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David Geller

David Geller: Everyday Low Prices

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Negotiating discounts with customers is a slippery slope, writes David Geller.

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Should you negotiate price with your customers?

[h3]Everyday Low Prices[/h3]

[dropcap cap=W]hat a topic! Everyone wants a bargain and the American public has been taught to wheel and deal. The sale mentality is everywhere: Car sales, clothing, computers, shoes, office supplies. Jewelry? Are you kidding me? We’re the kings (and queens) of wheeling and dealing![/dropcap]

Many jewelers will mark up their prices, merely to provide wiggle room for discounts they use to make a customer feel comfortable and that they received a good “value.” There are two arguments as to whether you should do this or not.

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[inset side=right]Even though you’ve marked an item up to mark it down, you’ll probably end up discounting it even further to get the sale.[/inset]The pro-discounting argument goes “Everyone else does it” and that you must also discount simply in order to compete. A sale brings in traffic and a nicely-run sale can increase cash flow. (But please notice that I didn’t say “profits” right off the bat.)

The anti-discounting argument is even larger. From square one, you’ve set yourself up for every sale by these customers to be discounted. But the worst part, in my mind, is this: Even though you’ve marked an item up to mark it down, you’ll probably end up discounting it even further to get the sale. And, chances are, if pushed hard enough, you’ll end up selling it below that magic dollar number that you had established as your cushion.  

I can tell you from my travels to stores and phone conversations that retailers who have decided to stop discounting and adopt a “one-price-for-everyone” policy make more money. They pay their bills on time and usually make a larger gross profit percentage. Closer to 50%, while others wheel and deal and end up with a 42-46% margin overall.  

If you discount as a business practice, don’t get me wrong: sure, it can work in your favor. But as Sir Isaac Newton said “For every action, there is an equal and opposite reaction.” If you sell for less you must then sell more units (turn). And if you find that your discounting doesn’t increase sales, then you’re losing ground.  

To sell those additional units, you have to close more people. If 10 people walk in and you sell three, your closing ratio is 30%. If you could sell four out of 10 you’d increase sales by a whopping 30%. Here’s some ways you can make that happen:

[dropcap cap=1.] One reason why you could sell more units by increase your closing ratio is because your sales staff is better trained. That’s sales training.[/dropcap]
[dropcap cap=2.] Another reason you could sell more actual units is because you have more humans walking through the front door. That’s advertising and marketing.[/dropcap]
[dropcap cap=3.] Still another reason you could sell more units is you actually had the products in stock that the customers wanted (not what you thought they wanted) and you had it at the price they wanted to pay. If every sale seems to be a struggle, this could be a big reason. This is a purchasing and merchandising function.[/dropcap]

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Let’s look at the numbers. You’re going to buy an item at $100 and either hike up the price in order to discount it … or just mark it at a normal price and stick to your guns. Look at these two examples and see how many more units you have to actually sell to get the same gross profit dollars in a year.

[h4][b]No discounting-one low price[/b][/h4]

Cost: $100
Selling Price: $195
Gross Profit: $95
Gross Profit(in one year selling 100 units: $9,500

[h4][b]Higher mark up, then discounted[/b][/h4]

Cost: $100
Tagged at: $240
Discounted: $168
Gross Profit: $68
Quantity sold required to reach $9500 gross profit: 140.

You have to sell 40 more units!

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Wow. Just to keep up, if you now sell 3 out of 10 people you have to sell 4.2 out of 10. Can you and can your staff do that? Well, you’ll have to if you want to make up for all those big discounts you just handed out.  

You can run your own numbers, and see where you’ll end up with different pricing approaches. Let’s say you try to sell the item for the full retail price of $240, not $168 or even $195. In that case, to make $9,500 in gross profit dollars, you’d only have to sell 68 units — 32% fewer sales you’ve have to make to still gain $9,500. Hmm.

Of course, it may be harder if your competition is selling for less. But a lot of the resistance you’ll encounter can be overcome with better sales training, or smarter purchasing.

It may be tough to convert and retrain the customers to your new “everyday low pricing”. It may even take a year. But after you finish that bottle of Pepto Bismol, you’ll be set.

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 July 2004 edition of INSTORE[/span]

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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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David Geller

Close More Sales, Courtesy of David Geller’s Uncle Irv

These four “tricks” from an old sales pro will help you make more money in your store.

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MY UNCLE IRV WAS the No. 1 car salesperson for every single dealership he ever worked for. When he retired in 1987, he was the No. 1 Jaguar salesman in the United States. Here are some tips I learned from Uncle Irv that will help you make more sales today.

TRICK 1

My Uncle Irv had a Rolodex, and while the salesmen on the floor waited for a “hot one,” Uncle Irv was calling his previous customers to see if:

  • They had friends looking for a car.
  • Their lease was up and it was time to buy.
  • They were getting tired of the older model he sold them years ago.

He made appointments while the rest sat around and waited.

Tip from Uncle Irv: Call your customers twice a year to just say “hi.” Contact them or their spouse about milestone dates for gift ideas.

TRICK 2

Uncle Irv fought in the Philippines, and at age 26, he was considered an “old soldier.” He told me they were preparing to go to battle and a 19 year-old started to cry. The sergeant came to the private and asked, “What’s wrong?”

“I’m scared, Sarge. I don’t want to go.”

The sergeant replied, “You don’t have to go, son. You just can’t stay here!”

In the 80s, I almost went bankrupt. Uncle Irv told me this story and said, “David, you just can’t stay here where you are now.” So, I got up enough gumption, fired half of my 16 employees, started over, developed the price book, and a year later, started to make it back.

Tip from Uncle Irv: You can’t keep doing things the way you have been. Times are changing and you must change, too.

TRICK 3

When Uncle Irv was the sales manager of a big Chevy dealership here, he had to motivate and train the sales staff, but also give them confidence when times were tough. You’ve had the same feeling: it’s getting close to having to make payroll, funds are low and you’ll take any price to get money into the bank account. Uncle Irv didn’t want to have the salesmen look at a walk-in customer as their last meal ticket and give away the farm.

Out of his own pocket, he gave each salesman three $100 bills to carry around at all times. He wanted them to feel like they didn’t need the sale, so that they wouldn’t discount so much.

Tip from Uncle Irv: In one way or another, throw money and jewels at your sales staff. Make them feel and look richer, and they will sell better. I used to let my staff buy or custom-make any piece of jewelry at 10 percent above our cost and take it out of their paycheck over six payroll periods.

TRICK 4

Uncle Irv told me that many salespeople are afraid of silence. He said, “Tell the customer the price and then shut the hell up!”

Scenario: You tell the customer $1,495 for the ring, and then there’s silence. Twenty seconds go by and you’re thinking “OMG, they aren’t saying anything. They are going to bolt or go online. Maybe I should give them a discount; I need this sale.”

Meanwhile, the customer is thinking, “Hmm, let me see — rent is due Friday, car note next week, summer camp dues in three weeks. No — I’m OK, I can do this.”

The first person who breaks the silence will give up their money to the person on the other side of the showcase.

Uncle Irv also brought his lunch every day. He told me, “I can’t afford a $500 hamburger.” (You’ll get it.)

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