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David Geller

David Geller: My Life in Business

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He’s shared advice with you for five years. Now find out where it really comes from.

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[h3]My Life in Business[/h3]

[dropcap cap=A]fter five years of seeing my mugshot and hearing my advice in Instore, you have every right to be wondering:[/dropcap]

“Just who is this Geller guy and why does he think he knows how to price repairs?”

Well, they say the greatest teacher is experience. And I’ve had a lot of experience — some of it good, some of it bad, all of it instructive. Hindsight is 20/20. Here’s mine.

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My father had our family tree traced; supposedly I’m a 14th generation jeweler. The lineage goes from Atlanta to New York, Russia Spain, France and England — over the course of 500 years. My father owned a wholesale manufacturing company in Atlanta with 15 jewelers at the bench. He had a large trade-shop business. At the age of 10, I was brought every summer to work in the shop. Filing castings, doing simple repairs, sweeping the casting room, etc. When I turned 16, I got a car specifically so I could come to work after school.

[inset side=right]… my father wanted me to travel on the road with him to be a salesman and learn the business.[/inset]My father and I did not get along. When I was a senior in high school, my mother died and my father wanted me to travel on the road with him to be a salesman and learn the business. It didn’t work out. I quit, left home and worked and attended college for two years. No one in an Atlanta jewelry store would hire me because of my father. But a lucky break came in 1970. Neiman Marcus opened their first store east of the Mississippi. I applied for the job of jeweler there and got it. (I think I got it because I was the only applicant).

While working at Neiman Marcus it was not uncommon to set a $100,000 diamond or emerald. Shortening a watch band was readily done on a $5,000 band. I stayed there a year, then went to work for a jewelry designer before opening my own trade shop in 1974. I did trade work for a few chains and some mom-and-pop stores in town. The sign outside my office read: “Jewelry Repair: Suite 203.” Soon I became so busy in retail repair, I left and went to a larger place.

In our shop, we did a fair amount of remounting. We bought castings, polished them, and put them in the case. Women would have us remount their jewelry and hand them back their old rings. At that time (about 1975), gold was about $85 an ounce. Within a few years, gold almost doubled (sheesh … can you imagine?) to $165 and sales of remounts dropped dramatically.

[inset side=left]By Christmas, I knew we were in dire straits.[/inset]So we changed course and started melting and casting with customer’s gold. In the late 1970s, we’d charge $50 to cast a stock wax with a customer’s gold. Sales shot up and we became the #1 store in Atlanta for casting with customers’ gold.

In 1983, we moved from our office building to a real strip center. A real store with real cases. And what would we do with those showcases? Fill them up, of course. The customers came faster than ever … but it wasn’t to buy the jewelry, it was for custom designs and repairs.

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In 1983, we were doing $230,000 in annual sales. By 1986, it was up to $830,000 — and our store had five salespeople, two waxers, five jewelers, a polisher, a bookkeeper and me.

Three-quarters of our business came from the shop and I priced our repair work and design work the same way most of you do: namely, I called my competition to see what they were charging and used a similar number. I didn’t do any more about pricing labor than the man on the moon.

Nineteen eighty-six is one year I’ll always remember. I had my sales staff ordering parts and special-order items. I let them open the boxes and distribute the goods. Employees were stealing from the boxes and from customers’ envelopes. In addition, we were having a hard time paying bills. The company was in shambles.

By Christmas, I knew we were in dire straits. We owed over $80,000 to the Internal Revenue Service and state of Georgia for unpaid payroll taxes and had accounts payables of more than a quarter of a million dollars. It was time to take action.

To combat the constant thefts, I had everyone in my store polygraphed (which was legal then). The polygrapher told me “You don’t need to even turn on the machine. Put on the arm band and they sing like babies.”

The results were a surprise. The list of people I thought I was going to have to fire, and the people I actually ended up firing, were completely different. So much for intuition.

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[inset side=right]… on Christmas Eve, I fired half of the company. So don’t tell me you had a bad day![/inset]So in 1986, after doing $830,000 for the year, more than $300,000 at Christmas, owing $83,000 on payroll taxes and a quarter-million in payables — after all that, on Christmas Eve, I fired half of the company. So don’t tell me you had a bad day!

After paying what we could, I started over on January 2 with $125 in my checkbook and a staff half its previous size. So don’t tell me you had a bad month!

In the summer of 1987, the IRS put a lien on my house and business for the $65,000 in taxes we owed. To keep them at bay, I went to an attorney, paid $3,000 and started bankruptcy proceedings to buy some time. So don’t tell me you had a bad year!

After telling my story of woe to a setter friend, he told me he knew someone who could possibly help me. He sent me his friend Ben.

Ben was an accountant who had decided, after five years of poring over ledgers, that he didn’t really want to be an accountant and took up watchmaking. He bought a couple of books on watch repair and after 30 days approached a large jeweler store in town and started doing trade work. A few years later, he opened a retail watch-repair facility in an office building. When the building remodeled, he lost his location and decided to go back to accounting.

That was who my friend sent me. An accounting watchmaker. Turns out, it was a match made in heaven. The first thing Ben did was to work out a payment plan with the IRS and state. So we went to the attorney to withdraw the bankruptcy.

Attorney: “I never got past the paperwork, so here you go.”

Me: “What about the $3,000 deposit I gave you?”

Attorney: “Nope, it’s mine.”

It was the next conversation with Ben that ended up saving my company. Ben told me most jewelry stores pay 20-25% of total sales to payroll. I was paying everyone hourly wages, jewelers included. So Ben asked me “David, pick a number between 20 and 25.”

“Twenty-two,” I said.

Ben nodded his head. “Great, starting today we are going to pay the jewelers 22% of every labor dollar. You’re already paying it anyway. So if you charge $10 to solder a chain, they’ll get paid $2.20”

Since our jewelers didn’t polish, we always had a polisher. If we didn’t have a polisher, we’d pay the jeweler 26% (therefore I figured 4% went to the polisher).

I was so excited. Now we could fix our costs for repairs. Excited, I went into the shop on a Monday morning in the summer of 1987 and made this announcement:

“Good morning, men. Great news! We are not going to pay you an hourly wage anymore. Instead we will pay you 22% of every labor dollar. If you solder a chain, you get 22% of the $15 charge, or $3.30. Isn’t this great?”

In their view, it didn’t appear so. On Monday, I had five jewelers. By Saturday, I had two. The three who left knew they were overpaid and the two who stayed knew they were underpaid. In 1987, I was paying $7 to $11 an hour for a bench jeweler. After six months, the two guys who stayed were earning 50% more than they had previously.

This one act saved my company.

It turned my business around and made it profitable. But there were still numerous occasions when I had to listen to my jewelers complaining about their pay. That’s because I was still using the dumb repair prices I had ripped off from my competition.

My next journey was an eye- opener. We went to Office Depot and bought all of the jewelers a time clock so they could punch in and out on the back of their job envelopes. Now I was getting a better idea of how long it really took to do a procedure. Sure, sure, I know the average jeweler often ends up doing three sizings at once … but I at least knew more than before.

What I found was this:

[inset side=left]It turned my business around and made it profitable.[/inset]Pay a jeweler for eight hours and he’ll only produce 5.5 hours of work a day. The rest of the time he spends rolling emery paper, answering questions, talking, smoking outside, or cleaning his bench. So more than a quarter of the day is non-productive.

Paying for FICA, Medicare, health insurance, vacation and sick time for my jewelers added 25% to my labor costs. Therefore my $10-an-hour jeweler really cost $12.50 an hour.

So, instead of a one-hour job for a jeweler who cost us $10, our time clock and new cost accounting showed us that the job was really costing us $12.50 and that it was really taking 1.25 hours to do. The actual cost was thus $15.63 (not $10) and if we tripled that we’d sell the same repair for $46.88 instead of $30.

Virtually every repair we had ever done was under-priced by 36%. No wonder we got into trouble. Before we always said: “Gee, if we could just do three-quarters of a million” or “If we could only do a million”. Well, now I knew that the only thing that hitting a million would have gotten me was bigger losses.

In 1987, I decided to do something revolutionary. I decided to pay a jeweler a flat salary of $30,000 a year and mark him up just like he was inventory. A $30,000 salary translates to about $15 per hour.

That meant that, for a procedure I knew took half an hour, the jeweler would cost me $7.50 and then I’d mark that up with matching taxes/benefits to $9.38 as my cost. Triple that number and the price we’d charge the customer would be $28. Bingo! Our jewelers were well paid, and we got our profit … finally.

After that, I sat down with catalogs from Stuller and three or four other findings houses. I determined the cost for each finding and tripled those. Combine that price with our retail price for labor, and you’d have an exact price for each procedure. It was a slow process — taking more than 20 years of working about 30 hours a week to create a complete list. Hard work? Sure, but when the IRS comes knocking at your door, it’s do or die. And I wasn’t planning on dying.

To simplify things for my staff, I put all my new figures into a bound price book just for our store. It was 252 pages. We held bi-monthly meetings on how to use the book.

The repair pricing in my store was now easily 25% higher than it was before. And you know what the reaction of our customers was?

Nothing. Virtually no one complained. Nine out of ten people simply said, “Sure, David, go ahead and fix it.” That’s when I learned repairs are not price-sensitive — they’re trust-sensitive.

We were thriving. And yes, still doing three-quarters of our business from the shop.

[inset side=right]… I learned how to get people to do things the way I wanted, and smile as they did it.[/inset]After that, it was time to fix the sales floor. At the time, all of our sales staff were being paid from $7 to $11 per hour, plus a 1% commission on repairs and 2% on product sales. In March 1991, I attended a Harry Friedman three-day “management bootcamp.” Highly recommended.

In three days, Harry helped me turn my motley band of salespeople into a true selling machine — and I learned how to get people to do things the way I wanted, and smile as they did it.

In April 1991, Harry came to our store to give me and the staff three days of training. He told me that my sales staff were overpaid — getting from 12% to 18% of every sale. Typical W-2’s for them ranged from $17,000 to $24,000 a year. Harry told me my staff should be averaging 10% of every sale and so, after he left, we decided to make a change.

As was once the case with my shop employees, I now had a big announcement to make to my salespeople: “Ladies and gents, I’m not paying you hourly any more. We’re going to a straight commission of 10%.”

Despite a guaranteed weekly draw of $300 per week, all five salespeople complained their pay would drop and they’d quit. I didn’t care. When the Internal Revenue Service knows you by name you don’t care.

Guess what? No one quit and, indeed, their pay did go down. For a month and a half. But after that they “got it.”

It had taken me 18 years to get to $1.1 million in sales. The first year after I put my sales staff on 100% commission, my sales went up 45% to $1,450,000. Before long, my lowest-paid salesperson was making $30,000 a year and my highest close to $50,000.

Now an avowed number cruncher, I decided the next step for me was to investigate my inventory. It took a few years and the help of almost a dozen individuals, organizations and even a consulting company that charged $165 an hour, but I learned how to look at inventory in much the same way as I did employees. It had to either put out or get out! (Usually within a year.)

At the time I was a member of IJO, and once it hit me we were buying too much, I simply stopped buying. IJO ended up cancelling my membership for not buying the minimum required amount from their vendors.

As time went on, I found the store was able to run more and more without me. It had to — as I had started to receive numerous invitations to speak around the country and help other jewelers. In 1999, my top salesperson asked to buy the store. After about a year-and-a-half of negotations and planning, it was his.

The last year I ran the store (1999), we did $1.8 million in sales, three-quarters of it coming from the shop, and we completed almost 9,000 job envelopes. We had paid off the IRS, all our vendors, and our jewelers and sales staff were earning incomes ranging from $30,000 to $60,000 — all of it 100% commission.

Now the only thing I do is try to help jewelers who are experiencing the same problems I once did. I’ve walked in many of your shoes. And I’m here to make sure you don’t walk in my old, misguided footprints.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at [email protected].

[span class=note]This story is from the June 2006 edition of INSTORE[/span]

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