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David Geller

Inventory Horror Stories You Simply Can’t Let Happen to You

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Scary things happen when jewelers aren’t responsible with their inventory and supplies.

Would you work for me for $150,000 a year? What if I told you I pay on Dec. 31 each year, only once a year? You’d expect from 2015 through 2017 to be paid three times for a total of $450,000. But after year one, I said, “I had a bad year, can you wait one more year?” Same thing in year two, and finally, in year three, you get a check for $150,000. Feel shorted? Expected to be paid every year?

Profits from inventory are the same way. If you buy a ring for $500 in January 2015, you should expect it to sell by December and make a $500 profit at keystone. Do the same thing again in 2016 and 2017, and three years brings in $1,500 in cumulative profits. But if it takes three years to sell for $1,000 at full retail, you actually lost $1,000!

Inventory in a jewelry store should generally sell once a year. For every item that did not and is now two years old, you’ll need another item of equal value to sell twice in a year to make up for the loss of profits by not selling the first item. 

Let me tell you two inventory dog “horror stories” to illustrate the point.

The first story: I visited a store just last year that had five 8-millimeter wide 14K yellow gold herringbone chains. The store had had them since 1974! A $300 at-cost chain selling for $600 over 40 years, selling, reordering, selling, etc. should have given the owner a cumulative profit of $12,600. I told him to send them to a refiner and move on. In addition to not making him any money, customers have seen this outdated inventory since they were in high school at least!

Two months after the visit, I called and asked if he had scrapped the herringbone chains: “Nope, we polished them up; someone will buy them.”

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The second story: If a pair of earrings cost you $50, would you let it sit in the case for three years? No! So why would you allow a six-prong head that cost $50 sit in the shop for three years? 

I visited a store with a three-man shop. The jewelers were out to lunch, so I just looked over their benches. What I saw on just one bench was appalling.

Jewelers don’t always have the right size gold to size a wide ring. A jeweler might take a 6-millimeter wide piece of stock and using a rolling mill make it 8 millimeters for a wide ring sizing. To make a ring one size larger requires a piece of gold less than 3 millimeters long. This jeweler had taken a 4-inch piece of sizing stock and instead of rolling out a quarter-inch for the wide ring, he had rolled out the whole darn 4-inch piece. It was now too thin and too wide to use for other sizings and it had been sitting on top of his bench for over a year.

What else did I find on his bench? If he needed two heads, he ordered three “just in case” he melted one. I got a scale and cleaned off the top of his bench with all of the loose findings and sizing stock and weighed it. His bench had over $5,000 in wasted excess stock, never to be used by anyone. 

If it hasn’t been used within a year, melt or scrap it! I know one store owner who makes all jewelers clean off their benches of excess and dust nightly, and she stores it in a coffee can in the safe.

This is all money that should be turning over yearly. Or can you afford to wait for your paycheck for three years?

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David Geller is a consultant to jewelers on store management. Email him at dgeller@bellsouth.net.


This article originally appeared in the October 2017 edition of INSTORE.

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David Geller

This Small Yet Logical Fee Can Add Big Profits to Your Bottom Line

This small yet logical charge can add big profits to your bottom line.

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I’M GOING TO GIVE you a tip that will make you $29,400 right here and right now. Here’s how:

Let’s say you take in 4,000 jobs a year. Of the 4,000 jobs, 75 percent of them (or 3,000 jobs) have five or more stones in them.

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Gene the Jeweler’s Rule: Never Buy the Same Piece Twice
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Gene the Jeweler’s Rule: Never Buy the Same Piece Twice

In your shop, you check and tighten up to four stones on any job, no charge. But if a piece contains five to 20 stones, you charge an extra $28 to check, tighten, and retighten if they get loose within 12 months (or replace melee if they fall out within the next 12 months). If there are 21 to 35 stones, you charge an extra $35.

This is worth it to both you and your customer.

I don’t care if the stones come in loose or tight, you charge the fee because you are on the hook. Whether they come in tight or not, you keep the $28. Therefore, your sales staff doesn’t have to check stones on take in; the jeweler does it at the bench.

When told this, 30 percent of customers will say, “No way, José.” So you write on the job envelope, “No guarantee; customer didn’t want to have stones checked and tightened.” You’re off the hook.

With that said, 70 percent of the 3,000 jobs with five or more stones will gladly pay the $28. That means you get to charge 2,100 customers an extra $28. That’s a staggering $58,800 you’d take in just because you asked!

Don’t complain how much it costs to replace a stone anymore. Don’t tell the client it’s her fault. You checked and tightened, and therefore you took in $58,800. Can’t you afford to make it right, even if it’s not your fault?

But maybe you’re still scared to do this. Let’s say just half of those clients said, “Yes, I want the guarantee.” Half of $58,800 is $29,400.

Do you know that is money that goes right to the bottom line, net profit on your P&L? Know what it takes to get an extra $29,400 in net profit? If your net profit is 5 percent of sales, you’ll need to do an extra $588,000 in sales to have that net profit.

In other words, just adding the $28 fee produces the same result as opening another store that does half a million dollars per year.

You’re welcome.

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David Geller

If Your Sales Are Acceptable But You Have No Cash, Look At Your Inventory

It’s an extremely simple formula.

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“IF I MADE that much money, where the heck is it?”

After getting one’s tax return back from the CPA, this is the usual question. Jewelers often tell me they aren’t making any money when, in fact, most I help do make a profit in the store.

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But making a profit and having money are two completely different things.

Let’s just talk jewelry sales. If you sell $500,000 and earn keystone, your gross profit is $250,000.

If expenses are $200,000, then your net profit is $50,000, which is 10 percent of sales. Awesome!

“But I have no money!”

Easy. Look at how much inventory you have. At keystone, the amount of inventory you should stock is about equal to your gross profit from selling jewelry. So, if your gross profit was $250,000, then $250,000 should be about inventory level. If inventory is $400,000, the extra $150,000 (which you’ve been overbuying for a few years) hits you in the behind.

Take that $150,000 “too much inventory” and divide by half to three-quarters (leaving either $75,000 or $110,000). Then go look at your QuickBooks or accounting program and add up your accounts payable, credit card debt, bank loans, and loans from owner.

And you’ll see excess inventory is equal to debt, give or take.

In the jewelry industry, a good inventory turn is 1.0 (one time per 12 months). For every month after 12 that stale item sits in the case, the selling price (at keystone) must be increased monthly by 4 percent to make the same amount of profit after a year. If an item cost $100 and sells for $200 and is a year old, then each month starting with month 13, you must add $8 to make up for the second year’s missing profit month-by-month. By month 18, you’d need to raise the price by $48. In two years, it would need to make you $200 instead of just $100. And just think: you could have invested that money into new inventory!

Note: If you have this kind of old inventory and have less debt, I’m betting you do a large amount of shop sales (which requires virtually no inventory) or buy/sell a lot of scrap. These are “free money” departments, requiring little inventory while throwing off good profits. But why work your tush off in one place to help pay for a debt-ridden department someplace else in the store?

Most jewelers think jewelry (including diamonds) doesn’t go out of style. Wrong. Jewelry goes out of money.

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David Geller

Here Are the New Inventory Rules of Jewelry Retailing

In today’s business climate, doing things the old way will kill your store.

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Did you previously work for your parents or a long-time jeweler? Because it’s not your grandfather’s Buick anymore!

When your parents or your old boss were younger, they enjoyed the luxury of “blowing money to the wind” on excessive inventory. Then they taught you how to manage a business, but now your livelihood is not as good as theirs was.

Back in the day, your parents or boss didn’t have to compete with Internet pricing and maybe didn’t have to worry about a “Rap list.” 

Back in the day, a store’s gross profit was 55-70 percent! Yes, stores got keystone on diamonds and four-time markup on color and gold. In the 1970s, I worked at Neiman Marcus as their jeweler, and I remember them selling a $100,000 diamond at triple key. Your parents or old boss may have told you, “Keep old inventory; it’ll sell.” And they may have said, “No one will pay higher prices for repairs; it will only hurt diamond sales.”

Not only are these things not true, but in today’s business climate, they will kill your store. Overall store gross profit margin percentage today is about 43-48 percent, and margins on diamonds continue to shrink. 

With that in mind, you can’t keep inventory for more than 12 months. Stock balance with vendors anything not selling within a year, or clear it out yourself. Additionally, you must increase your turn to compensate for low margins. Reorder anything sold within six months of stocking it. 

Lower gross profit margins on products means every department has to stand alone as an income and profit source. That means the shop is no longer a giveaway department; it must make its own money and it should be a 50 percent gross profit margin department.

Back in the day, high markups saved the day and you could be fat and lazy. Today, you have to be a lean, mean fighting machine. Your overall stock inventory amount at these lower margins needs to be about equal to a year’s gross profit dollars from selling this stock.

Be lean and mean and have more money and lower debt.

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