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David Geller

David Geller: Moving on Up

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Expanding your store can be the best decision you ever make, says David Geller. But don’t bite off more than you can … pay for.

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Planning to expand your store or even move?

[h3]Moving on Up[/h3]

[dropcap cap=T]here are plenty of jewelers across the country doing well this year and many are relocating, renovating or enlarging their current space. Is this something you should consider? Absolutely![/dropcap]

There are several major questions that come to mind whenever considering this equation in our business life:

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1.) Can I afford to undertake it?;
2.) Will it increase my sales?; and
3.) Will my investment pay for itself?

[inset side=right]So increasing sales isn’t necessarily a good thing, is it? You need to increase sales as well as profit margins.[/inset] As to whether it will increase your sales, be sure to remember that mere sales increases aren’t always the solution to your problem. I know of a jeweler who moved from a small location to a store twice the size. Sales doubled and they almost went bankrupt. Why? With a larger store comes more square footage and with that comes more showcases. And what do you put in showcases? Inventory! They doubled their inventory. Funny thing was their product sales stayed at the same level as the old store. Only custom design sales jumped. So all of their custom and repair sale profits went to pay for inventory that didn’t move. They were worse off than before.

So increasing sales isn’t necessarily a good thing, is it? You need to increase sales as well as profit margins. You also want to draw in more, and higher-paying, customers.

One store owner I interviewed looked at remodeling his store as an opportunity to make the place bigger, better and also to change his store’s branding. Prior to the renovation this store had designer lines but an old and tired- looking interior and exterior. By renovating the store he now has an image that matches the merchandise. He even bought a bank vault, had it moved to his store and now the cases pull out and lay on carts and is rolled into the vault at night. The safe is used to store loose diamonds.  

This one store has seen in 2003 so far a 52 percent increase in sales by renovating. Typically a renovation can increase sales 25 to 35 percent. If you actually relocate to a free standing building you could see sales increase 50 percent in the first year, and total sales double in three years.  

Harry Friedman of The Friedman Group said today it’s no longer the smartest idea to open up more stores but rather to make the one single store more important and impressive. One way is to get bigger. Friedman says if you can’t buy a free-standing building to move into a larger spot in the center and look bigger and thus more successful.  

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One advantage of a free-standing building is that it stands out and can have usually great signage. Far better than being hidden in a strip mall with the word “jeweler” painted on the side of the building.

As to how much it will cost, here’s some tips: Architects and builders will give you a cost. Add 35 to 50 percent and plan for that amount of money, no matter what they say. When I moved my store, I spent five times what I had originally estimated. And many jewelers I have spoken to said after it got underway the owners said “Hey, let’s add this and that while we’re at it.” Your total cost will escalate 35 percent … at a minimum.

Plus, there are many other factors to take into account ranging from new computers and phone systems to added inventory and personnel.

So, how do you pay for it all? From net profits. If you have a $3,000 per month rental payment already and you net $2,000 per month after paying all of your expenses then you won’t be able to pay a monthly $2,800 bank loan for renovating the place, will you? So you’ll need to project:

A.) How much will my expenses increase?
B.) How much will my gross profit increase, which pays my expenses?
C.) How much more net profit dollars will I have?

Remember that net profit pays your liabilities and some of your accounts payables, though not all of them. If you sold at cost $5,000 worth of merchandise this month and you reorder those items, it’s paid for by the cost of goods that you sold this month. You are replenishing stock. Yes, it’s on your “accounts payables” but cost of goods pays for those items.

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[inset side=left]Remember that net profit pays your liabilities and some of your accounts payables, though not all of them.[/inset] But if you experimented with a new line that you haven’t stocked before, net profits will pay the invoice until it starts to sell. This payment to a new vendor takes away from your ability to pay a new banknote or higher rent on a large place. Projecting sales and profits are key to know if it will work. Net profits also pay for the bank loan.

After all is said and done most people have found renovating, enlarging or moving to a free-standing building was one of their best business decisions.

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 August 2003 edition of INSTORE[/span]

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David Geller

Here’s Why Coin Dealers Make More Profit Than Jewelers

It has a lot to do with a willingness to move quickly.

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WHO’S BETTER AT BUSINESS: a coin/bullion dealer or a jewelry store owner?

Odd question, right?

I recently had a conversation with a store owner whose operation did $3 million in total sales, which were divided into two income streams: $1.4 million in fine jewelry sales, and $1.6 million in coin and bullion sales.

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I asked this store owner a few questions, and his answers were intriguing.

“What’s your margin in jewelry sales?”

“About 45 percent.”

“What’s the margin selling bullion and coins?”

“Anywhere from 8 to 12 percent.”

“OMG, really? That low?”

“Yep, you buy it, turn it fast and make a quick 8 to 12 percent profit.”

“When it comes to coins and bullion, when do you consider them old?”

“Two weeks. At such low margins, we can’t hang onto them. If a Canadian Maple Leaf coin stays here for two weeks, we’ll melt the sucker!”

I did not ask what percent of inventory is scrapped versus sold. But let’s assume one-third is sold a tad above cost and the rest at break even, and see what kind of money we could make if that’s all we did.

Let’s average the profit to an even 10 percent. Calculating one-third of 52 weeks means we will make a 10 percent profit 17 times a year. So say we buy a one-ounce coin for $1,300 and make 10 percent profit ($130). $130 made 17 times a year means we make $2,210 in gross profit.

Jewelry has its own “numbers” like coins/bullion do, just different ways of counting. So, similar to the coin example, let’s start with a ring that costs $1,300. Let’s say that $1,300 ring after a year sells for $2,600 and we make a gross profit of $1,300.

The coin dealer is doing better by almost twice as much, even though he only made 10 percent per sale and the jeweler made 50 percent.

Most jewelers look at the gross margin only. “Yeah, I made keystone.” But they’re not considering the turn ratio. And what if it took more time — like, say, two years? When you wait that long, the bad stuff starts showing up as debt. Your accounts payable go way up, as does credit card debt.

A coin dealer is better in business because he is forced to liquidate quickly. They think in terms of money, whereas jewelers think in terms of “it’s gold and diamonds; it will be in good shape and salable long after I’m in the ground.”

Jewelry is old in 12 months. Coins are old in two weeks.

Jewelers just shove their old crap to the left side of the case and stuff more crap in the case. I had a jeweler friend to whom I explained this, and he said he had a buddy who owned a furniture store. The furniture store guy said he never had a problem with old inventory. He said, “Where in the hell am I going to put extra beds???”

Learn something from the coin/bullion dealer. The faster you turn the item, the better for your cash flow.

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David Geller

Why You Should Never Discount Your Shop Labor

It doesn’t have “turn”; it only has “time.”

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YOU CAN DISCOUNT merchandise, whether stock or special-ordered (like parts to custom make a ring) because merchandise has turn.

But discounting labor is different. Labor doesn’t have turn, it has time.

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If you discount inventory, you can still do well if you sell it many times a year. Labor, on the other hand, can’t be sold many times a minute or hour. If you charge $100 to do something in an hour, you have your income of $100 and whatever you or the jeweler is paid is the cost for that hour.

If you discount that $100 by 20 percent to $80, your profit margin percentage decreases and you can’t make it back unless you:

1. Do the same job 20 percent faster.

2. Reduce the jeweler’s pay by 20 percent.

Neither one is going to happen, and we both know it. Instead, make it a policy never to discount labor. Here’s how you do it.

When quoting a custom job, break the pricing down into two columns: “Material” and “Labor.” List the individual diamonds, gold casting grain, and gemstones under “Material” and add that up in the first column. Under the “Labor” column. list your CAD/custom fees, setting, and engraving heads and add them up.

Now you have a total of material and total of labor.

As I mentioned above, material has turn. Let’s say you get an order for a custom ring on the first day of the month and deliver it on the last day of the month. Do that every month, and these items you specially ordered have a turn of 12. With such fast turn, you can discount material. But you can’t work any faster, so don’t discount the labor.

Here is how to present the price if the customer is resistant. Let’s assume material is $1,500 and labor is $1,200 (total = $2,700). You’ll have three prices on the sheet easily visible:

Material $1,500.00 | Labor $1,200.00 | Total: $2,700.00

You give this to the client. If they resist, you may respond, “As you know, we can’t discount labor, but maybe I can give you a small discount on the diamonds and gold.”

Why “as you know?” Because everyone knows that the plumber, electrician, car mechanic and appliance repairman don’t discount their labor.

If you discounted the $2,700 by 20 percent, you’d lose $540. By discounting the material only by 20 percent, you give away $300 but make it up in turn, keeping $240 more in labor.

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David Geller

Why Taking Another Day Off Could Help More Than It Hurts

Cutting your work week to four days could ease your mind while maintaining your bottom line.

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IF YOU’RE LIKE ME, you’re a workaholic. Some just love their work; others have nothing else to do.

When I owned a store, I always worked six days. Even though the store was closed on Mondays, the shop was working on Monday. We did try a four-day work week in the beginning. The reason was selfish. When we started in 1974, we were open on Saturdays. With no kids, I had a hobby: remote control airplanes. Had to do home chores on Saturday so I could fly on Sundays.

At the time, I had six employees and we were open five days, but all employees worked four days a week, 10 hours a day (7 a.m.-6 p.m.). Admittedly, it was tough getting people to work on time at 7 a.m.

There was one less day of breaks and lunches. The jewelers were more productive and enjoyed having three days off. We rotated, and every other weekend, they would have three days off in a row (otherwise, they had two days off together and one day off in the middle). The schedule stayed that way until we moved to a larger shopping center and we went to five 8-hour days. Don’t remember why.

What about the owner working four days? You are the boss, aren’t you? When I started creating my price guide, I took a day off from the store weekly and worked at home. Still working, but uninterrupted. Got a lot done.

Why won’t most store owners shorten their work week?

I know because I was a culprit.

You might make most of the store sales and figure that if you’re not there, sales will drop. Or maybe you don’t trust your staff. Or maybe you wouldn’t know what to do with yourself.

Before selling my store, other jewelers asked me to go to their stores to help them, and I was also speaking at state associations. I was absent a lot. What I learned from being away from the store was this: given the opportunity, the staff would step up to the plate and do a great job. We had store meetings bi-monthly, so the staff was already trained. By letting them take over, they learn even more and are eager to earn your trust.

Although sometimes I didn’t like a decision they made, it all worked out. It gave me the freedom to “think” and do better.

Many of the most successful stores I have visited are owners who “let go” and don’t micro-manage everything. Trying taking off during the week on your slowest day and see what that does for you for 30 days. You’ll be amazed.

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