David Geller: Moving on Up

THERE 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!

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

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

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.

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:

• How much will my expenses increase?
• How much will my gross profit increase, which pays my expenses?
• 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.

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.

This story is from the August 2003 edition of INSTORE.