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3 Things To Do When Business Is Down

Each of these tips could save you substantial expense.

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WE ARE EXPERIENCING a period of unprecedented contraction in the retail jewelry business. In 1997, we had almost 28,000 retail jewelers; in 2017, it was down to 21,000 and by the end of 2018 was likely below 20,000. You could make the argument that the strongest will survive and become even stronger, but the big question looms, what do I do now that business is down? Here are three tips that may help.

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1. RENEGOTIATE EVERYTHING. You know the old saying that everything is negotiable? Well, everything can be renegotiable, if you try hard enough. The above-market lease that you signed years ago may be ripe for renegotiation at a lower, more realistic rent if you sign a new longer-term lease. The last thing your landlord wants is another empty space in his strip mall, especially when you’ve been a good long-term tenant. I’ve had great success in lowering my fixed monthly expenses for basic things like Internet, cable, phone, even garbage pick-up and window washing. In most cases, all I had to do was ask. Look at lowering all your fixed expenses and you’ll be amazed how much money you can save.

2. TRIM THE FAT. Take a hard look at your variable expenses. There are so many useless things jewelers spend money on. $300 a month for fresh flowers is a great example. I’m sure you won’t lose that bridal sale by displaying silk roses. One store I know used to spend $500 a month on ice cream and snacks for their employees, a nice gesture but not necessary. You can always cut back without cutting things out entirely. When you look at what you spend money on, you’ll be amazed at what just doesn’t make financial sense anymore in our current business climate.

3. ANALYZE YOUR STAFFING. When your gross sales are down, you must adjust your staffing levels accordingly. When you analyze your sales hourly, you may find it doesn’t make sense to have three people on in the final half-hour if you don’t do very much business then. You may even want to consider closing a half-hour earlier. Your staff probably won’t mind, and you will save thousands of dollars a year with just this small adjustment. If your customers aren’t shopping in the evenings anymore, perhaps a total overhaul of your hours are in order.

All of these suggestions may not work for everyone, but the goal is to get you to think about how you can save money and remain profitable. “Business as usual” just doesn’t work in today’s business climate.

Evan James Deutsch is founder and president of Evan James Limited, a 30-year-old AGS Fine Jeweler located in Brattleboro, VT.

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Where Did All My Profits Go??

Understanding cash flow vs. profit can affect how you manage your business.

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A COMMON COMPLAINT FROM retailers after the CPA has completed the end of year financials is, “Where is the money?” Often, they have reported a healthy profit (which also leads to a bigger tax liability to the IRS), yet their bank account never seems to reflect the profit the business makes.

It’s a common issue. Most store owners expect their profit to show up in the bank account — and that’s perfectly understandable. After all, profit is meant to be what you have left after paying your operating costs and vendors. Yet, rarely does it align.

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The reality is that cash flow and profits are two different things. Cash flow reflects the ins and outs of your bank account over a period of time. Profit is about your income and the expenses that relate to that income. That means the expenses don’t necessarily line up with when you paid them.

One of the best examples of this is the inventory you buy. For instance, let’s say Bob’s business does $1 million in sales for the year. With a keystone markup, Bob makes a gross profit of $500,000 from his business. After expenses of $400,000, his net profit is $100,000.

The bank account tells a very different story. Although the cost of goods sold is $500,000, Bob didn’t necessarily spend that much on inventory for the year. If he spent $600,000 on inventory purchases, he would have increased his inventory holding by $100,000. However, he didn’t sell the extra inventory, and therefore, it doesn’t pay for itself, but it will still come out of his bank account!

Timing is another important factor in paying vendors, too. Whether you pay your vendors immediately or pay the amount six months later, this will affect your bank balance, but it won’t affect your profit — the item is an expense when you sell it, not when you pay your vendor.

Your bank account can also be affected by assets that you buy. A new vehicle that is deemed a business asset may leave a hole in your bank account now if you pay cash, but as a business asset, its cost will be spread over several years to reflect when it is used. Your profit will look healthier than your bank account in this situation.

Of course, another factor to consider is personal spending. Withdrawing a good deal of money from your business account to support your lifestyle isn’t a business expense and won’t decrease your profit. It will, however, certainly lower the balance of your bank account.

It’s important to understand this difference between cash flow and profit so you don’t get caught spending money you don’t have.

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How to Create a Feeding Frenzy In Your Store

Limited-quantity special offers can do more than build short-term traffic.

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IMAGINE A VIRTUAL feeding frenzy of customers coming into your store to buy, right now.

Nice idea, right? But that’s not the sort of thing you can simply turn on or off like a faucet … or is it?

Actually you can, and it’s the perfect thing to create using email marketing and social media. The secret is to offer extremely attractive offers on extremely limited merchandise, and do it on a regular basis.

For example, maybe you offer an 18-inch strand of freshwater pearls with a regular price of $89 for just $27. Who wouldn’t want to buy that? Of course, many, many people would and will. But to get the feeding frenzy, you need one more element … urgency!

In this case, the urgency is manifested in the form of an extremely limited supply. “But I only have 17 of them, and when they’re gone, they’re gone!”

But why would you want to do this? I mean, let’s say you bought those pearls for $12 a strand. Well, selling 17 strands at a profit of just $15 a strand makes you a whopping $255. Hardly worth the trouble, right?

Well, consider this: When you do this regularly — at least once a month, and once a week is better — you can predictably expect the following:

  • You will virtually eliminate opt-outs from your email list. People will stay with you forever, not because they want or need any one thing or things, but they’ll be afraid of missing the one screamin’ deal they do. Research proves this to be true.
  • You’ll very likely see an increase in email opens.
  • You’re likely to see an increase in your social media engagements in the form of page likes, comments, etc.
  • You’ll finally be able to track social media responses directly to specific posts; no longer will you have to guess if your social media is working. You’ll know … and how well.
  • You’ll have customers walking in to buy. And that makes upselling and add-on selling much, much easier. If your sales team is well-trained, that li’l $27 sale turns into your average ticket or higher.
  • Perhaps most important, you’ll be training your customers on how to be your customers. You’ll be delivering the message that, in this relationship, they’re expected to buy from you.

Obviously, to make “feeding frenzy” marketing work, you need to buy right. Make it part of your trade show routine to visit the closeout booths to find such deals. Buy unusual numbers of the items you want to make your feeding frenzy offers (17 of these, 22 of those, 8 of another thing, 31 of something else).

It’s also important to keep the price points low. You can have something with a $200 value or more, but you’ll want to keep the “deal” price under $100, and under $50 is best. This has to remain an “impulse” buy that virtually any and every customer can appreciate.

And once you’ve mastered the art of the feeding frenzy offer, start making more compelling offers to your customers for those bigger items for bigger occasions. You’ll see your traffic, sales and profits skyrocket.

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David Geller

What You Can Learn About Turn from Clothing and Furniture Stores

Hint: Turn more, earn more.

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THERE ARE REALLY only three important numbers in a retail store: gross profit dollars, inventory on hand, and inventory turn. So who’s better at managing money among these three retailers?

Store                         Gross Profit %
Jewelry                      42.6%
Furniture                  45.0%
Clothing                    46.5%

Darn close, aren’t they? The grass isn’t so green on the other side after all. Or is it?

Let’s look at inventory turn, which means how many times a year an item sells. (These numbers are from stores doing “pretty well.”)

Store                            Turn            Days in the Store
Jewelry                   1.4                       260
Furniture               3.5                       104
Clothing                 4.3                       84

A clothing store won’t keep a shirt/suit/jacket/blouse in the store more than three to four months. They will heavily discount it at that point to get it out the door; they don’t just “squash” merchandise closer together to show more like jewelers do.

Furniture stores work the same way. They have a natural problem: available floor space. The biggest reason for high turn in a furniture store was told to me by a furniture store owner: “Where am I going to store an extra 100 mattresses?”

Clothing stores get rid of their merchandise every quarter. Furniture stores get rid of their inventory every four months, and a good jeweler turns their merchandise a little over once a year. But most jewelers I meet have had their total merchandise for two-and-a-half to four years! This causes terrible cash flow and piles of debt.

If you buy jewelry in January, it should sell at least once by Christmas; that would be a turn of 1.0. If it stays until after Christmas, discount it or give a spiff to the sales staff to unload it, or even return it to your vendor and exchange it.

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If it is still there in 18 months, scrap it. That’s what clothing and furniture stores do.

Let me show you the money-making power of turn. All three stores are going to buy an item for $200. For a jeweler, this might be earrings; for a clothing store, a nice jacket; and for a furniture store, it might be a chair. In the table below you can see the cost, profit margin in dollars, and what that brings in for total product dollars in a year.

Keeping an item long-term is a detriment. Even if someone buys it three years from now, you should have had that $207 in profit for each of the three years, totaling $621 brought into the store (not the measly $163.35 you would make by holding it three years).

When it’s over a year old, most things need to be disposed of and replaced. Maybe your customers just aren’t buying what you have in stock. Change that!

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