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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

Why David Geller Says You Should Sell Lab-Grown Diamonds

You’re a merchant, so sell the customer what they want.

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ONE OF THE JEWELER pages on Facebook has been discussing whether a store should stock and sell lab-grown diamonds. The dad says no, while the millennial son says, “I think we should try it.” The reader vote is split about 50/50.

Can we talk about making a living here for a moment? And selling consumers what they want?

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Customers want to know their options and make their own decisions. Be their personal shopper.

I started in 1974 as a trade shop. I used to do work for a store at our mall, Wellington Jewels. I sized the gold rings they sold and set stones.

What stones? Strontium titanate. It’s a diamond simulant that has colors like an opal. Hardness on Mohs’ scale? About 5.5! But sparkle, oooh weeee!

The store was mostly black walls and showcases, with bright lights to make the stones pop. They made great money, and these are diamond look-alikes with the hardness of an opal. The mountings were 14K gold with real melee diamonds. They didn’t sell much fashion, which I told them was crazy, because a woman can only buy so many engagement rings.

I became friendly with the store manager and she agreed. So I ordered a dozen at a time in fashion mountings from a catalog, furnished the mountings and diamond melee, and she gave me center stones, which I set. They’d sell most of each dozen I gave them within five weeks.

So let’s talk profits on this product. All merchandise was quadruple markup.

They gave a lifetime warranty on these stones. If the stone scratched or chipped or fell out, they’d replace them for 50 percent of the price (so they still made keystone).

This was junk compared to lab-created diamonds. Remember: a lab-created diamond will last as long as the human does.

What about resale value? Well, they can’t get their money out of what they spent on your natural diamond, so try lab-created, make a better margin and keep that young person from buying it someplace else.

When you quote a price to a customer for anything, you may be thinking, “They aren’t talking. Maybe I should come down on the price. OMG I need to make payroll this Friday.”

They may be thinking: “Darn, my student loan note is due at the end of the month. Maybe I should opt for a lab-created diamond. I can’t tell the difference and we need to save for a house.”

Be their personal shopper, make a customer happy and make some money!

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David Geller

How Geller’s Blue Book Came Out of Abject Failure

David Geller’s failure in business led to success as a retailer and later as a consultant.

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WHEN I STARTED MY shop in 1974, there was no “Geller Book” for pricing repairs and custom. You relied upon your best guess, copying other people’s price lists or calling around to find an average amount to charge.

Although I didn’t know how much to charge, I quickly learned how much I would have to pay for salaries, rent, findings, advertising, etc.

By 1978 or so, my accountant just reconciled the books. He couldn’t help at all with my problem of making money. I had difficulty paying bills on time and paying myself a good wage.

By 1986, we had a thriving business doing repairs and custom. We had 16 employees, but still we were always behind the 8-ball. We did $830,000 in business, 75 percent from the shop, but we owed $250,000 in accounts payable, $65,000 to the IRS for payroll taxes and another $25,000 to the state for the same thing.

On Christmas Eve, I fired half of the employees, and during the following week after paying whomever I could, we still had the same amount of debt.

Don’t tell me about your bad day.

January 2nd, we opened up with half the number of employees and $125 in the checking account.

Don’t tell me how you had a bad month.

Summer of 1987, the IRS put a lien on both my home and the store and twice wiped out the balance of our business checking account to try to pay our payroll taxes. So, to ward off the inevitable, I paid an attorney $5,000 to help me declare bankruptcy.

Don’t tell me you had a bad year.

The next month, a diamond setter friend sent me his accountant. This guy had been an accountant, gave it up, became a watchmaker for 7 years, then went back to doing accounting.

This was the first accountant I had hired who knew how to make money with his hands.

First thing he did was work out a payment plan with the IRS and the state. So I didn’t have to follow through with the bankruptcy, but the attorney who had done nothing kept his $5,000 deposit.

Next thing the accountant did was teach me how to price labor. Pricing a lobster claw is easy. Labor is tricky, so he had me do something many of you would never do: I stopped paying the jewelers a guaranteed salary. I paid them 100 percent commission based on retail labor. That fixed my cost, and now I knew my labor cost to the penny and I could mark that up.

If the commission on any job was too low for the jewelers, then we raised the retail price so they would be paid correctly. This philosophy led me to write our first 250-page price book for our store in 1989.

By 1991, I put the sales staff on 100 percent commission as well. Both the jewelers and salespeople’s earnings increased, as did productivity and profits. We finally paid everyone off and became cash flow positive and profitable.

Years later, our top salesperson asked to buy the store, and meanwhile I was being prompted by the Scull consulting group to help other jewelers. So, I created Geller’s Blue Book to Jewelry Repair and Design and went to work helping my fellow jewelers be profitable in the shop. The store succeeds and thrives today.

Tough spot? You betcha. All of what transpired was scary and a huge change in business practice. But, the next step was liquidation by the IRS of my home and business, so what did I have to lose?

What would it take to get you to change your ways?

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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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