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Are we starting to see an new business model for numismatic coin dealers in the US?
291fifth
Posts: 24,680 ✭✭✭✭✭
The new business model involves a sharp increase in margins as the number of collectors of NUMISMATIC coins shrinks. (Forget about bullion items as they are a different business.) The philosophy behind it is rather simple:
If I have a rare item that one of the remaining TRUE COLLECTORS wants they are going to have to step up and pay dearly for it. There are no more bargains since I can't make enough selling "bargains" to justify staying in business.
Your thoughts?
All glory is fleeting.
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I know several dealers philosophy is to start high, hoping someone will buy at that price. Then as time goes by, they reduce prices or if cash flow is tight they might have to reduce sooner.
Other times they just have confidence that a certain coin will sell at their high markup.
CoinBlog.net
I don't know what a TRUE COLLECTOR is but I know I'm paying top dollar (over sheet) for things I'm buying today. I think what is changing more and more over the past 10 years is that stuff is being bought and sold on-line vs the traditional coin shows. Just my opinion.
I know I'm buying and selling through on-line dealers about 80% of the time now. Five to ten years ago, I'd go to every coin show within ~200 miles of my home. Now I don't waste my time going to shows with less than ~100 tables, unless I know for sure that there are going to be some bigger dealers there.
WalMart is always hiring.
``https://ebay.us/m/KxolR5
All business models evolve... some changes are promoted by customer preferences, some products phase out (i.e. buggy whips)... So, @291fifth ... there could be a shift in business models going on, but only to those dealers and customers of true rarities. The base of collectors is still very active, and seems to growing, particularly online. One needs to examine the full scope of the coin business/hobby to properly analyze the situation. Cheers, RickO
I think that one off setting factor is the internet. We now have information at our finger tips to not only learn the price for a date and grade but often can find the exact price paid for a particular coin through auction records. Even when coins change holders and/or grades, through the internet we can determine where the coin was from and the price paid.
I think this factor alone has kept margins down on expensive coins. It also I believe puts a premium on coins a dealer can purchase that has no auction records. In those cases, they can be more aggressive in their pricing when selling.
IMHO, I agree a little but disagree strongly. With the internet, 3 significant things have changed.
1) Rare is not Rare. 50 years ago, the 1909-S VDB was RARE. The one example in the coin shop would stay for years, as everyone looked at it, no one could buy it, as the dealer had a humongo mark up on it, because when it was gone, the lookers would be gone (who craved that coin, but bought something else), and he could not easily buy another one. Now, I can examine to purchase hundreds of them for sale RIGHT NOW on line.
2) Coin Shops, Coin Shows were effectively IT. Buy there or take a chance on a mail order with no picture. In the 1960's, I saved my money to go to the annual coin show. Hundreds of dealers, it was overwhelming. Now, most of the coin shops are gone, and the comment above about not "wasting time" going to smaller shows, etc. shows that, in addition to finding out the Coin is NOT RARE, now we find that I have thousands of dealers "open for business" 24 x 7 so I can buy now, tomorrow or next year. They are still open, they are still ready, it is when I want to buy, no time pressure, as the show is not about to close.
3) Zero Value Overhead and Carrying Costs. I was a engineering and manufacturing manager at a large semiconductor company, and have worked for Amazon after I retired as a manager. We lived and died on sales, inventory costs, labor costs, retained inventory, obsolescence write offs, land costs, asset depreciation, etc. On and On. But the overriding factor was Return on Investment. How much we made on what we sold. Too low, or negative, you are out of business.
But now, I can "operate" a business with international exposure, from my house, and never travel. No plane tickets, hotels, and over priced restaurants to set up and sell. No $4000 a month for a small store front, no $200 a table set up at a show (All of which is pure overhead, with no return on investment, the worst thing in a Cost of Goods Sold (COGS) review). So my sunk costs effectively go to Zero, and my inventory carrying costs are effectively Zero, as the lost opportunity costs of my money used to purchase inventory, invested at the bank, is less than 1%, so I could hold an item for 5 years with less than a 6% "lost" opportunity (rule of 78's).
So, if I am a savvy buyer, I can buy anytime from thousands of sellers, and I have up to the second real time pricing comparisons, not a once a year Red Book with inflated prices, or some mystery grey or blue sheet, and as a savvy seller, I can buy, hold, and market my product effectively for free, no sunk, overhead, carrying costs, so basically everything between purchase and selling is profit.
That world cries out for slim margins, not high margins. Today's sellers strive for a model with inventory approaching zero, as with overnight shipping, etc. inventory can be moved, or delivered, from almost anywhere overnight. When I worked for Amazon, it was truly terrifying how quickly inventory turned over. It only appeared that we carried large amounts of inventory because it turned so quickly.
My "terror" is that quick turns flash inventory will finally hit the coin world, where if it has been in inventory (pick a number: 1 week, 1 month, 6 months) it is dead and needs to be scrapped or written off, or unloaded at a deep discount, and all the literally tons and tons of coins that have languished in 2x2's for years will flood a market with a decreasing customer base.
We have many collectors here who wish to see this coin trading as a another form of the investment/ finance business, I.e., with thin margins and close/ efficient fees and costs. Nothing could be further from that case. The Dealers themselves recognize this coin trading as the art and antiques business, with as wide a margin as humanly possible.
Never forget that.
I think that we have just seen a well due correction in the number of players selling coins. When you see the swells come & go you will also see players coming in expecting to just ride the coat tales & get paid. It not that simple. When you peel back, look for someone who is here for the long run. I am not talking about the Mom & Pop ebay stores, I like those, its the others.
Best place to buy !
Bronze Associate member
There is nothing really new. I just see dealers using the same methods; some are putting a lot more raw material, etc. on ebay; or if they have material with slight problems or not worth enough to certify are looking to have a lot of collectors come in to buy.
From a buyers perspective I don't think the dealers business model matters, I will buy the coin if I like the price and it is irrelevant to me if the dealers markup is 1% or 100%.
I buy from two well know coin dealers and only buy from EBay if the price is right and it's not very expensive.
THIS!
BRING BACK THE DISAGREE BUTTON! (kidding)
The fact is that margins aren't that good on MOST "collector" coins. There are very few true rarities. Some venues specialize in these. But 99.9% of dealers have 4 figure coins and under, maybe a couple 5 figure coins. Most don't even stock much in the $10,000 up range.
It is always a mistake to judge the market by the very top. But, even in this echelon, I think it is mostly urban legend to think the margins are high. Sure, you might have bought a raw coin and managed to get it in to an MS68 holder and it went from $500 to $5000. That is NOT most of the coin market. That $5,000 coin usually came from someone who bought it for $4000-$4500 from someone who bought it from $3500-$4000, etc.
You really cannot easily buy a $10,000 coin for less than $9,000 which is still a pretty lousy 10% gross margin. And anyone who has a $5k or $10k coin can easily consign it to GC (10% net B/S premiums) or Heritage (20-25% net B/S premium). Usually the MOST gross margin (not net) you could hope for is 20%. In reality, you are usually lucky to get 10%.
And, I would also caution against confirmation bias. You can go out and find a coin someone paid $10k and sold the next year for $15k. But that same dealer may have also bought another $10k coin that he sold for $8k which you will ignore because it doesn't help your point.
Bottom line: Coin margins S-U-C-K!
Free business consulting from Mustangmanbob, Thank you. Very Smart Guy.
I constantly reevaluate my business model with little tweaks here and there.
I am where I want to be and know where I am going with my business.
To @mustangmanbob
I already try to run my business as close to zero inventory as possible. There are a handful of coins I hang on to for longer, just because they are pretty and I don't care if they sell. That's the collector in me. But I turn over 90% of my inventory 5-8x per year. I do $200k in sales per year but generally have under $20k in inventory, sometimes far under.
The fact is, as you have noted above indirectly, 99% of coins aren't rare. Keeping them in inventory is pointless. They don't appreciate. They are widgets. You just dump them on a wholesaler or sub-wholesaler and move on to the next deal.
B&M's and show dealers will carry more inventory because they need something for physical customers to look through. But, look at the books of most B&M's - virtually all their revenue and most of their profits come from bullion sales (with a 1 or 2 day flip usually) not numismatic sales.
As to inventory, I am doing the opposite. I do not sell widgets. I am growing my inventory. I may hold unique coins for years. I do not mind holding unique items as I am the only place to buy that item.
My items are unique and have extremely good eye appeal. I am building a following. Many repeat buyers.
For what I sell no way to run a zero inventory model IMO as the replacement of inventory is extremely difficult.
I agree. But that is not how most coin businesses work. There are specialists out there, like you, but the bulk of coin businesses run the B& M way. They have to. That's what walks through the door. You'd also have a hard time running your business as a B&M. You wouldn't have enough customers to pay the rent.
Profit margins are not driven by what dealers want or need. They're driven by what they can get away with.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
What the market will bear.
Will serious specialist collectors bear higher margins on what they collect or will they just become even more specialized or drop out altogether?
Seems to me that the dealer/broker model seller has changed. Pre-interenet as a dealer, by going to shows and trading with other dealers, you picked up material (coins) that your customer did not have access to generally.
Nowadays with the internet, dealers are competing with customers at the auction sites for coins. If a dealer wins the auction, he/she just hikes up the price substantially. In this scenario, the dealer is obsolete. I do not a need a dealer to beat me to an auction only to hike the prices up later. No thanks, keep your coin, I will wait for the next auction.
Ultimately, I see the auction format being the largest market-maker in coins. With an auction format, there is no need for the dealer, the seller and buyer can meet where there is the most exposure and let the market guide prices to equilibrium.
Tyler
Is this a contributing factor to the significant fee increases seen from the major auction houses?
Sure seems to be. The auction houses start out with lower fees (Ebay, Great Collections, HA) and then increase the fees as their site grows in volume. Great Collections is currently the low fee auction house. Once their offerings and the consignors improve, their fees will probably increase as well.
Which is worse - A consignor's fee or selling to a dealer at some price of Greysheet bid or back of bid? I am pretty sure that the auction house fee is generally much lower.
In an auction, the house IS the dealer.
Liberty: Parent of Science & Industry
I try make at least 40-50 pct over cost on everything I sell. Some coins and currency items marked up 100 pct.
On key date coins and scarce stuff I know they want - no discounts. Others may be Make Offer if still allows decent profit.
I recently sold slabbed CAC coin I had $92 in for $140.
Operating mainly online bc of high show table fees and people Walking in bourse room either broke or won’t pay the money.
Not quite true. You can get more widgets than you could ever sell.
Again, what the market will bear. However, pity the poor sellers who don't have "quality" coins ... and that will be most of them.
That’s been the case for thinly traded items like patterns and so-called dollars for years. Interesting if regular coins are becoming more like those than the other way around.
As long as people believe this, they are in a world of hurt.
There are countless businesses with the same basic genre as coins. Antique anything, WW2 stuff, autographs of deceased people, Soviet Union memorabilia, on and on. They all have the same basic layout: No more being made, not needed for basic life function so they ultimately are a luxury, and all dealing with the issue that "younger" people tend not to amass and collect "stuff".
Nothing in my little business is less than 50 years old, or so, and is not being made now. There are hundreds, if not thousands of people trying to do what I do in my exact field, so it is either be better than them, or be beaten by them. I have to beat the brush for material to be inventory, get it into an acceptable condition, pay ebay and paypal fees if I sell there, pay taxes on the profits, and make a respectable ROI.
Sounds suspiciously like "work"
😀
Liberty: Parent of Science & Industry
You have over 13K more posts than me and are always dissing the market. Should I update some old threads? Sorry you feel that way.
You seem to follow the boards so you must like coins. Why not give a shot at something new?
My 1866 Philly Mint Set
Just like others before me, our business model has naturally shifted and we have been forced to open up new channels of business to survive (we started beefing up our Auction company and started a buying program for rare items giving our customers profit).
Yes, the internet has great potential but it also means the market is much more efficient, so margins, very organically, become minimal. More collectors have more information...at their fingertips. This means they can find someone across the world to buy from if they don't like my price.
Big coins are getting bigger-- and by that I mean, the prices serious collectors are willing to pay are more competitive but the semi-rare and less big-coins are going to the wayside, quickly.
With the millennial generation significantly lowering market interest in coins and instead worrying about Bitcoin and Rare shoes (lol), it means the market is and will continue to get smaller.
I like coins but I don't see much of a future in collecting them. You think it is being negative but I think it is just being realistic.
Rare shoes. I was walking through my local upscale mall this afternoon and saw a large center court display promoting some Versace (I'm not sure of the spelling, it isn't my type of brand) sports-type shoes. Several young men were looking at the display case in awe. The shoe collecting bit has always left me shaking my head in disbelief. I wouldn't pay a dime for any of them.
@291fifth
Yes It's frankly, embarrassing. If only they would have found a pair of collectible shoes in the tombs of ancient Egypt. LOL
For over 10 years?
My 1866 Philly Mint Set
Today’s coin market is moving into “bifurcation.” Most large dealers have their own websites to sell “premium” (aka CAC) coins. Many times, these premium coins are with good profit margin. When coins cannot get stickers, they wholesale them. Sometimes, they have to take a loss to move them.
Of course, many old timers never changed their ways to do business. They still bring the same inventory to all shows..... Many did not even want to wholesale any in today’s market
Dealers with a brick and mortar presence have a huge advantage over every other kind of coin seller. They get coins walking in the door. An E-Bay seller couldn't buy a coin in a coin shop to re-sell. There's no meat left on the bone once a price is negotiated.
Focus on the buying side any there's a future. Prove me wrong!!
I suspect coin dealers will follow the way of the tool truck in automotive. The ones that will survive are all about good service.
EAC 6024
It all depends on the coin. How many are available in a specific grade, who has access to them, and how much buyers will pay for them.
I think margins are down on most material for reasons mentioned above.
Say you're looking at a pop 15 coin, 10 of them are in strong hands, and three dealers have first shot at the other five. Say ten people want these coins, and these dealers know it. As Andy said, they can charge as much as they can get away with.
"Seu cabra da peste,
"Sou Mangueira......."
Agree. And most of what walks into the store is going to be low margin bullion and widgets.
And @DollarAfterDollar is ignoring the other little internet fact: it is easy to get comps. Usually the wrong comps, by the way, but wrong too high not wrong too low. In recent years, except for the occasional widow who really has no idea, most people walk in with a circulated (or fake) trade dollar and an eBay printout of a PCGS slabbed MS64 that sold for 10x (or 100x) what their coin is worth.
And to your point, even if their rent isn't $10k per month, the fact is they have rent and utilities and advertising and CCE fees and all kinds of overhead that show & internet dealers do not have. That requires a certain baseline volume just to stay open. You can't refuse the 1000 wheat cents that come through, even though you are only making 0.5 cents to 1 cent on each. You can't refuse the pile of 90%, even though the margin is only 10%. You can't refuse the $30,000 stack of gold coins even though you will only make $1000-$1500 on the entire stack.
Rent comes due every month, whether you sell a coin or not.
I think I see a much brighter future in COLLECTING them. I see a very dark future in INVESTING in them.
Look at stamps. There has never been a better time in my life to COLLECT stamps. Formerly pricey, scarce material has become inexpensive and easy to find. You may end up selling it for less 20 years from now, but that is the "investment" side of it.
You don't play golf expecting to turn a profit on your used balls or clubs. The mistake is to think of coins as appreciating in value. If you are fine with owning them and enjoying them, the golden days are just ahead.
I'm not sure there is a new business model. The internet has opened up the market to everyone and, at the same time, has provided access to information that was only available to those "in the know". In short, it has leveled the playing field. Profit margins vary widely among those who buy and sell. Your money is made (or lost) when you buy. In general, if you buy an item that is difficult to sell, you need to buy it cheaper to allow for your carrying costs. Same thing if there are many hours involved in breaking down a collection or deal. The more time and hours involved, the less you can pay. If the item is something that you can sell easily, you may work on 2-3%.
I think if you are a bigger volume dealer who buys everything (like us) your margins day in and day out are in single digits.
If you pick and chose and buy only "rips" your margins will obviously be higher (your volume will be correspondingly lower).
I can buy a painting for $10 at a yard sale, or spend several million on a big name rarity.
I can buy a used 60's Mustang for a couple thousand, or pay big bucks for a restored California Special.
I can be a coin collector and spend a little, or an investor and buy top-grade rarities for big money. The collector base may be shrinking right now, but in my 50 years of interest in coins at various levels, the collector base has always fluctuated.
Check out my current listings: https://ebay.com/sch/khunt/m.html?_ipg=200&_sop=12&_rdc=1
I actually believe that rare coins can be a smart investment if you are knowledgeable, very selective and very patient, and if you have price appreciation as your primary goal. Otherwise, coins are at best just a store of value and an expensive hobby.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Yes, and at every single coin show that I attend, there are at least fifty guys who tell themselves "Thank you God, thanks very much for making me the smartest guy in this room!".
This is sooo true. Very few coins have ever kept pace with stock market returns or even bond returns. They simply don't appreciate at the same rate and they certainly don't compound in value like dividend reinvested stock funds or interest paying bonds.
If you took 1 cent and bought a "stock fund" in 1792 [obviously, hard to do with one cent and there were no mutual funds] , it would be worth over $22 million today. Find me a coin worth that much. You'd need a chain cent in MS69 red.
Total return on the dividend reinvested S&P 500 since 1970 is 13,040%. If you bought an MS66 Saint in 1970 for $35, you maybe broke even when you include opportunity costs. You'd have to get $4550 today for that coin to break even. An MS65 was a loser.
Here's some fun coin math, since I just happen to stumble over the Hydeman sale in 1961.
Total return of dividend reinvested S&P 500 since 1961 is 26215% or 262 times. At the Hydeman sale:
the 1913 Liberty nickel and 1804 dollar failed to sell at $50,000 but sold 10 years later for $100,000 - equivalent today $11.6 million
Q David Bowers bought the 1894-S dime at that sale for $13,500 - equivalent today $3.13 million
All classic rarities. All financial losers. If you want to make money on coins, don't invest. Buy it today and sell it as soon as possible. The longer you hold it, the lower the odds of truly "making money".
The problem is that people buy it for $100, hold it for 20 years and sell it for $200 and think they "made money". They actually lost about $500 because the stock market over any 20 year period yields about 700% total return.
IMHO
Which side of the table are these fifty guys?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
I agree with the op’s premise with the key word being rare.
Serious specialist collectors will bear higher margins.
Agree.
The world coin market is growing I believe .
Why do you think PCGS , NGC , Heritage, Stacks, have invested in opening international offices? It’s not because they think the market is shrinking.
Agree.
I’m a financial advisor and I have invested consider sums of my net worth into coins.
However I don’t talk about numismatics as an investment with my clients.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
There are different types of collectors. The type of collector that seems to be scarce today is the collector who simply wants to fill a list, to complete a set, regardless of condition. These were my coin friends as a youth, they guys who went to the B&M on Saturday, who went to local coin shows. These collectors, in meaningful numbers, may be gone for good - or not. I'm pretty clueless myself why I feel the need to collect series or sets of things, so I'm not qualified to predict the future. Having said that, it looks to me that there are a sufficient (surviving) number of collectors of means, who perhaps have the same drive as (or are) my youthful buddies, but with elevated tastes, egos, and pocketbooks, to support prices of relatively scarce or rare coins, for at least a generation.