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David Geller: Get Rid of Those Duds

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Hasn’t sold in a year? Dump it. Here’s why.


Having a profitable year has a lot more to do with how well you handle inventory than making a profit on an item when you sell it.
So, let’s get something straight. If no one buys an item in your store within a year, it’s outdated. You buy inventory for only one reason: As an investment that will pay you a profit later. “Later” in a jewelry store is defined as within the next 365 days.  

 

Here’s why:

Buy an item Jan. 1 for $100 and expect to sell it by Dec. 31st for $225. After 12 months you should expect to get your original $100 investment back plus a gross profit of $125.

Look at it monthly, though, and you’ll begin to get antsy after a year. On the $100 item, we need $125 in profit. Divide the $125 in profit by 12 months, and another way of looking at it is that item needs to give us $10.42 a month in gross profit.

So for each month it does not sell, the item owes you $10.42. Think of it like loaning a friend $100, and each month he owes you $10.42 in interest. High rate? Yes, but this interest also has to pay for salaries, rent, advertising, etc., so it must be that much.

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So if you held the item for 18 months, the accumulated gross profit is $187.56. You’d need to sell it for $287.56 instead of $225.  If it stays there for three years then it has to sell for: 36 months x $10.42 = $375.12 + $100 original cost = $475.12!

It was tagged at $225 but now must sell for $475.12. If it does, you’ll make exactly the same amount as it should have just buying and selling it once a year, three times over three years.

Can you wait three years to collect your money and still pay your overhead? No!

Is a customer going to pay almost double for a 3-year-old dud? No!

If this item stays for another three years, you’ll be down another $475.12 in lost profits. So in the third year, let’s assume you get your cost out of it (give up on making a profit, Charlie) and you buy a different item for $100. But the difference is, now it sells every year. It’ll make $475 for the next three years rather than losing $475.

You can’t make up for what happened in the past, but you can make up for lost time and profits in the future.

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Take the hit and move on. This happens to be what other retail industries do. Clothing industries dump merchandise at the end of a season. How long is a season for them? Three to four months. So consider yourself lucky.

 


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

This story is from the October 2010 edition of INSTORE

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Four Decades of Excellence: How Wilkerson Transformed a Jeweler's Retirement into Celebration

After 45 years serving the Milwaukee community, Treiber & Straub Jewelers owner Michael Straub faced a significant life transition. At 75, the veteran jeweler made a personal decision many business owners understand: "I think it's time. I want to enjoy my wife with my grandchildren for the next 10, 15 years." Wilkerson's expertise transformed this major business transition into an extraordinary success. Their comprehensive approach to managing the going-out-of-business sale created unprecedented customer response—with lines forming outside the store and limits on how many shoppers could enter at once due to fire safety regulations. The results exceeded all expectations. "Wilkerson did a phenomenal job," Straub enthuses. "They were there for you through the whole thing, helped you with promoting it, helping you on day-to-day business. I can't speak enough for how well they did." The partnership didn't just facilitate a business closing; it created a celebratory finale to decades of service while allowing Straub to confidently step into his well-earned retirement.

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David Geller

David Geller: Get Rid of Those Duds

mm

Published

on

Hasn’t sold in a year? Dump it. Here’s why.


Having a profitable year has a lot more to do with how well you handle inventory than making a profit on an item when you sell it.
So, let’s get something straight. If no one buys an item in your store within a year, it’s outdated. You buy inventory for only one reason: As an investment that will pay you a profit later. “Later” in a jewelry store is defined as within the next 365 days.  

 

Here’s why:

Buy an item Jan. 1 for $100 and expect to sell it by Dec. 31st for $225. After 12 months you should expect to get your original $100 investment back plus a gross profit of $125.

Look at it monthly, though, and you’ll begin to get antsy after a year. On the $100 item, we need $125 in profit. Divide the $125 in profit by 12 months, and another way of looking at it is that item needs to give us $10.42 a month in gross profit.

So for each month it does not sell, the item owes you $10.42. Think of it like loaning a friend $100, and each month he owes you $10.42 in interest. High rate? Yes, but this interest also has to pay for salaries, rent, advertising, etc., so it must be that much.

Advertisement

So if you held the item for 18 months, the accumulated gross profit is $187.56. You’d need to sell it for $287.56 instead of $225.  If it stays there for three years then it has to sell for: 36 months x $10.42 = $375.12 + $100 original cost = $475.12!

It was tagged at $225 but now must sell for $475.12. If it does, you’ll make exactly the same amount as it should have just buying and selling it once a year, three times over three years.

Can you wait three years to collect your money and still pay your overhead? No!

Is a customer going to pay almost double for a 3-year-old dud? No!

If this item stays for another three years, you’ll be down another $475.12 in lost profits. So in the third year, let’s assume you get your cost out of it (give up on making a profit, Charlie) and you buy a different item for $100. But the difference is, now it sells every year. It’ll make $475 for the next three years rather than losing $475.

You can’t make up for what happened in the past, but you can make up for lost time and profits in the future.

Advertisement

Take the hit and move on. This happens to be what other retail industries do. Clothing industries dump merchandise at the end of a season. How long is a season for them? Three to four months. So consider yourself lucky.

 


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

This story is from the October 2010 edition of INSTORE

Advertisement

SPONSORED VIDEO

Four Decades of Excellence: How Wilkerson Transformed a Jeweler's Retirement into Celebration

After 45 years serving the Milwaukee community, Treiber & Straub Jewelers owner Michael Straub faced a significant life transition. At 75, the veteran jeweler made a personal decision many business owners understand: "I think it's time. I want to enjoy my wife with my grandchildren for the next 10, 15 years." Wilkerson's expertise transformed this major business transition into an extraordinary success. Their comprehensive approach to managing the going-out-of-business sale created unprecedented customer response—with lines forming outside the store and limits on how many shoppers could enter at once due to fire safety regulations. The results exceeded all expectations. "Wilkerson did a phenomenal job," Straub enthuses. "They were there for you through the whole thing, helped you with promoting it, helping you on day-to-day business. I can't speak enough for how well they did." The partnership didn't just facilitate a business closing; it created a celebratory finale to decades of service while allowing Straub to confidently step into his well-earned retirement.

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