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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 If no one buys an item in your store within a year, it’s outdated.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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SPONSORED VIDEO

When There’s No Succession Plan, Call Wilkerson

Bob Wesley, owner of Robert C. Wesley Jewelers in Scottsdale, Ariz., was a third-generation jeweler. When it was time to enjoy life on the other side of the counter, he weighed his options. His lease was nearing renewal time and with no succession plan, he decided it was time to call Wilkerson. There was plenty of inventory to sell and at first, says Wesley, he thought he might try to manage a sale himself. But he’s glad he didn’t. “There’s no way I could have done this as well as Wilkerson,” he says. Wilkerson took responsibility for the entire event, with every detail — from advertising to accounting — done, dusted and managed by the Wilkerson team. “It’s the complete package,” he says of the Wilkerson method of helping jewelers to easily go on to the next phase of their lives. “There’s no way any retailer can duplicate what they’ve done.”

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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.

Advertisement

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.

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.

Advertisement

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

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

Advertisement

SPONSORED VIDEO

When There’s No Succession Plan, Call Wilkerson

Bob Wesley, owner of Robert C. Wesley Jewelers in Scottsdale, Ariz., was a third-generation jeweler. When it was time to enjoy life on the other side of the counter, he weighed his options. His lease was nearing renewal time and with no succession plan, he decided it was time to call Wilkerson. There was plenty of inventory to sell and at first, says Wesley, he thought he might try to manage a sale himself. But he’s glad he didn’t. “There’s no way I could have done this as well as Wilkerson,” he says. Wilkerson took responsibility for the entire event, with every detail — from advertising to accounting — done, dusted and managed by the Wilkerson team. “It’s the complete package,” he says of the Wilkerson method of helping jewelers to easily go on to the next phase of their lives. “There’s no way any retailer can duplicate what they’ve done.”

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