Connect with us

David Geller

Manage Your Jewelry Store Inventory Like Bill Gates Would

Having too much inventory in like throwing away money. David Geller helps you figure out how much is too much.

mm

Published

on

THIS ARTICLE should have been delivered to your door on December 31st, but I couldn’t find you. I think you were sleeping off Christmas or getting ready for New Year’s. But you’re never too late.

Even though it’s February, you can still follow in the footsteps of a very wealthy man: Bill Gates. “Billy” (his special friends can call him Billy) knows where every dollar sits and how much inventory is sitting in the warehouse. Like his good buddy Michael Dell, he doesn’t overstock, and both look at their numbers closely all of the time. In Billy’s case, he’s got so much money that an extra truck load of inventory won’t hurt him. You, on the other hand, ain’t no Bill Gates.

There are two areas where jewelry stores have money problems:

A. Not charging enough for their labor. This is an easy fix. Just raise your repair and custom prices! You can fix this problem in one day. I’ll be covering this topic more in next month’s issue.

B. Paying for inventory that does not sell. This is the same as having too much inventory. I didn’t want to mention it at first because you think you need all of it. But your customers obviously disagree with you.

Let me explain before going further. Let’s say, for example, that you have $300,000 in inventory. Let’s also assume that you sold from the showcase (not including special orders or memo) $200,000. Basically, the amount of inventory you need is the amount you’d sell in one year. That’s a turn of “1.” This store has $100,000 too much inventory, proven by the fact that this is all you sold in one year.

Advertisement

Let’s say your store is located in a town which has a population of 60,000 people. So get this: Out of 60,000 people to whom you could possibly sell an item, you sold, out of those 60,000 people, $200,000 worth of jewelry (at your cost). If you have $300,000 in inventory, that means you actually have enough jewelry to sell 90,000 people!

So you need to either get an additional 30,000 people to move to your town or … or, you can bring your inventory level down to an appropriate level for the size of your town.

Obviously, there’s only one feasible answer here. So keep those inventory levels down. And when counting sales, keep track of the items that you paid for separately from the other goods you didn’t. Special-orders and memo sales are those that you do not have any of your money tied up in this group. If a memoed item doesn’t sell, it doesn’t affect how much money you owe. But you paid for your showcase merchandise and it must leave the store.

(By the way, special-order sales are not custom designs. It refers to, for example, when you order a wedding band that you do have in a size that you don’t have at a customer’s request.)

Your point-of-sale program and thus your accounting program should be broken down into three major components. If or your accountant will do this you’ll be able to:

A. Find out which departments are profitable and pulling their own weight.

Advertisement

B. You won’t allow one department to bring up a bad one. E.g.: Mixing shop sales with product sales (in a single category called plain old Sales) won’t allow you to find out the shop has a 28 percent gross profit margin while product has a 56 percent gross profit margin.

Sure, if your profit-and-loss statement shows you at 51 percent, you feel happy. But if you knew your shop was operating at only a 28 percent profit, wouldn’t you feel mad? Why is the shop’s margin dragging so far behind my product margin?

C. Find out the cost of goods for showcase sales. Why? So you can find out how much “too much” you have in inventory and what your turn is now.

To find your turn, divide your total year’s cost of goods by your average or ending inventory and you’ll get a number. “1.0” or higher is what you’re shooting for. Less than “1.0” and you’ll probably notice that you’re having a harder time paying your accounts payable.

There are three major income categories for a jewelry store and a matching cost of goods category for each. Calculate the figures for:

  • 1. Showcase sales versus Showcase product cost of goods
  • 2. Special Order/Memo/Consignment sales versus Special Order/Memo Consignment cost of goods.
  • 3. Shop sales (includes repair and custom design) versus Shop Sales cost of goods (which includes jeweler’s wages, jeweler’s matching taxes and benefits, findings and mélée used in repair, gold sizing stock, tools, gas and oxygen.)

By doing it this way you’ll find the gross profit of each department. Look at percentages. You can do it on paper now. The shop’s gross profit percentage should be no lower than your gross profit on product. In fact it should probably be five to ten percentage points higher than product because of mistakes.

Advertisement

Now that you have your cost of goods line for showcase sales, divide that by average inventory for the year (or ending if you don’t have average. Average is found by adding inventory on January 1st to inventory level on December 31st and dividing that number by two.)

Think you need all this inventory so your customer has a proper selection? Well, sorry folks, you’re wrong. First, re-read my earlier paragraphs about population. Second, would you like to know how much inventory you need to have a really great selection? Yes?

Okay, here’s how much inventory you’ll really need in order to make sure that no customer ever has a reason to walk out of your store:

$100 million!

Now that’s a very nice selection. But who’s going to pay the bill for it?

If Billy Gates had a jewelry store I promise you he’d have less than six months worth of inventory on hand. That’s half of your year’s cost of goods. Good going, Billy! Why not follow his example?

This story is from the February 2003 edition of INSTORE

David Geller is a 14th-generation bench jeweler who produces The Geller Blue Book To Jewelry Repair Pricing. David is the “go-to guy” for setting up QuickBooks for a jewelry store. Reach him at [email protected].

Continue Reading
Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

A Liquidation Sale during a Pandemic? Wilkerson Showed Them the Way

For 25 years, Stafford Jewelers of Cincinnati, Ohio, was THE place to go for special gifts, engagement diamonds, high-end Swiss watch brands — in other words, the crème de la crème of fine jewelry. But this summer, the Stafford family was ready to retire. So, they chose Wilkerson to help them close up shop. “One of the biggest concerns was having the sale in the middle of COVID,” says Director of Stores Michelle Randle. Wilkerson gave the Stafford team plenty of ideas as well as safety guidelines, which they closely followed. “All of the employees felt safe, the customers coming in the door felt safe and we did a lot of business,” says Randle. How much business? “The inventory flew,” she says. Translation: They sold millions and millions of dollars-worth of merchandise. Randle calls it, “an incredible experience.” Would she recommend Wilkerson to other retailers who are thinking of thinning their inventories or retiring? “Everyone got more than what they expected out of the sale. You have to hire Wilkerson. They’re amazing.”

Promoted Headlines

Most Popular