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Real Deal

Real Deal: The Case of the Hiring Headache

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BY KATE PETERSON

Editor’s Note: Real Deal scenarios are inspired by true stories, but are changed to sharpen the dilemmas involved. The names of the characters and stores have been changed and should not be confused with real people or places.

From the time he was first promoted to assistant manager of a mall jewelry store  back when he was 21, Rick Niklas knew that someday he would have his own business, selling quality diamonds and fine jewelry that was not the same old stuff.

Rick’s wife, Sarah, shared his dream, and they were diligent over the years building their savings, ensuring that they’d be ready when the right time came. In  2002, a  moderate inheritance from Sarah’s father and a slightly larger one from Rick’s the following year had put them in a position to make the move. It was in early 2004, after 23 years with the big jewelry chain, while he was working as a regional vice president in the northeast, that Rick and Sarah finally got the opportunity they’d been waiting for.

Rick got word that a well-run independent store in a major metropolitan area in the South was for sale. The 76-year-old, second-generation owner was looking to sell and retire. It happened that the store was in a suburb of the city in which Sarah grew up, where her  two brothers and their families still lived.

The demographic profile of the city appeared ideal for the kind of business Rick and Sarah had envisioned as well. Rick’s major concern was the store’s sales volume which, in its best year (2002), was just under $600,000.  He felt certain, though that with the right product and the right promotion, and with his and Sarah’s energy and attention, he could eventually get the volume up to at least the $1.5 million his advisors projected.

After months of negotiation, Rick, Sarah and their attorney  were finally able to close on the sale. Finally, in mid-September, 2004,  R. Niklas Fine Jewelers was born.

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R. Niklas got off to a strong start. In their first full year of business,  the store generated $690,000 in volume – a 15 percent increase over the previous year. Rick and Sarah were more than encouraged.

In the following two years, while the business continued to grow, the pace of growth slowed significantly. Rick and his team closed 2007 at just over $760,000, but in 2008, they took their first step backward, losing 3 percent in volume and 5 percent in gross profit for the year. For the next  5 years, Rick felt it was all he could do to hold on. His repair department was strong, but the sales were simply not there. He made adjustments to his inventory, looking to suit what he saw as a lower customer spending threshold. He cut expenses, keeping every line item as tight as possible. He and Sarah both were working  store hours, and though his three salespeople were well trained, none of them was the sort to drive business .

Several months ago, Rick got a call from Greg Hassan, a former associate who had been a top salesman, then top store manager and district manager for his old company. Since leaving the company 15 years ago, Greg had been employed by two significant, high-end operations, and was, according to his resume, the top salesperson for both. He recently moved to town to be close to his ailing father, and was in need of a job. Rick was convinced that Greg was exactly the “top gun” salesperson he needed to kick start his business. Sarah was a bit less certain, and based on her natural skepticism, did a thorough job of checking Greg out. When every report seemed to support Greg’s claims, Sarah set about looking for ways the store could afford the salary Greg needed. It would mean having to let one of their existing team members go, and putting off a few of the structural upgrades they’d been considering – but after much discussion, they decided it would be worth it to bring someone of Greg’s caliber aboard.

Within his first month on the job, Rick noticed that, while Greg was a great talker who did fairly well with closing sales that were handed to him, he didn’t seem to have the ability or the drive to make business happen – to work the community or the store’s client list – or to do any of the things Rick and Sarah set out as major objectives for him at the start. When they talked with him, he complained that their marketing was awful, and that they didn’t have the product they needed to make the bigger sales. He agreed though that he would come up with a plan for bringing customers in the immediate and for building his clientele over the long term.

Now, just a week before the end of his 90-day probationary period, Rick and Sarah are looking at a spreadsheet that shows that, at the end of three months, they will have paid Greg $15,000 in salary. For that, they’ve gotten $28,000 in sales so far, at an average 42 percent gross margin. Factoring in payroll taxes, benefits and other expenses, it was clear to both of them that they had a serious problem. Sarah wants  to terminate Greg’s employment before the end of his probation. Rick, on the other hand, still believes in the power of the “superstar” and thinks that all Greg needs is more time. He  hates the idea of walking away on a $15,000 investment.

The BIG Questions
What should Sarah and Rick do? Should Greg stay or go? Does  a store’s volume dictate how much a top seller can produce – or does a top seller’s ability drive the potential volume of a store? Does success in one environment (like a high-profile, high-end, high-volume store) mean that a salesperson will be successful in another (like a small, closely held independent store)? Comment below (please leave your name and store) or at [email protected]

 

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