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David Geller

Know These 6 Signs of Financial Distress and How to End Them

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A man owned a small jewelry store. The State Workforce Department claimed he was not paying proper wages to his help and sent an agent out to interview him.

“I need a list of your employees and how much you pay them,” demanded the agent.

“Well,” replied the storeowner, “there’s my bench jeweler who’s been with me for three years. I pay him $10,000 a week plus free health care. My salesperson has been here for 18 months, and I pay her $750 per week plus free health care. 

“Then there’s the half-wit. He works about 18 hours every day and does about 90 percent of all the work around here. He makes about $300 per week, pays his own health care, occasionally loans the store money, and I buy him a bottle of bourbon every Saturday night.”

“That’s the guy I want to talk to, the half-wit,” said the agent.

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“You’re talking to him right now, sir,” replied the jewelry storeowner.

When you see the following signs, you know things are off-kilter financially:

  • Staff members are paid more than the owner.
  • Credit cards are used for store purchases, but the card is not paid off every month.
  • Accounts payable only go down at Christmas and always show the store is behind in paying vendors.
  • Inventory in the case is old and stale. 
  • The store’s financial books are a mess. The checkbook has not been correctly reconciled in years. 
  • Inventory in the POS system is never correct.

What causes this? There are five reasons for financial distress in a jewelry store:

1. The store charges too little for repairs and custom design.

SOLUTION: Raise the prices. With a 90 percent closing ratio, repair customers will gladly pay and those extra dollars fall into the checkbook.

2. The store doesn’t have enough people coming through the front door.

SOLUTION: Advertising and marketing. Consistent advertising is better than a few big splashes. Don’t forget marketing to your customer list, they love you. Be sure to invest more time and dollars in social media marketing.

3. When people do come in, the sales staff lets the majority of them walk without buying anything.

SOLUTION: Weekly 60-minute training meetings will get you there along with paying incentives. All sales staff should be on some type of bonus system. Rewards instill new habits.

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4. The store has too much inventory and a majority of it is over 12 months old.

SOLUTION: Stores with excellent cash flow try to sell everything within 12 months.

Product over a year old should be discounted, spiffed to incentivize staff, returned to the vendor, or lastly scrapped for cash.

5. The store has the wrong price points (too many high-priced goods).

SOLUTION: Run reports to know these numbers. Return high-priced items to vendor for credit to buy lower price points. If you can’t do that, re-tag the older items and move them into lower price points to help get rid of them.

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


This article originally appeared in the November 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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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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