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Malcolm Alderton: The Holidays’ Biggest Danger

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Malcolm Alderton of ARMS warns you about one thing that can make the holidays go very, very wrong.

 

[span class=note]This story is from the September 2003 edition of INSTORE[/span]

[dropcap cap=I]It’s a fact. Overbuying for Christmas is the single biggest cause of liquidity problems in the jewelry industry. And history has shown that the August to November buying pattens cause this problem. ¶ The answer to this problem is simple. Only buy a level of stock that you will sell. While it does take some number-crunching to determine this level, the biggest challenge actually facing most retailers is simply to change their own habits. This isn’t as easy as it sounds. Especially when those habits are supported by the hard sell of the jewelry trade shows, the alluring new ranges from suppliers, and all the white-hot hype that comes along with the lead-up to Christmas.[/dropcap]

 

The basic principle requires approaching the task of buying armed with an “Open to Buy Fund” (OTB)  budget based on “Cost of Sales”(COS), as opposed to buying according to the bank balance.

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Last year, I met a jeweler with annual sales of $2.55 million. His November-December holiday season sales account for a third of his annual sales. With budgeted sales in this two month period of $850,000 at a mark-up of 101 percent (say 100 percent for this article to make calculations easy to follow), his cost of sales were $425,000. This means he should have only spent $425,000 on stock and repair purchases for this period. He runs a stock level for the rest of the year of around $900,000 so his stock should have been back down to $900,000 by the end of December.  And it would have been if he had controlled his buying. But he didn’t buy with a plan. His cash flow was good so he bought purely on emotion. (Everything he purchased was so nice that he just knew he could sell it. Sound familiar?). He ended up purchasing $590,000 for the season.

When the dust cleared, his uncontrolled buying of $590,000 left him with unsold excess stock of $165,000 (the difference between OTB and actual buying). This would have to be paid for in the months after Christmas, when business was quiet.  Every dollar of surplus stock left after Christmas resulted in one less dollar available to meet other commitments. And like many other businesses, December is the only month of the year with sufficient profit and surplus cash flow to meet these commitments. If the cash is sitting on the shelf, it is not in the bank, and thus cannot be used for other things such as loan repayments, a new car etc.  To add insult to injury, he also had to pay interest on this $165,000. This jeweller had counted on the $165,000 to pay taxes and fund an extension to his home that the family had become quite excited about. That didn’t happen.

Did this jeweler misjudge his November December sales? No, he didn’t. He had good history to draw on and the sales ended up coming in close to budget. He had experienced a 6 percent increase for the first nine months and could reasonably expect a 6 percent increase for the rest of the year (and actually, he ended 6.1 percent up). He know his mark-up was 100 percent for the year-to-date (YTD). So with the following simple calculation he would have given himself a buying budget. (Which, if he had followed it, would have allowed him to build the extension on his home.)

[h5]OPEN-TO-BUY FORMULA[/h5]

1. Take sales of stock and repairs for the previous November December period. $802,000

2. Add anticipated 6% increase ($48,000) based on year-to-date performance $850,000

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3. Divide by 2, as year-to date markup percentage was 100%. Cost of sales is, thus, $425,000.

4. This cost of sales becomes the OTB for the November-December trading period. $425,000

6. Subtract cost of Repairs ($34,000) which are 8 percent of his business. $391,000.

7. Subtract cost of special orders ($89,000), which are 21% of his business. This leaves an open-to-buy for new stock (and replacement of fast-selling stock) of $302,000.

Now let’s look at your business. You can start controlling buying right now by setting an OTB for Christmas, calculated as above. Write it down in a book. Then every time you place an order for holiday stock, deduct that amount, leaving a balance which is still available to buy. Don’t order more than your OTB, or you will  probably be left with surplus stock to fund. This OTB is in its simplest form and will need to take into account replacing fast stock. However, the principle remains the same … with only some refinement required.

With every supplier at the jewelry trade shows presenting such new and exciting ranges, it is very tempting to load up on new products. And the fact is, it would an extremely boring world if suppliers and manufacturers didn’t present brand-new beautiful things every year. But remember, with a strictly controlled Open to Buy fund, you can still purchase fresh, exciting stock for Christmas. And, at the same time, you can also be confident that you won’t be burdening yourself with a major liquidity problem after the holidays.

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Remember, you alone control your financial situation. So don’t buy according to your bank balance. And do buy according to your projected sales. If you don’t, those post-holiday liquidity problems will come back to haunt you.

[important title=About the Author color=grey] Malcolm Alderton is president of Advanced Retail Management Systems (ARMS). He has been advising jewelers how to develop their businesses for the past two decades. Contact him at info@armsusa.com [/important]

[span class=note]This story is from the September 2003 edition of INSTORE[/span]

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Five Steps for Making Your Bridal Business Hum Like a Well-Oiled Machine

Paying close attention to SKUs that generate special orders is one.

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WE ARE LED TO believe that having the “biggest selection” in the market is the best approach when, in fact, that is counterintuitive to evolving retail models. Growing evidence to supports a “less-is-more” strategy across retail, and we should ask ourselves why bridal should be any different.

If having the biggest selection in bridal was the answer, retailers would have a much healthier inventory picture. The data, however, shows that the average retailer is not only seriously over-inventoried, but their current inventory is all too often misaligned with their best-sellers. You want your customers to have choices, but your bridal story should be curated for clarity, and you should closely analyze your data as part of the ongoing process.

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Fixing your bridal category doesn’t have to be a daunting task. Here are a few initiatives you can implement immediately:

Set your stock turn and return-on-investment targets. You should expect a minimum of a one-time stock turn, a big improvement on the current overall industry average of 0.47.

Review your data. Identify your fast sellers (items that sell within 180 days) in loose, semi-mounts and bands. There is simply no reason why you would ever be out of stock in these categories. For example, an SI1 G-H 1-carat loose diamond tends to be a fast seller, and yet it is often out of stock when we review retailer inventory levels. Know that any bridal that generates a one-time stock-turn at full margin within 365 days should be replenished.

Pay close attention to your live samples, such as semi-mounts and diamond bands, that generate special orders. Many retailers incorrectly assume that most of their bridal pieces generate orders, when in fact the vast majority of SKUs generate little to no sales at all.

Implement strategies to purge non-performing inventory. This should include stock balancing with your top vendors. Next, you can look at markdowns, spiffs and recycling non-performers into more basic (saleable) styles. Feature your markdowns in your email blasts and, possibly, on your social media platforms. Markdowns should take place starting with the one-year anniversary of receipt of a given item and continue every 30-60 days until the piece is gone. Be aggressive, as your objective is now about recovering your investment. Research shows with each passing year, you will get less and less on the dollar.

Re-merchandise. Clean up your jammed cases. Move your non-performers out of the case and create an organized back stock. This will allow you to display your best performers and strategically highlight your key pieces and collections. Putting your rings into collections such as “by designer” or by styling such as halos, three-stones, solitaires and so forth makes it much easier for your customer to shop.

Recognize that today’s young customer is not interested in navigating your sea of insignificant merchandise. They want to know what your store is about and why they should care. They are much more likely to respond to nicely curated stories than overflowing cases. Even in the case of bridal, more is definitely not more.

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Columns

I Thought I’d Seen All the Jewelry I Needed for This Year … But I Was So Wrong

August shows in New York yielded many designs that retailers need to see.

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WITH LAS VEGAS JEWELRY Week two months in the past, I thought I had seen everything I needed to see for the season as far as new trends, hot items and designers to watch or discover. But August in New York kicked off with Spectrum Awards Editors’ Day and then, from Aug. 10-14, four shows ran almost concurrently: Melee the Show, NY Now, The JA Show and Metal & Smith. There were also press deskside appointments of saleable and noteworthy designers. A summer head cold, pad full of notes and iPhone full of photos later, I realized there was a lot more to report and bring to the attention of retailers who couldn’t make this trip into New York City.

Let’s break it down.

The colorful pieces shown above are by (left to right) Soulbound, Sofia Zakia and Rebecca Overmann.

These rings are by (left to right) Karen Karch, K8 Jewelry and Elizabeth Street.

Engaging Colors

This was the leading trend at these shows for a new wave of bridal rings rendered beautifully by both established independent and up-and-coming designers. The best in this category included Rebecca Overmann, Megan Thorne, Karen Karch and Sofia Zakia as well as rising stars Elizabeth Street, Soulbound (all at Melee the Show) and K8 Jewelry (at The JA Show).

Vibrant and unexpectedly refreshing stones for engagement rings such as green sapphires, moonstone, garnet, purple and red spinel, rubies, aquamarines, pink sapphires and a host of other gemstones we never thought would sell in this category created new excitement among retailers who shopped the show.

These old-meets-new designs are by (left to right) Talon, Sofia Zakia, Heavenly Vices and Erica Molinari.

The Past Meets the Present

This trend can be seen in independent designer collections with jewels that borrow from the past yet are imbued with both a current sensibility and built-in longevity. Contemporary designers are inspired by different periods and reimagine their influences with daring and the freedom to mix time frames and materials with abandon. A few of these creative designers also work with one-of-a-kind pieces that they transform into symbolic keepsakes for today’s woman. Designers mixing old and new or reflecting on pieces of the past and turning them into modern jewels include Samantha Jackson of Heavenly Vices (Metal & Smith), Erica Molinari (Melee the Show), Sofia Zakia (Melee the Show),  Talon (press preview) and Darsana (press preview).

Shown here are chains by (left to right) Roule & Co., Polly Wales and Mallary Marks.

Working On the Chain Gang

This is a theme that continues to evolve as designers create their own chains from cast and handmade links in different shapes, lengths and widths. There’s often an extra link that acts as an “add on” to lengthen or add one medallion or multiple charms and medallions to the chain. Whether they be necklace or bracelet chains, the links can also be worn alone. They are often textured with touches of different colors of diamonds as accents or combined with vivid colored gemstones to pump up the style quotient and add an extra dimension of elegance. Designers who have joined the chain gang include Polly Wales (NY Now), Tura Sen (Melee the Show), Michelle Fantaci (Melee the Show) and Mallary Marks (Melee the Show).

Shown here are pieces by (left to right) Theresa Kaz, Roule & Co., Michelle Fantaci and Darsana.

Show Me Your Heart

Designers have brought back this universal symbol of love in all materials. It is one of the most popular motifs I saw from Las Vegas and the August shows in New York City. Although the heart still evokes sentimental and spiritual meanings that range from romance to devotion to friendship to divine love, the modern interpretations are anything but frilly or fussy or sugary sweet. These new versions range from feminine yet bold to daring and edgy. Designs from Thereza Kaz (The JA Show), Roule & Co. (Melee the Show), Michelle Fantaci (Melee the Show) and Darsana (press preview) are sure to win the heart of today’s consumer.

Shown here are earrings by (left to right) Hannah G, Soulbound, Sarah Swell, Moritz Glik and Julie Lamb.

The Ear Party

This trend continues with all shapes and styles of earrings. Multiple piercings are still going strong in smaller studs and drops. Geometric linear styles are going strong, and those with spherical drops offer a feel of the planets and celestial themes so prevalent this season. For different styles check out Moritz Glik (Melee the Show), Hannah G (press preview), Soulbound (Melee the Show) and Julie Lamb (Metal & Smith).

These pieces are by (left to right) Alex Monroe, Lene Vibe, Lene Vibe and Alex Monroe.

In the Garden

This is where you will want to stay even when the chill of fall comes along. This is a look that seems to continue well into fall/winter and holiday as so many women love floral motifs. And when they are mixed with insects in gold or precious stones and metal, well, we even appreciate them then, especially when created by Lene Vibe (Melee the Show), whose pieces continue to grow more magical and who creates a whole little fantastical world around pearls.

Alex Monroe Jewellery (Melee the Show) also does an amazing job with the tiniest of insects and a range of small and delicate blooms that appear on necklaces, earrings and rings.

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Shown above (left to right) are displays by Julie Lamb, Heavenly Vices and Alex Monroe.

These displays are by (left to right) Soulbound, Megan Thorne and Lene Vibe.

On Display

Take a page out of these designers’ cases. All of them used either vivid colors or the perfect props that allow you to understand their designs and make them pop. Check out how Soulbound creates the feeling of its collection within a 6-foot case with small objects (Melee the Show). Alex Monroe Jewellery creates a similar vibe with their displays props and pretty little accents (Melee the Show). Megan Thorne’s touches always echo back to her feeling for antique inspired creations such as in her vintage peacocks that act as ring trays. Lene Vibe (Melee the Show) also adds an extra touch with glass and brass cases that act as displays for her little garden party of jewels. Heavenly Vices (Metal & Smith) shows that you can display pieces beautifully when you only have a table to work as long as you have just the right hue in light violet displays that pop gold and silver, diamonds and enamel touches. And Julie Lamb (Metal & Smith) proves that you are in New York with her themed posters and touches that speak to the city she captures in her collection.

These plume-inspired pieces are by Annie Fensterstock.

Stand Out and Show Your Plumes

If these styles don’t bring out the peacock in you, I don’t know what will. Peacock feathers take shape in all different renditions, but two favorites were those that appeared in earrings by Annie Fensterstock at Melee the Show and at The Spectrum Awards Editor’s Day.

Shown here are pieces by (left to right) Michelle Fantaci, Erica Molinari and Brooke Gregson.

A Jewel of a Different Color (or Many Colors)

This trend can be seen in those with enameling in everything from antique-inspired looks to those with a pop ’60s feeling. Whether the enamel technique is used to highlight bold gemstones or to create the backdrop for motifs and messages, it is now being seen in different variations, which we saw at the shows in Las Vegas and New York and at press previews.

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Commentary: The Business

How to Get Rich from Lab Grown Diamonds

Take a stand and make some noise about it.

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SOME JEWELERS WILL make millions from lab-grown diamonds. Some by going all-in, some by refusing to sell them at all.

It’s the very brouhaha that spells opportunity for aggressive jewelers who take a stand early, one way or the other, to exploit the dispute and cash in.

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If you want to make a boatload of money, be a catalyst for the debate. Go public in a big way for whichever position you advocate. If you sit on the sideline and “wait for the market to demand the product,” the parade will pass you by, and you’ll miss the windfall that could have come.

You can actually win by adopting any of three positions:

1. Become the lab-grown specialist in your market. Go all in and shout it from the rooftops and go public with all of the benefits of buying lab-grown diamonds that the average consumer knows little or nothing about at this point. Do that and you’ll have a torrent of intrigued customers flocking to your doors.

2. On the other hand, you may be able to do just as well by scorning lab-growns altogether. “We’ll never stoop to selling those assembly-line diamonds,” would be your cry, and you raise the alarm just as loudly about all the challenges they present the consumer. The pro-lab-grown consumers will desert you, but your high-brow, purist clients and prospects will reward you with their loyalty, their money and their referrals.

3. The third position is that of the fair broker. You take the middle ground but are just as aggressive in your advocacy. “Yes there are advantages and disadvantages of both lab-grown and natural diamonds. We’ll give you the straight scoop, and respect your adult ability to make the right decision for you.” This position probably doesn’t have quite the same “bigness” to its sales-generating potential. Middle of the road is mediocre. Extreme positions tend to render extreme results. But it is nonetheless a credible, reasonable and profitable position to take that can bring extraordinary results, if you market your position hot and heavy.

There will be jewelers in the same city who win by taking any of these positions. They’ll battle each other like crazy, head-to-head, and all three of them can win at the cash register.

Remember, some jewelers were scolded when they started buying gold, and warned that they’d be perceived as pawn shops. But many got rich doing it.

Same with Pandora. The sparkle is obviously off that bead now, but while it lasted, many jewelers who went all-in got rich.

I can’t predict how long either the controversy or the public’s appetite for lab-grown diamonds will last. Could be a blip; could be forever. But I can say that those who get in early and make the most noise will also make the most millions the soonest.

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