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David Geller

David Geller: The One Thing

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What factor above all else will determine whether your store struggles or prospers? Inventory. David Geller explains why.

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[h3]The One Thing[/h3]

[dropcap cap=P]retty much everyone has seen City Slickers — you remember, the movie with Billy Crystal where he and a few buddies in the midst of mid-life crises head off to a dude ranch to find themselves?[/dropcap]

Billy’s character, Mitch Robbins, is a successful marketing executive, with a good wife, good kids and a nice home — but he’s unhappy. At the dude ranch, Billy, his friends, and other visitors herd cattle across the plains for the week, with the help of a real cowboy, Curly (played by Jack Palance). A big believer in keeping things simple, Curly just doesn’t understand why “city folk” make life so difficult for themselves.

Towards the end of the movie Mitch asks the dying Curly to share with him the secret to being happy. The crusty old cowboy says: “Do you know what the secret to life is?” He holds up his index finger. “This.”

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Mitch looks skeptically at Curly’s raised finger.

Curly explains: “One thing. Just one thing. You stick to that, and the rest don’t mean @#*$.”

Mitch, sensing Curly’s about to go, asks impatiently: “That’s great, but what’s the one thing?”

Curly answers: “That’s what you’ve gotta figure out.” And dies.

Well, this month, my goal isn’t quite so ambitious as sharing with you the “one thing” that will make your life happy. Instead, I’m here to tell you about the “one thing” that will make your business more successful. (Of course, that could very well end up being the one thing that makes your life happier, as well.)

But before I give you the answer, we must discuss the different things that can hurt a store. There’s actually more than just one thing that can hurt (or help) a store. For example, the person who weighs 500 pounds may have a lot of different health issues, but you can bet that many of them would start to disappear if he started losing weight. Start by addressing the biggest problem, and then let the rest of the fixes follow from there.  

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There are five top reasons for financial distress in a jewelry store:

[dropcap cap=1.] Having more inventory than you can sell in one year.[/dropcap]
[dropcap cap=2.] Having the wrong price points in the showcases.[/dropcap]
[dropcap cap=3.] Not charging enough for your labor.[/dropcap]
[dropcap cap=4.] Not having enough people walking through the front door.[/dropcap]
[dropcap cap=5.] Letting the people who do walk through your front door leave without being sold.[/dropcap]

So which of these do you think is the biggest reason for financial problems at jewelry stores?

The answer: having more inventory in the cases than can be sold in one full year.

The defining characteristic of jewelry stores that have money, pay their bills on time, pay their owners 10% or more of sales as salary, is that they keep less in stock than they sell in one year.  

If sales of product (not including repairs and other services) are $800,000 and if the store has a 50% gross profit margin (your basic keystone) then the cost of those sales is $400,000. So how much inventory should a store with this figure as their cost of sales stock?

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Answer: $400,000, or less.

That’s it. That’s your one thing. (You might even imagine me holding up my index finger right now.)

Stores that have money get rid of inventory when it reaches its first birthday. They’ll do whatever it takes to unload inventory that hasn’t sold by the 365th day of its “visit” to your store. (Good exercise: start thinking of all your jewelry as “visitors”. Like even your own kids, they have to leave home at a certain point).

To make sure jewelry doesn’t stay longer than a year, smart jewelers will:

• Discount it
• Return it to the vendor to swap for better selling or better price-point items.
• Add a spiff to it to entice the sales staff to sell it.
• Double or triple the commission rate on old inventory.
• Put it in its own showcase labeled “Extreme Value Case.”
• Offer it to a charity to auction, with the promise they can keep whatever they can get above cost.
• Barter old items, even with radio stations. Suggest they use the jewelry for giveaways, in exchange for radio ad time.  
• Take it apart, using the melee for repairs and getting the gold refined for cash or exchanging the gold for sizing stock or findings or a combination of all three.

Stores which know that jewelry is old once it hits a year and get rid of it have:

• More money in the checking account.
• Better cash flow.
• Lower accounts payables, happier vendors.
• Better cash discounts.
• Fresher and newer merchandise for their customers to choose from.
• Pay themselves and employees better wages.

So city slicker, take Curly’s advice — remember that the “one thing” that will help your store the most is having a turn of “1” or better — and that means getting rid of all your inventory once it hits a year old.

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 August 2006 edition of INSTORE[/span]

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