David Geller: Financial Translator
Successful jewelers may not be able to articulate the fancy terms, but they know the meaning behind them
BY DAVID GELLER
Published in the November 2013 issue.
Just what financial indicators do you need to be a great jeweler? They are so confusing.
Do you like to impress your friends with such terms as:
Profitability ratios
Liquidity ratios
Operating ratios
Solvency ratios
ROI
GMROI
Current ratio
Debt to assets
Debt to net worth
Enough already! My head is swimming too. Who talks this way, anyway?
Your accountant, your banker and maybe some business advisers. That’s who. What do you do when they say, “Your debt to assets is out of kilter”?
“Forgetaboutit!”
I’ve met many a successful jeweler who could tell you anything but his profit margin, and many times he couldn’t tell you that nor his net profit. All he could tell you is this:
I pay myself a good salary. Have a good home and put several kids through school. We have virtually no debt.
We could pay off our vendors if we wanted to.
Everything is paid for.
We have money in the bank at all times.
We pay the staff well.
Sales continue to grow. We’re happy.
My kids might like to take over
As far as ratios go, he doesn’t even know how much flour to milk to make biscuits.
But successful jewelers are using some of these numbers and ratios and just don’t realize it.
WHAT THE JEWELER SAYS: “I make good money when I sell.”
WHAT THE EXPERT HEARS: “Good gross profit margin.”
Typically, these jewelers are trying to get keystone or more overall in the store. When they sell diamonds they know keystone may no longer be achievable, but they don’t try to compete on price with Blue Nile. Instead, they service the heck out of their customers.
WHAT THE JEWELER SAYS “I don’t let it sit in the store too long. If it doesn’t sell in six to nine months I’m going to dump it. It’s outta here!”
WHAT THE EXPERT HEARS“Turn.” These jewelers may not even know a good turn in the jewelry industry is “1” or better. Meaning if you buy it in January it’s gone by New Year’s Eve. They don’t want to see stale merchandise, their staff doesn’t, and, sure as shooting, customers don’t want to see the same thing over and over. They want to see fresh and new.
WHAT THE JEWELER SAYS “I’m not going to buy more than I can sell in a season.”
WHAT THE EXPERT HEARS“GMROI — Gross Margin Return on Investment.”
Making money is easy. Having money is something else. Not stocking more inventory than you can sell in one calendar year will give you fresh inventory that sells faster, thus giving you a better turn and more profit dollars. There are two numbers of how much to buy. If your product sales are $1 million for the year and your profit is $550,000, then the most you should have in inventory is $450,000 (or less). Another way to look at it is by price category. If in the $200 to $500 category you sold 24 units last year, don’t stock more than 24 this year. If you have 43, you’ve got too much in quantity, which also adds up to dollars.
When these jewelers sell diamonds they know keystone may no longer be achievable, but they don’t try to compete on price with Blue Nile. Instead they service the heck out of their customers.
WHAT THE JEWELER SAYS“We give bonuses and commissions when the staff sells, and they can sell!”
WHAT THE EXPERT HEARS“Sales staff costs versus sales income.” The same thing that motivates the boss motivates the staff. In addition to motivating the staff, paying more sales wages when sales increase and less when they don’t tends to keep sales staff costs in line. Sales staff costs should be roughly 10 percent of their own sales — think between 8 and 13 percent.
WHAT THE JEWELER SAYS “We’re one big happy family. We meet to discuss store items two to three times a month.”
WHAT THE EXPERT HEARS“Sales training and store meetings.” How do you become one big happy family? Increase camaraderie? Come together for regularly scheduled store meetings. Train the staff on how to sell; handle customers; product knowledge. Stores that train also have better financial health. Even though there’s virtually no cost to training, its benefits fall right to the bottom line.
WHAT THE JEWELER SAYS “Customers tell us they hear our ads all the time. We’re always busy.”
WHAT THE EXPERT HEARS“Spending 6 to 10 percent of total sales on advertising.” These jewelers know that you’re better off to advertise all 12 months rather than spending everything in the last quarter. You want customers to be aware of your store always. When times get tough these jewelers never cut advertising. Sometimes they’ll even buy remnant ads for extra bang for the buck.
WHAT THE JEWELER SAYS “We have very little debt and I like it that way. I have plenty of money in the bank.”
WHAT THE EXPERT HEARS“Debts to assets ratio.” This is made up of all the activity the owner does concerning
Inventory management
Shop profits
Reordering fast sellers
Returning to vendors items of theirs that won’t turn or sell
Discounting items that are over a year old and giving extra bonuses to the staff to unload old inventory
Not accepting inventory over 18 months and scrapping it if necessary to get money to buy more saleable merchandise
Giving the staff a piece of the action rather than a flat hourly wage
Advertising consistently all year If you told these jewelers that they are doing what other successful retailers are doing and they are masters of financial formulas you’d probably hear “I have no clue what you’re talking about. I just believe if it ain’t broke, don’t fix it.”
WHAT THE JEWELER SAYS “We’ve got a jeweler who’s been here for years and she’s the best. We pay her well so we’re not going to give our labor away, no sirree, Bob. People trust us and we do darn good work.”
WHAT THE EXPERT HEARS“Repairs are not pricesensitive, they are trust-sensitive.” Good owners know that the shop should make the same gross profit margin as merchandise sold from the case.