. Some folks might consider that an oxymoron, that you simply cannot have too many gemstones. Many cutters feel quite content with building their own vast collections. We have seen articles written in this newsletter on how to systematically build a cut gemstone collection. I agree that building a collection is fun. However, I found that many of the stones I cut had no logical place in my collection. I suspect that my entrepreneurial interests lured me into other areas besides collecting stones from my faceting efforts.

Each facetor must personally decide where the balance point lies between pleasure and business in regard to reasons for faceting. Several people this year sought my advise and asked about my methods on selling cut gemstones. This compelled me to outline my thoughts collectively in an article concerning this very topic. In reviewing previous articles in the Guild newsletter about the economics of amateur faceting, I also re-read Betty Annis' earlier thoughts on possible methods of marketing your productions. I discussed the many accessible options with several other cutters who sell their own stones. My conclusion resulted in this personal view on how to market gemstones. However, if you ask others how to market gemstones, and I encourage you to do so, you may possibly receive ideas and explanations quite different from mine.

If you want to recoup some of your costs in this admittedly expensive hobby we share, then occasional sales adequately do just that. I find the notion of cutting stones and selling them as a sole means of livelihood quite frightening. Inexpensive stones cut by young workers (some are mere children) from third world countries, who earn pennies per stone, flood the gemstone market. We contend with these overseas cutters and regard them as our competition. Clearly, we must offer something different to capture a niche in such a highly competitive market.

My experience shows that people buy from you for a number of reasons. Perhaps, you offer stones of common materials cut in unusually large sizes. Perhaps, you display exceptional cutting patterns along with traditional faceting patterns, all cut and polished especially well. Many people prefer to deal with local individual artisans rather than chain store jewelers. However, these customers may only be interested in buying fairly standard items from you.

When I sold several diamond engagement rings in the past, I did little direct craftsmanship on those items. I helped the clients obtain a superior item compared to the merchandise offered from several retail jewelry stores. The clients left happy, and I generated more working capital for future “special projects.” Other clients search for very unusual items, such as obscure gem materials to comprise the centerpoint in a unique piece of jewelry. Others seek carved gemstones that reflect a high level of artistic merit and technical skill. Most jewelry stores do not carry such specialized items in their inventory. If you work at that level, finding an excited customer is very rewarding.

Some of the selling avenues open to you are informal and do not require much preparation other than cutting stones that you no longer want to keep. Others constitute a formal business, and you should consider how complex that can easily become. You may need to obtain a business license for the city or county where you sell your items. This license generally entails some cost, perhaps $25 to $50 a year. You also must register and collect state gross receipt taxes, sometimes known as sales tax.

Most states, including New Mexico, require that any tax collected must accompany an official report forwarded to the state department of tax and revenue. If you sell items without collecting taxes, then you run the risk of paying the state for the back taxes plus any interest and penalties incurred. Keeping records and reporting your transactions as a small business makes your federal tax report a more complex issue, but not unduly so. If your gem cutting effort operates as a legitimate business, then you may deduct all of your gem rough and equipment costs, travel expenses to gem shows, professional journal subscriptions, Guild membership fees, gemstone reference books, business cards, and other related costs from your taxes. These expenses often contribute a substantial offset to any profits which otherwise would have been directly taxed.

As you increasingly become more involved in the process of selling your products, you will probably generate increasingly greater costs for such activities. In addition to the costs mentioned for running any business, you may need to purchase display materials. When participating in shows open to the public, consider it prudent to invest in display cases. Small portable cases cost anywhere from $75 on up, and you may need several. Other needs include lights (halogen is recommended for intensity), extension cords, table cloths, and, possibly, several folding tables. Other types of individual display items seen in most jewelry stores include pads, pedestals, ring displays, loose stone trays, and the like. If you forego such formalities, be aware that your display arrangement may suffer, as presentation is paramount. Costs for display cases and all the accessories are also tax deductible.

As you expand your sales to a potentially greater market, you may need to learn more technical skills and purchase more equipment. It is difficult to be successful and only sell loose stones, but some faceters do just that. When you offer to mount your stones, you increase your chances to make more sales. To achieve that, you need to become familiar with the available jewelry part supply houses and acquire the skills in many aspects of jewelry making.

To begin in a simple way, limit yourself to prefabricated settings and a pair of setting pliers. Eventually, your tool inventory will comprise the required array of implements, torches, and equipment. Consider taking classes in the more advanced jewelry techniques. Some people will obtain inherent satisfaction from learning these new skills, which is its own reward. I feel very pleased after a successful adventure in soldering, which I still find daunting. If you object to these added requirements, reconsider how competitively you want to act in this market.

There are other points to consider as your market base expands. When a customer is not satisfied and wants to return an item, are you willing to write off your efforts for the sake of customer satisfaction? You will be unable to return any metal finding you have already used. That places you in the situation of holding it for a while until you can find a new buyer. A particularly frightening scenario is if a customer returns an item, and you suspect that the stones have been damaged or even switched before the return. Do you have the technical training to verify that such is the case? What will you do if you give the refund prior to making such an appalling discovery?

This negative side does exist in selling to the public. Public shows allow the entry of many types of people, and shoplifting also becomes an added risk. As your sales increase, so does the chance of receiving bad checks. Another liability is robbery. Reports describe gem merchants being robbed as they were leaving a gem show, before they set up their displays and after closing, and while they engaged in sales. Such events are, thankfully, rare. The greater your exposure to the public, the greater your risk of potential problems becomes. This has not been a major problem for me, but the potential is there. If you are engaged in selling your items for business, your personal homeowner's insurance may not cover such losses. I suggest you check your policy and discuss this with your agent.

Given all of these complications and potential drawbacks, you still want to venture into selling your gemstones. What can you do with those stones?
Gifts to family and friends. Guaranteed to result in gratitude and praise for what a marvelous person you are. Limited only by your talent and personal fortune.

Gifts to charity. Also a good way to be appreciated, but this one may be tax deductible. Ask if the charity is qualified under the IRS guidelines as a charitable organization. While you cannot deduct your time in creating any items intended for donation, you may be able to deduct from your personal or business tax claim, the 'fair market value' of your product. This is the price that could have been agreed upon between a buyer and seller, both of whom are knowledgeable about the value of the item, and neither of whom is under duress either to buy or sell. Remember, the Faceters Guild is a qualified organization, so please consider donating all those surplus stones toward expanding the Guild collection.

Occasional direct sales. This is probably how many of us got started on the path of selling our creations. Friends, friends of theirs, family members, co-workers, and the like are all potential customers. I cannot tell you when you will have reached the point of conducting a formal business versus occasional sales. I suggest you confer with an accountant if you are unsure.

Advertising for direct sales. One way of expanding your exposure to customers is by directly advertising yourself.   This can be accomplished through local newspapers and through national publications, depending on what market you target. Personal appointments with local jewelers is another way to market your items. This is time consuming, requires that you are comfortable initiating a sales contact, and that you will not be devastated by rejection. Be prepared to sell at low wholesale prices to be competitive, unless your items are particularly exceptional.

Expose yourself. Another way to have people aware of your faceting expertise is to conduct faceting demonstrations. Many of the Guild members demonstrate for museum events, the State Fair, and during commercial gem and mineral shows. While direct selling may be prohibited by demonstrators, a facetor can make customer contacts for future sales. Another way for name recognition is to enter jewelry competitions, such as the ones sponsored by the New Mexico Jewelers’ Association and the American Gem Trade Association (AGTA). Even if you do not win, your creations will be viewed by many people.

Mail order sales open another venue, and you can limit yourself to strictly doing business by mail-order. If you do not have the ability to accept credit cards, some distant customers may decline from making purchases. Local ones will probably be comfortable writing checks to you. However, consider your course of action if the check is returned by the bank, and the customer already holds your goods. If you mail your items, purchase sufficient insurance and enclose a ‘complete description of the items. Keep a copy for your records. The Internet has potential for marketing, but what little I know about that is you will need a current generation computer, some start up money, and at least some modest computer skills. The ability to accept credit card charges is essential to making this viable.

Craft shows, flea markets, “mercados”, and the like. Such shows are abundant. I see advertisements for shows throughout the year, with a flurry of activity in November and December. Consider the type of product you are selling. While there is an advantage to being the only person at a show selling jewelry, the people attending may have come for all those other vendors and have little or no interest in your booth. It is particularly discouraging to spend the entire day at a show and not make enough money to cover your booth fee. On the other hand, many craft shows are inexpensive, with fees ranging from $25 to $75 for a day or two. The amount of advertising the show promoters initiated varies widely. You should ask questions about advertising, how many years has the show been held, what the typical attendance is, and what types of items the other vendors sell. Shoplifting and bad checks constitute potential problems when dealing with the public, but have not been a major problem for me. You might ask someone to assist you in setting up, helping you during the show (particularly for items openly displayed), and at closing.

Mall kiosk, regular or seasonal. We've all seen those little booths set up in the indoor aisles of the malls. The cost for renting floor space varies, but it can be quite expensive. You may be able to rent a display booth, or you may need to build your own. Drawbacks include that you need to be there regularly, or else hire someone to work for you. Shoplifting is a liability. Some malls may not allow sales that directly compete with the retail jewelers established there. This idea does not seem very appealing.

Open a store. Not very practical, unless you are prepared for a full-time commitment. You will need to investigate and invest in display equipment, office rental, special lighting, advertising, and possibly hiring staff. You need a large inventory to serve customers who are usually interested only in traditional jewelry items. Insurance for jewelry stores is very expensive, but the risk of a catastrophic loss is even more frightening. This explains the reasons why retail jewelry stores have such high prices.

Wholesale. You can try to sell directly to jewelers.   Some will consider single stones, while others will want large quantities of calibrated stones. They may not want to pay a premium for your superior cutting. You will be competing with overseas cutters, so offer something unique. Refer back to the article on the economics of amateur faceting. Then consider whether you can compete and still make money at this.

Consignment. This is an excellent option. Someone else has the assumed responsibility of opening a store, and all you need to do is leave your items there for sale. This has the potential to be an agreeable arrangement for all concerned. The store owner will charge you a percentage of the selling price and give the remainder to you after the item has sold. You should expect to give 25% to 45% to the store owner, so set the selling price accordingly. You can deal with local merchants or with store owners across the country.
There are some points to be aware of before you leave your items with someone. What is their reputation in the jewelry community? How long has the store been in operation? Do they carry sufficient insurance to cover your items? I recommend that you get a receipt clearly describing your items, stating that they are left for consignment sale, indicating the agreed upon selling price and the percentage consignment fee, and stating that the store owner is responsible for any items not returned to you in their original condition.

There is legislation in New Mexico intended to protect the many consignment artists. Unfortunately, this law does not seem to apply to jewelry items, especially ones that are not signed by the artist. Don't be deterred, as most retailers are ethical. They labored long and hard to develop their professional reputations, and they work continually to maintain them. Several members of the Guild have experience in selling items on consignment, and I suggest that you ask their advice on this avenue for selling your stones.

Trade shows. Gem and jewelry shows can be very successful, but they also involve a lot of work. Shows vary from local level retail shows to the national “wholesale only” shows. You can even set up your own show (talk to members of AGATE about their experiences). You can also register as a vendor at a commercial show. Show organizers initiate the advertising, and you pay $200 to $500 for the booth space. Booth fees are also tax deductible.

 It can sometimes be challenging to recuperate that much money and still declare a profit. You need display fixtures, as well as other overhead costs. You may participate as an itinerant (roving) vendor and try to sell to the merchants there. Sometimes that works, but the vendors usually offer low wholesale prices (or less). Be aware that some shows prohibit such activity and may confiscate your inventory until you pay their vendor fee. These larger shows seem to be feasible only if you are fairly serious about selling and have at least a modest inventory for display. You may join forces with another person if neither of you has sufficient inventory for such a show. You also might approach someone you know who sells regularly at such shows and ask them to sell some of your items. This would be similar to the consignment method mentioned above.

So, is all this effort worth the payoff? That is a very personal decision, based upon subjective data. I happen to like it. At the same time, I can afford to limit how much time I spend pursuing this. I conduct about two shows a year in cooperation with my valued colleagues. I find the support of my colleagues essential. Working alone, especially when venturing into unknown territory, demands much from you. Having a group of peers with whom to share ideas and experiences can certainly be part of the fun. The stones I cut throughout the year are divided between my personal collection, gifts, and items for sale. If you enjoy talking with people about your efforts, and showing off your finished products, then the admiration for your talents may be reward enough.

Despite the stress I experience in setting up for any show, once underway, I find myself enjoying the whole process. People may stop by to chat, having little intent to purchase anything. It still is fun to talk with someone who appreciates the beauty of gemstones and who compliments your creations. Sometimes that is enough for me.