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The rise of Online Second-Hand Jewellery Trade in the United States

29 june 2015

Could a family-run e-commerce activity that took off less than ten years ago set the pace for a revolution in the retail chain of the World’s largest diamond jewellery market? Apparently, this is what is happening in the United States where in 2007 two siblings, Josh and Mara Opperman, launched a small project called I Do, Now I Don’t.

According to the website, Josh got the idea after a broken engagement, when he realised that the returning price for the diamond ring he bought for his fiancée was only around one-third of its original value. Together with his sister Mara, Josh set up an internet service for connecting heartbroken fiancés willing to get rid of an expensive ring with those who instead were looking forward to buy one at bargain price.

It was just a matter of time before the Oppermans realised that the potential for such a business went far beyond the narrow engagement ring market. Soon, fine jewellery and luxury watches joined the website’s virtual shelves, which now offer a choice of no less than 1,000 unique pieces at any single time.

At a first glance it is not obvious what the added value of such a service might be. Second-hand jewellery looks like an old hat in the business. For decades pawnshops, as well as several local retailers, have been offering to buy back engagement rings from consumers. And for those who would rather sell their jewellery on the internet, the United States offer plenty of options, from Ebay to Craigslist.

So is there any profit margin for new players who want to start a business in an overcrowded sector? The answer is yes, provided that they play to their advantage the weaknesses of the old ones.

Best of Both Worlds

From a consumer’s perspective the problem of selling second hand diamond rings is that, notoriously, he will not get a good price out of it. The common perception is that this is due to pawnshops being run by ruthless dealers, always ready to prey on people’s misfortunes. Such a reputation is not completely deserved, as the main explanation for low prices is that second-hand jewellery is not actually a very lucrative business. Pawnshops take a high risk in trading second-hand diamond jewellery. When they buy, they have two options: disassemble the jewellery piece and sell its component for reprocessing, or hoping for a customer to walk in, like the product, and buy it. The first option does not offer much in terms of mark up, while the latter carries some risks, since pawnshops have a limited number of visitors and a jewellery piece could gather dust for years before being bought. For this reason retailers cannot usually afford to offer more than 25-30% of the original retail price, an amount considered outrageously low by many potential sellers.

Unless desperate for immediate credit, anyone who wants to get rid of his diamond ring will try to look for better options first. Nowadays the easiest thing to do is trading jewellery online, due to a proliferation of e-trading platforms. On the internet the pool of visitors is much higher than in any retail store. This increases the chances of finding a buyer, allowing sellers to ask for higher prices.

But while internet is a tempting option for sellers, buyers are usually more wary. Consumer-to-consumer online services have the advantage of offering a wide range of products at lower prices, but they do not offer much in terms of guarantees. This problem is particularly relevant in the jewellery business, as customers are not allowed to see the product before buying it and do not have access to an original certificate. Since there is no independent expert mediating between the parties, buyers can rely only on the seller’s good faith. Unsurprisingly this situation has led to a number of scams being perpetrated against online buyers. Ebay and other e-trading services have been implementing some anti-fraud measures that are supposed to curb the problem, but while they are effective in blatant fraud cases (plated metal sold as gold, or zircons as diamonds), they are rather powerless in situations where the quality of the product falls just below expectations.

The idea behind I do, Now I don’t is merging the ease of access of virtual markets with the reliability of traditional retailing. This ensures that customers have access to a vast and diverse selection of engagement rings, both in terms of style and price. Sellers, on the other hand, are quite confident that, as long as they ask reasonable prices, they will be able to conclude profitable deals in a reasonable amount of time. But unlike to its main virtual competitors, the company also provides substantive guarantees: when an agreement is reached between two parties, the diamond ring is shipped to a trained GIA gemologist, who grades and certifies it  before completing the transfer.

Second-Hand Diamond rings: A Pot of Gold

By realising that the second-hand market for diamond rings (and jewellery in general) is afflicted by operational inefficiencies and by overcoming them, the Oppermans created a successful model for jewellery trade in the internet era. Their recipe is a blend of the best part of online trading, diamond grading, and escrow services. It is a very lucrative business as well: the service fee amounts to 15% of the selling price. Nevertheless, from the point of view of a seller this is still preferable than selling to a pawnshop, as he can easily fetch 50-60% of the original retail price.

The most interesting feature though, is that its revenues are obtained at virtually zero risk. By grading jewels only after a potential buyer shows up, the company minimises external costs. Moreover, since it only mediates between buyers and sellers, the company does not have to deal with inventory costs or the problem of unsold products.

Adding to those structural advantages the benefits of a persistent and very effective public relation effort, it is not surprising that I Do, Now I Don’t managed to achieve extremely positive results. The company has been showing a steady and exponential growth for the last five years, which rapidly promoted it from family-run to multi-million business. The projected revenues for 2015 are in the range of US$15 million, up 300% from 2014. Should projections be confirmed for this and the next few years, the company could soon become a major player in the US jewellery sector. Such astonishing results should make the jewellery industry think seriously about the potential for this sort of business activities and the consequences for the traditional markets.

Matteo Butera, Rough&Polished