Hi, I've been putting together plans to create a specialty store for a very narrow series, something that would not be full time but rather an addition to the hobby. Especially since I find that buying and selling items of interest to me seems to fulfill my collecting desire more than waiting to have the funds to buy something to keep, if that makes sense. So I'm not necessarily looking for high margins, just a little more than enough to keep it sustainable and keep it worth (measured in money and fun) the time and effort. Anyway, as I have been thinking and planning this out, I've been wondering about the relationship between retail dealers, online auctions and the acquisition of new inventory, and would like to start a discussion about it, to help me understand it all better. Correct me if I'm wrong about any of this: For dealers to sell at a profit, they need to either obtain new inventory at sufficiently-less-than-retail prices or sell at over-retail prices by offering something extra to the buyer (curating for rarity or quality, finder's service, convenience, return service, and so on). For the broad coin market, below-wholesale purchases are sourced primarily from collectors selling their items directly to a dealer or indirectly through estate sales, property loss, etc. In this broad coin market, wholesale purchases can be made from other dealers. Auctions, online and on the floor, present another opportunity for new inventory destined for retail sale. For my particular interests, I've built up very large spreadsheets following auction prices and comparing with retail prices. Since some online auctions, specifically ebay, are in reality retail markets on their own, I see little margin for dealers to buy at one auction and resell at another auction. Buying on teletrade and reselling on ebay is something I was able to do in a limited way for a few series, like Peace Dollars, up until the recent teletrade site upgrade, now in most cases it looks almost profitable to buy on ebay and sell on teletrade. I don't know who is paying more than ebay prices for the exact same coins on teletrade, but it's happening a lot now. Buyers fees, sellers fees, shipping, insurance... These costs destroy any margins I see between hammer price and retail price. This is where I am stumped. In general, I find it difficult to understand how dealers can successfully use online auctions to source new inventory. I read from dealers all the time on all the major coin forums that ebay, heritage, and others are major sources of new inventory. Given the fact that anyone can buy from these and that prices realized are available for any knowledgeable collector to view, and adding the fees associated with buying from auctions... I don't see where the margins are to make it worthwhile. Are dealers marking up these purchases from auctions so much, and retail buyers are too lazy/busy/unknowledgeable to bid in the auctions themselves and save themselves 20% or more? Are these dealers selling for over-ebay prices on their own websites or just at shows/B&M stores? For a specialty coin dealer, it would be difficult, before developing a reputation/presence, to have people come to you to offer their coins so that you could buy at wholesale. The only way I can see to recoup the prices from buying material at auction price is to charge *over* "ebay retail" or offer some other services as part of the price. I'm just trying to understand how these dealers can be buying from auctions, sell at auctions and make money. Is it just an issue of these auction sales being loss-leaders or advertising and the actual money-makers all come from wholesale purchases from other dealers and buying below wholesale from individuals? Thanks in advance for the discussion.
The subject has been discussed many times but like any other subject it always comes back up. In a nutshell what it comes down to is that people don't understand how dealers stay in business. The answer is quite simple. It is the same answer that any business has - they sell things for more than they paid for them. You say you don't understand how they can do that, and you say that partially because you see auctions as being one of the primary sources of inventory for dealers. Yes, dealers buy coins at auctions. But auctions are not their primary source. The primary source of inventory for dealers are other dealers. The majority of those transactions take place at coin shows where there are no shipping and insurance fees to pay. A secondary source for dealers are the electronic dealer trading networks. There are several of these networks and they bustle with activity every day. Dealers buy far more coins from these two sources than they ever do from auctions. And even with those coins that they do buy at auction, they buy a lot of them in person, where again there are no shipping and insurance fees to pay. And if they do buy a coin via an on-line auction, odds are they already have buyer for that coin at a price that is higher than they paid. The buyer might be another dealer, or it might be a collector. And dealers who buy coins at auction are often merely acting as an agent for somebody else. They aren't even buying the coin for themselves, but for somebody else.
Sorry, I didn't mean for it to be a dumb question, I am aware of dealer networks and show transactions.
I didn't take it as a dumb question, it's a good question. You just made some wrong, but very common, assumptions about where dealers buy most of their coins.
From what i understand you can find a lot of coins for bargains' in Estate and Government seized property auctions.
