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David Geller

David Geller: Are You High?

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David Geller asks if you have the price points you want to sell, or those your customers want to buy.

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[h3]Are You High?[/h3]

[dropcap cap=M]ost jewelers “stock up” for Christmas and this is when almost all of us get into trouble. January is not the time to be in debt — it’s the time to have buckets of cash left over, even after paying off your bills.[/dropcap]

Most jewelers that I visit get into trouble because they either:

A. Buy more than they need for the season, or:

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B.They buy higher-priced goods than they usually do, thinking that all their male customers will decide that this is the year they will go to the local jeweler, throw wads of cash on the table, and buy their honey the perfect gift.

But, as the song goes “It ain’t necessarily so.”

Thank goodness you have been using your Point-of-Sale software. You have, haven’t you? If you’re still in the dark ages, go to the back of this magazine and call any of these folks and get one. Sheesh!

You don’t know how many jewelers have told me how they buy higher-priced goods for December because “we sell a higher-ticket item during Christmas”. Well, let’s find out.

From your POS system, run a report from January, 2003 through October 31, 2003 and have it summarize by department (i.e.: earrings, engagement rings, colored gemstone rings). Then run another report for November 1, 2003 through December 24, 2003.

It might look like this:

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DepartmentUnits SoldTotal Sales
Earrings181$45,250
Eng. Rgs160$140,000
Color Rings360$100,440

Divide the total sales of each line by the units sold to get your average sale. You want to do this for the Jan-Oct report and the same thing for the Nov-Dec report. You want to see if it’s actually true that people are buying higher-ticket items during Christmas or if you just have more humans in the store, still buying the same old stuff — just more units.

At one store I visited, I ran the owner’s report and discovered that he sold the same average-price per item during Christmas, but at three times the average monthly volume — more units sold. He was always having a tough time paying bills in January. Know why? He was left with the very expensive, higher-end inventory that he had just purchased and now owed money on for January.  

Running this report will let you know if you should stock higher-end items or just order more units. Getting an average price per sale is a good place to start … but you must take your findings with a grain of salt. Let’s use the example above of the gold earrings, selling 181 units for $45,250. That gives us an average sale of $250. If you run an itemized report, you’ll see pages and pages of individual sales for all 181 items. You’ll see prices ranging from, let’s say, $39 to $750. It all averages out. But it wouldn’t hurt to skim the detailed report in search of anomalies. For instance, imagine you had three sales for high-end, special-order earrings at prices of $1,450; $2,350 and $1,950. These three out of the 181 skewed the numbers higher. Since these are special orders, we’d take those three sales out, they are a fluke.

[inset side=right]Running this report will let you know if you should stock higher-end items or just order more units.[/inset]Now we have left 178 units sold and our average sale is $221. Not a gigantic change but I hope you see the point. By viewing the detailed report you can see you sold three high-end pieces — so there’s no need to buy 15 now, is there? Of course, your study might show a different phenomenon: your overall number of sales flat, but ticket-price per sale way up. In that case, you definitely do need to stock up on the pricey stuff.

For those of you without a POS program, you can make a list of the sales from last year from your hand-written receipts into Excel and get your lists and averages that way.  

Now how about the number of units you need? This gets into your “Open to Buy” plan. This plan tells you how many units you will expect to sell and thus how many units you’ll need to keep in stock to sell them from. If you have 31 and you sold 39 in November and December last year, you’ll need at least eight more. But that would leave you with zero for January. If you normally have on hand 12 for January (there are birthdays the first two weeks of January you know), then you’ll need to have 39 on hand for the season and then another 12 to get you into January … for a total of 51.

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While there are many more detailed and more powerful methods of determining what to buy, that’s the quick-and-easy method: run reports by department and see how many units you have going into October. Subtract what you sold during last year’s Christmas selling season. Then subtract your desired inventory to start off with in January. Boom! That’s the number of units you’re open to buy.

Here’s to a great holiday season, smart buying, skillful selling, and lots of profit.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at dgeller@bellsouth.net.

[span class=note]This story is from the October 2004 edition of INSTORE[/span]

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David Geller

Can You Make Money at 12 Percent Margin? Yes, But Here’s What It Takes

As one factor decreases, another must increase.

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CAN YOU MAKE a living on a profit margin of just 12 percent? Did the word no come to mind? You’re wrong.

For coin or bullion dealers, 8-12 percent gross profit margin is the norm, and they make a lot of money with little debt.

The “magic triangle” includes profit margin, inventory turn and inventory level. The combination of all three tells your future in a store, how much money will be left over to pay all bills and have money in the bank.

Let’s take a simple store math example for a year using keystone. A typical jewelry store would have a net profit of 5 percent. Here’s how a P&L would look:

Total Product Sales: $500,000
Cost of Goods: -$250,000
Gross Profit: $250,000
Expenses (45%): -$225,000
Net Profit (5%): $25,000

Are you making money? Absolutely. Do you have any money left over after paying expenses? Depends.

Imagine if last year, you sold everything at Christmas, not a stitch of inventory left. January 2nd, you fly to New York with three suitcases and buy the $250,000 of inventory that the cost of sales above pays for. You’ll have no debt. If something sells within six months, you have the money to reorder the replacement for the case, thus always having a stocked showcase.

Divide $250,000 in cost of goods by inventory of $250,000 and you get one turn a year.

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Now assume the same figures above, but instead of three suitcases costing $250,000, you bring five suitcases and bring back $600,000 of inventory for the store. Same sales and profit numbers as before. Did you make a profit, make money? Yessiree Bob! Do you have money? No! You bought $100,000 more inventory than the sales you took in. So how do you pay for it?

  • Owe vendors way past the due date
  • Put it on credit cards
  • Go to bank and take out a line of credit
  • Personally skip paychecks
  • Take money from your personal checking accounts

In this scenario, your inventory is $350,000 higher than the cost of goods sold. Divide cost of goods by inventory level, and it shows you have a 0.41 turn. A turn of 0.41 means this store has more inventory than needed for two years.

So, what’s the secret to having money?

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The long and short of it is, if you’ll keep your inventory levels approximately equal to the gross profit dollars you’ll make over a year, you’ll both make money and have money.

The lower the profit margin, keep inventory lower, or if you must have a higher inventory level at lower margins, then turn it faster. Instead of taking 12 months to sell it, sell within nine.

It takes all three for The Magic Triangle to work magic in your store!

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David Geller

What You Can Learn About Turn from Clothing and Furniture Stores

Hint: Turn more, earn more.

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THERE ARE REALLY only three important numbers in a retail store: gross profit dollars, inventory on hand, and inventory turn. So who’s better at managing money among these three retailers?

Store                         Gross Profit %
Jewelry                      42.6%
Furniture                  45.0%
Clothing                    46.5%

Darn close, aren’t they? The grass isn’t so green on the other side after all. Or is it?

Let’s look at inventory turn, which means how many times a year an item sells. (These numbers are from stores doing “pretty well.”)

Store                            Turn            Days in the Store
Jewelry                   1.4                       260
Furniture               3.5                       104
Clothing                 4.3                       84

A clothing store won’t keep a shirt/suit/jacket/blouse in the store more than three to four months. They will heavily discount it at that point to get it out the door; they don’t just “squash” merchandise closer together to show more like jewelers do.

Furniture stores work the same way. They have a natural problem: available floor space. The biggest reason for high turn in a furniture store was told to me by a furniture store owner: “Where am I going to store an extra 100 mattresses?”

Clothing stores get rid of their merchandise every quarter. Furniture stores get rid of their inventory every four months, and a good jeweler turns their merchandise a little over once a year. But most jewelers I meet have had their total merchandise for two-and-a-half to four years! This causes terrible cash flow and piles of debt.

If you buy jewelry in January, it should sell at least once by Christmas; that would be a turn of 1.0. If it stays until after Christmas, discount it or give a spiff to the sales staff to unload it, or even return it to your vendor and exchange it.

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If it is still there in 18 months, scrap it. That’s what clothing and furniture stores do.

Let me show you the money-making power of turn. All three stores are going to buy an item for $200. For a jeweler, this might be earrings; for a clothing store, a nice jacket; and for a furniture store, it might be a chair. In the table below you can see the cost, profit margin in dollars, and what that brings in for total product dollars in a year.

Keeping an item long-term is a detriment. Even if someone buys it three years from now, you should have had that $207 in profit for each of the three years, totaling $621 brought into the store (not the measly $163.35 you would make by holding it three years).

When it’s over a year old, most things need to be disposed of and replaced. Maybe your customers just aren’t buying what you have in stock. Change that!

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David Geller

Here Are a Few Tips You Haven’t Seen to Make the Most of Your Bridal Custom Designs

They’re simple yet brilliant.

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IT’S 2019, AND it’s not your daddy’s jewelry store anymore. No more high margins on diamonds. Where’s the money now? The mounting.

Keystone is the goal, and many get it on the mounting, but comparison shopping can make it difficult. That said, the really big problem with selling from the showcase is the amount of inventory you must carry.

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On the other hand, custom designing an engagement ring has many advantages:

  • Higher profit margins
  • You pay for the item after you’ve collected money from the customer.
  • The customer feels like they are directing the process rather than being “sold.”
  • If you share the process of designing their ring with the customer, they will likely share with their friends and family. It’ll be on social media, texts and emails.
  • You can adjust which components go into the ring to more fit their budget.
  • Selling from the showcase has a closing ratio of 30 percent in most stores, but custom design has a closing ratio of 70-80 percent.

The downside? Someone must know how to design the ring, how it comes together and pricing. Training is essential, or having someone specific to sell the ring and lead the customer through the process. Figuring out how to price the item requires particular skills.

Here are some additional tips to make the most of your custom design process:

  • While designing the ring, if you use CAD/CAM, take a snapshot of the model on the screen and send it to the customer, saying something like, “Well, Jim has gotten started on your beautiful design.” If you hand-carve the wax or mill it, take a picture and send by text or email. Same goes for the casting process and another of the jeweler finishing up the ring.
  • When appropriate, send out a handwritten thank-you note.
  • Go to Office Depot and buy a pack of 100 sheets of do-it-yourself business cards. Make yourself a master blank company business card with no logo, just everything else about your store. Take a good picture of their new ring and paste it on the card, then print a sheet of 10 and have it in the envelope when you deliver the ring.

After they “ooh and aah” over the ring, tell them, “I’m glad you love it. You know, we have more customers come in from referrals than anything else and would love for you to refer family and friends. Here are some of our cards.”

Then plop them down on the showcase face up.

They will be so excited that they will not only place one on their refrigerator door, they’ll give them out to friends and show everyone how their ring is on “my jeweler’s business card.”

Isn’t this a fun business?

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