Silver & Gold
Price swings, scams and profits—all part of a glittery business
Tough economic times tend to push up gold prices, which is why so many new players are trying to profit in the jewelry-and-coins trade. Top operators detail how it’s done—and warn against fakes and more.
Mastering the art of the deal is a challenge for the franchise that deals in gold coins and collectibles. Maybe a customer has a mint-made error coin that could be valuable, or a client is skeptical her scrap jewelry could be bought at a fair price.
When the price of gold went up, “shops flooded the market,” one former franchisee says.
It’s a push-and-pull negotiation each time a customer walks through your door with a jar full of junk silver or a sleeve full of South African Krugerrands. Players have multiplied in the tough economic times, attracted by skyrocketing prices for gold, considered a safe investment in times of crisis.
As a buyer, franchisees need to negotiate for less than the spot price, which is the average bid price being offered for gold. They also need to know about premiums “over spot,” which are upcharges like commissions and distribution costs.
Today, the online auction space is crowded and gold prices have prompted some customers to store their gold for safekeeping overseas or deal with buyers offshore. Be careful, though, because “all that glitters” is not gold, and there are plenty of scammers hoping to make a profit from gold coins and broken jewelry, too.
Consider the competition
Several precious metal and jewelry franchises operate today, in addition to those that offer a licensed or “arranged” business model. They include A1 Gold Buyers, GOLD2CASH, GoldFather, The Gold Buyers of Pittsburgh, Valley Goldmine, CheckNGold and Countrywide Gold Buyers.
These franchises compete with a lot of other small businesses in the gold and silver space. In the U.S. alone, more than 18,000 companies deal in gold, silver, gems and collectibles, not to mention the 15,000 pawnshops and 80,000 used merchandise stores that have the potential to sell gold and silver memorabilia.
Sometimes the competitive nature of corner stores and online sites can prove overwhelming. When we tried to reach several Valley Goldmine franchisees in California, we found numbers disconnected in Fresno, San Francisco and elsewhere. Over in Glendale, shop owner Fred Assi acknowledged he decided to dissolve his business in early 2013. “It was really difficult,” he said. “When the price of gold went up, the business went up, but shops flooded the market. It was hard to compete.”
The rush for gold isn’t confined to sunny California either. On a recent trip through Florida, we were amazed at the number of gold and silver shops and cash-for-gold outlets near West Palm Beach, for example. From a five-mile stretch between Okeechobee Boulevard and Interstate 95, we passed 15 different pawn shops, seven different check-cashing shops and four different jewelry stores—all dealing in gold. Here, those who are barely getting by drop in to barter their wares with dealers behind thick, protective glass.
The business can be risky, whether you deal in scrap gold, mint sets, numismatic coins or estate collections. In Florida, folks dealing in the global currency market make things increasingly complex.
“In South Florida, it’s such an international area, such an international mix,” says coin dealer Elier Roqueta. “There’s such a huge saturation of retirees, and there are people who are bringing you their treasures no matter what situation they’re in.”
Through the bad times
Maybe they need to sell off their coin collections to pay off medical bills or put a kid through college, Roqueta says. “This industry can be perceived as one that takes advantage of people. You really have to be fair because you’re really helping them through a bad time.”
One of more than 18,000 companies in the United States that deal in gold, silver, gems and coins.
Roqueta knows the business well and has worked for two different gold shops in Florida. As a lifelong collector, he knows a good dealer is more like a business owner—and partner—because a lot of customers are anxious to get the most they can for their collectibles.
Learning the business
In Georgia, you’ll find a number of shops trading under the A1 Gold Buyers name. At one point, franchise owner Anthony Shapiro had 20 locations, but now he’s down to about five. Fourteen of the stores are now operating independently, all under private names.
Shapiro said a lot of changes in the market were due to a “mushroom of gold shops on every corner” and a huge drop in gold prices between July 2011 and June 2013. When the market was up, plenty of retail space was available too, and people took advantage of the opportunity. “It was the perfect storm,” Shapiro said. “Leases were available at $15 a square foot, gold prices were going through the roof, and then the price of gold went from $1,900 an ounce to $1,200 an ounce.”
Then, as franchisees learned the business, Shapiro said, they wanted to negotiate a more independent arrangement in order to avoid paying franchise fees. He understood the changes in the market and was willing to work with them. “Now I do consulting deals in Florida, or North and South Carolina,” he said. “I work with people who want to set up their own business.”
Shapiro emphasizes how important it is to stay educated on the market, so you know when to hold on to your best gold and silver pieces but still have enough cash on hand to manage the business. You also need to create trust for your clients, so it’s important to offer a high level of professionalism and customer service. With his stores, for example, customers will find a comfortable space with private buying rooms, soft lighting and cappuccinos.
Like Shapiro, Roqueta also acknowledged the learning curve and spent a lot of time searching websites and educating himself on the market. “When I first arrived, I didn’t know how to buy bullion and scrap gold, watches or diamonds,” he said. “So I put together a 200-page booklet, and I had all these pages for pennies and dimes, half-dollars and quarters. I knew when I had a customer in my office that I wanted to do the best for them.”
Helping clients also means staying alert to frauds and scams, and looking through all the resources provided by the United States Mint. Its comprehensive website is designed to educate consumers about purchasing everything from plated and first release coins to foreign coins and replicas.
Franchisees need to compare prices online to understand how other dealers manage their collectibles, and to reach out to experts who are affiliated with the Professional Numismatists Guild or American Numismatic Association. These groups are known around the world for their strict code of ethics.
Huge price swings
The demand for rare coins is constantly changing, and with gold, dealers need to be concerned about huge price swings and market volatility. Gold can be up one minute, then down in an instant, trading at $1,420 per ounce one day and dropping to $1,250 in a matter of hours. No one wants to be forced to sell too quickly if they have limited cash on hand.
It’s a business that requires a balance, so there’s money to pay customers and money to invest. “So much cash is involved that it has to be appropriately capitalized,” says R. Scott Urban, founder of Urban Enterprises, which develops franchise brands in the Midwest. “Plus, there are so many state and federal regulations that one size doesn’t fit all.”
Since most municipalities regulate the type of products that can be bought or sold through pawn and collectibles shops, a uniform franchise model may not always work. Urban also believes a successful gold and silver franchise requires a mix of revenue streams, whether they incorporate online sales with a brick-and-mortar storefront, or sell products via auctions or other types of sales.
Consider the fact, too, that in today’s world, people no longer need a storefront to trade, warehouse and store gold. Folks can try their hand at gold banking in India, for example, using the “Muthoot Group App” to purchase gold coins via, what else? A mobile phone.
Here in the U.S., Gregory VanAlstine uses a similar app with his franchise, A Buyer of Gold and Silver. Through his Facebook page, he encourages clients to download his app so they can send him pictures of coins directly from their phone. They can also use the app’s GPS to find his stores in Sherrill and New Hartford, New York, and view photos of his products online.
VanAlstine tends to attract customers through his YouTube video, or commercials that air on the Lifetime and Bravo networks. He likes dealing with customers from the U.S., mostly because the shipping costs on international orders often exceed the actual value of items. Plus, he doesn’t want to risk losing packages in transit.
Still, it’s the way franchisees work with clients that encourages repeat customers. Although some neighborhood stores combine gold and collectible sales with video rentals or tobacco, VanAlstine wants people to know he caters to a completely different clientele.
And he knows the gold-buying industry creates some negative perceptions for people, so he makes sure people know it’s not all about making a profit.
“We had a customer come in who was on tough times and just lost his job,” VanAlstine explained. “He looked at his wedding ring and I could sense that he didn’t want to sell it. I told him it meant more to him than it did to me.
“I know in franchises and in business, everyone wants to make the most they can, but if they don’t run a good, honest business, what good are they doing?”