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David Geller

David Geller: Aye, Resolve

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Looking to have a better 2003? David Geller’s got a list of New Year’s resolutions that all jewelers should think about.

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[h3]Aye, Resolve[/h3]

Repeat after me … I resolve to:

[dropcap cap=1.] Devise an advertising plan and budget and keep it going all 12 months long. Everyone I have spoken to this year that was doing well was either in a fabulous location or they were constantly advertising. Plan on spending a combination of rent and advertising that equals 13 percent of sales. So if rent is four percent, spend nine percent on advertising. Take that number and divide it by 13. Spend 1/13th of the total every month; spend 2/13ths (double) in December.

As written in the book The 33 Ruthless Rules of Local Advertising, you should use audio (TV or radio) along with visual advertising (billboards, newspapers, direct mail). No matter what, allocate some of your dollars to direct mail.[/dropcap]

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[dropcap cap=2.] Reduce my inventory to have a total value at cost not to exceed the total amount that I sold from the case last year.

Can’t pay off all of your vendors this January? You bought too much. Your inventory levels shouldn’t be any more than what you can sell in a calendar year at cost. If you sold from the case (special orders and memo have to be taken out of the equation) $300,000 at cost, and you have $450,000 sitting in the case that you own, and you have a 50 percent gross profit margin … you can only pay for the $300,000 that you sold.

At this level your product sales would need a 66 percent gross profit margin to pay for all that didn’t sell. That means all products would have to be sold for triple key. Sorry, doesn’t happen, but that’s what you would need to pay for what’s still sitting in the case.

So what to do if this is you? Dump the extra $150,000 in inventory. Send it back to vendors, spiff it, and sell it at cost. Do whatever to get inventory levels down to cost of goods from the case equal to last year. If you keep it that way, you’d find this next Christmas: The amount you owe and can’t pay this year would be sitting in your checkbook with nothing to do in January, 2004.[/dropcap]

[dropcap cap=3.] Change my sales staff over to an incentive-based pay program. Your sales staff is already on commission now, just divide their W-2 by their sales. If they made $27,000 and sold $192,857, they received 14 percent of every sale. They are on 14 percent commission!

A salesperson should receive at least 50 percent of their paycheck from commissions. Anything less and they will have no incentive. If you put them on 100 percent commission, as we did, they could have a killer day! If your staff can never have a killer day (commission-wise) then they will always be “Can I help you?” type salespeople.

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In the example of $27,000 and $192,857 in sales, this person should have received $19,857 in wages (at 10 percent commission). This assumes the employee is allowed to sell all customers, not if you as the owner handle all big sales and only let them sell batteries and gold earrings. In this example the salesperson should have sold about $270,000. A system that’s not 100 percent commission could have paid the person five percent of all sales (including repairs) plus an hourly wage of $6.50. This would be an incentive for the saleperson to make some serious money and the store’s cost of sales would be at the level for better profits (10 percent, give or take).[/dropcap]

[dropcap cap=4.] Attend a Harry Friedman seminar (www.friedmangroup.com). I’ve written several times about how Harry’s seminar changed my store. In three days you’ll learn how to set goals, coach the sales staff and get things done. Harry changed me from a mediocre commission (two percent) plus wages to 100 percent commission. Sales jumped 45 percent that year.[/dropcap]

[dropcap cap=5.] Raise my prices on all repair and custom design prices by 20 percent. I see it all over. Two reasons why jewelers don’t do so well: 1. Too much inventory; 2. Not charging enough for services. Less than five percent of customers walk when you raise your repair prices (I’ve done the survey, folks). Still scared? If you charge $10 and do 100 jobs you’ll take in $1,000. At $12 you only need to do 84 jobs and you’ll still take in the grand. Would 16 people leave your store for a lousy $2? I don’t think so.[/dropcap]

[dropcap cap=6.] Turn over my payroll to a payroll service rather than doing it myself. If you really looked at the time and hassle, it’s worth it to not have to touch a 941, 940 or state form ever again. For a small fee, companies will print checks and pay your taxes. All you do is place the paperwork in a binder, which they furnish. I use Paychex (www.paychex.com). You’ll save money because your bookkeeper won’t need a whole day to do payroll.[/dropcap]

[dropcap cap=7.] Open up a 401k retirement plan for myself and my employees. One of the best ways to keep staff. It used to be the owner of a small company couldn’t put away more than six percent of what employees put away collectively. Now the laws have changed. Check out www.paychex.com, where I signed up for mine.[/dropcap]

[dropcap cap=8.] Computerize my Point of Sale program and my accounting program. If you have inventory and customers there’s no way you can have a superbly run store without computerizing these two items. Some POS systems have accounting inside but more and more are going to no accounting and linking with QuickBooks.[/dropcap]

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[dropcap cap=9.] Plan out this coming year’s sale by month and decide what we must do to get those sales. Don’t wait for customers to come in. Track last year’s sales by month and add in this year your increase. Post the numbers needed week by week on a bulletin board and keep track daily. You’ll be amazed what you’ll do “to make the numbers”. Call customers, add ons, make a deal, promote. It’s all goal-oriented.[/dropcap]

[dropcap cap=10.] Plan a minimum of two one-week vacations out of town for me and my family. No one can have a fresh idea and feel 100 percent with customers and employees if they’re always stressed out. It’s usually slow the week of April 15. Plan a getaway now for then.[/dropcap]

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 January 2003 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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