Concluding our discussion, John gives a dealer perspective on price gouging claims, counterfeit coins and bullion, and what the future holds for Modern Coin Mart.
SE: I want to stay in the collector’s world for a bit, because I absolutely have to ask you about this Perth Mint statement that I still can’t wrap my head around. I was one of those guys hammering the Perth website a week or so ago trying to get that new Poseidon coin, and amazingly, I got it some seven hours later. Obviously there were lots of complaints – completely valid – about the website crashing and so forth, but many looked at the explosive premiums in the secondary market and cried foul. Perth had a reasonable response in a blog post that said that dealers did not receive preferential treatment and that Perth cannot control their pricing. What floored me, though, was a follow-up response in that post’s comment section where a Perth representative stated that of the entire 1,500 minted, dealers received an astonishing 80%. That’s only 300 out of 1,500 for ‘direct sale’ to the public – crazy! On one hand, Perth disavows responsibility for premiums by stating the dealers are their own entity under law. On the other hand, they make a decision to continue to allocate 80% of their mintage to those same dealers who Perth should almost certainly know will mark the product up substantially – if only because they just did that with the preceding Zeus coin. I’m not blaming the dealers; if there are buyers at $400 then dealers have every right to try to sell there. MCM is a Perth distributor and Perth is no doubt a partner of yours, but is what happened on these Gods of Olympus coins more like the exception or the rule? Is it some sort of political suicide for the mint to ‘disconnect’ the dealer network for a product launch in which they’d almost certainly sell out on their own?
JM: Why would secondary market prices prompt anyone to cry foul? The marketplace will always determine the current price level for any given item. As for dealer allocations, you must remember that while the average collector is ultimately in this for themselves and for their own purposes, so are the mints and the dealers. You can’t lose track of the fact that in order for any mint or a dealer to be successful, they must run their company as any business would which includes decisions that will not only best serve the retail customer but insure financial stability and a healthy bottom line. Without dealer networks, the vast majority of mints around the world would likely not be able to remain open if they had to rely on direct sales only. If Perth was to refuse sales to dealers on coins that had a high probability of success based on knowing they could sell all of them directly to end users eventually they would lose a big piece of business from those same dealers and rightfully so. Suppose General Motors decided they were no longer going to ship Corvettes to dealerships because it is a popular car and began only accepting orders for that vehicle direct? How do you think the dealerships would respond?? Perth and other mints will allocate whatever percentage of a given mintage of coins however they choose which will probably be the manner that serves them best, as it must be.
SE: From the standpoint of a typical collector, though, I think there’s precedent to question these things while still appreciating that dealer networks make getting the latest kookaburra, crocodile, or koala release available at competitive prices possible. I don’t believe that those who were upset about the Poseidon coins want dealers to go away, but perhaps retool the system a little. For example, this website was one of the first to suggest that the 2010 launch of the America the Beautiful 5oz silver series was facilitating price gouging. Clearly, it wasn’t a hollow claim as the US Mint made a remarkable shift in their policy to enact a price control system just days later which capped dealers to a 10% premium. Were they right to do this or was it an overreach on their part? I revisited my original post on that subject and outside of opining that it was bad PR for the offending dealers, I mostly blamed the Mint for effectuating a subsidy to the dealer network. After all, with a public mint created in layers of taxpayer dollars (although self-sustaining today) designed to serve the collecting public, why shouldn’t collectors have an expectation of pricing? I’m not sure MCM’s level of engagement in that launch, but in your view, would the ATB market be any different today in terms of liquidity or pricing if the Mint had done nothing at all?
JM: Re-tooling would have to be on a mint by mint basis as each has different objectives. The U.S. Mint for the most part operates outside the parameters of most other mints, as they do not view profit as one of their primary goals. This is presumably why they place so little emphasis on cultivating and growing dealer relationships or implementing a multi level distributor system that includes all items they produce not just bullion. The 2010 ATB debacle was so long ago in my mind that it isn’t fresh anymore. Where it failed was in limited production which created huge temporary demand. As a bullion product, in retrospect, these should have been minted according to demand and if that occurred I think the program overall would be far more successful today. Setting prices that the Authorized Purchasers can charge is within the rights of the USM (I think) but parameters should be established in advance. Once the coins are distributed from the AP’s to thousands of other dealers, price control is not possible. MCM reacted to the situation as we do any other new product we decide to stock- which is to sell it according to our interpretation of the prevailing marketplace demand. We strive to have lowest e-tailer pricing at all times, but of course that isn’t always the case as markets move quickly and lower prices can always be found if buyers are willing to take on higher risk factors.
SE: Over the last year, there’s been a fair number of headlines about fake gold (tungsten) and counterfeit silver coins. How big of a problem would you say this is in the industry right now? I’ve noticed several private mints have been machining security features on their products, including Sunshine’s Mintmark SI. Scottsdale and the Perth Mint have also recently used lenticular machining which would also seem to be more difficult to copy. Do you see these types of features gaining traction with the public?
JM: Honestly, while I do understand the severity of the problem, we haven’t seen this to be an issue at all in terms of concern expressed to us from buyers. That may just be because our customers are largely repeat buyers and they trust us and the integrity of our products. Now you may be thinking I just took advantage of an opportunity to plug MCM but that’s not the case. If a buyer is purchasing in a random manner from whoever offers the lowest price without being cognizant of who they are dealing with, then they have cause for great concern. If it makes the buyer feel better to buy bullion and coins that have security features that’s great. However, when it comes time to sell, it’s very unlikely that security features vs no security features will make a difference. Almost every brand name of bullion, including our own MCM Star by Sunshine has been counterfeited and sold out of China. If you think for one second you are getting the real deal for ten cents on the dollar then shame on you. The bigger crooks are those that buy the counterfeit goods knowingly and resell them as genuine here in the U.S. Many of the counterfeit goods have been seen on AliExpress. We have contacted them on more than one occasion and they have immediately removed the listings that we have identified. From my experience in dealing with the higher ups directly and the swift action they have taken, I believe they do not condone this activity and wish to eradicate it.
SE: What’s next for Modern Coin Mart? We’ve already discussed your dominant position on eBay. You’ve got a highly-popular bullion offering in your MCM Star line and MCM poured bars. Your team even designed the legal-tender 2014 Tuvalu ‘Florida Natives’ Alligator with the Perth Mint. Fair to assume that we should be looking for even more from MCM in the future?
JM: We have three more legal tender coin designs that will be released between now and January. The first will be in conjunction with the summer ANA Convention in Chicago and is very limited and almost certain to be a big hit. The second is still completely confidential, and the third will be the follow up to the Florida Natives Series Alligator which will be released in conjunction with the January FUN Show. Our website has seen many improvements and there are many more to come. I believe MCM will continue to grow at a remarkable rate this year as we gain more marketshare and with the competitive landscape now in retraction. In the past three or four years, dozens of new modern coin and bullion companies have emerged, some well funded with slick websites and marketing prowess, but most with little or no background in the business and it’s clear to me that virtually none of them will thrive or even survive short of the emergence of a sudden sustained bull market. Sadly, even a more established competitor is now defunct. As we approach our 10th anniversary on June 21st, we are extremely proud that despite the bearish environment for metals, MCM has seen sales volume grow year after year and has never recorded a loss in any given year since inception. We’re excited about the future as we are well positioned and there are at least two new corporate giants, and I do mean BIG, that are already moving into our space providing proven platforms that have the potential to be huge sales channels for coins and precious metals.