Do you have any “bad profit” categories or services?
By far and away, the most common answer here was watch repairs, particularly if they have to be sent out of the store for repair. One respondent shared that they earn about 15% margin on such repairs. Some said they had given up on the watch business completely. One said that they tried to give up watch repairs, but that customers became angry so they brought back the service.
The second most oft-mentioned category was loose diamonds, particularly mined. “There’s too much of a race to the bottom, but we profit from the mountings,” said one respondent. Another respondent said that lab-grown diamonds were bad profits because they were stealing sales from mined diamonds, which take the same amount of time and labor while earning more cash at purchase.
Other services like appraisals, engraving and pearl-stringing were mentioned as bad profit centers, due to the time and, in some cases, technology investment required. However, some of these are seen as “loss leaders” to keep clients coming into the store.
Finally, a somewhat surprising “bad profit” center for some was custom design. Given all we read about the high profit margins that custom design can provide, we were taken aback. However, some say that they often underestimate how much labor and/or material will cost and therefore essentially break even or even lose money in some cases on custom design.
Here were some of the responses we received about “bad profit centers.”
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DIAMONDS
- Loose diamonds. Between investment and labor vs. profit, it’s a loss. There is too much of a race to the bottom, but we profit from the mountings. We are at a 3.3 key.
- Mainly loose diamonds that we bought at the height of the market, end of 2021 to mid-2023.
- Lab-grown diamonds! They take just as long to sell as a natural diamond and though the profit margin is good the opportunity cost is extremely high. If we could sell them a natural diamond then the top-line dollar is so much higher.
- Large mined diamonds are a pain, although we rarely work with them now.
- Diamonds tend to be the most expensive inventory with the least percentage of return overall.
REPAIRS
- Projects that require specialty experts that are beyond our talents and shop equipment.
- No watch repair, no batteries, no bands. We do not sell or service watches or repair anything that is not gold or platinum. No silver repairs.
- We will always bend over backwards to help our VIPs. That includes doing repairs on things we wouldn’t normally work on or charging less than we should.
- Watch repair is our worst segment. We do not have a watch maker on staff and must sub out that work. Our margins on watch repair excluding batteries is around 15 percent due to the high cost of repairs. We have recently stopped repairing lower value timepieces for this reason and only take in more valuable watches for repair.
- We stopped doing watch repairs because of “bad profits” and upset customers.
- Repairing badly constructed jewelry purchased elsewhere.
CHARITY
- Typically, our production pieces for different organizations. Necklaces for fundraisers, rings for motorcycle clubs, coins for military… we sell them in bulk, but to get the price to where it makes sense for the organization comes at a cost of profitability.
WATCHES
- Watches. We sell many watches with retail prices at or under $100 that aren’t worth the time to show/sell, size bands, box and gift wrap.
- We left the watch sales side of our business and haven’t looked back.
CUSTOM DESIGN
- Anything outside of my normal wheelhouse is getting too expensive. Finding large fine colored gemstones can cost $500 or more in overnight shipping and we probably still won’t find the right stone. Some custom design is getting really complicated and very time consuming. Some of the pieces the client wants to make will not wear or hold up well.
- Custom jewelry… Everyone wants it, but few can afford it. We sometimes end up underpricing for a number of reasons, or better yet, the client ends up buying from someone else after we invest all the work into it.
- Our only bad profits are customer specific such as when we accept something for repair that isn’t as straight forward as we thought. Or we wind up doing either special orders or custom work for someone who can’t be satisfied.
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ENGRAVING
- Custom engraving. The machine cost a lot of money and most people want things made in silver (because of the cost).
DESIGNER JEWELRY
- Consignment jewelry that we can’t compete with the designer’s pricing who gives us the jewelry. We introduce the customer to the jewelry in our store and then she reaches out to them via DM and sells at 40% less than our pricing. I would be more upset if I purchased the items, but since they are on consignment (her idea), I can only just stop selling her work.
NOTE: The INSTORE 2024 Big Survey was conducted via an anonymous online form from mid-August to late September, attracting more than 700 responses from American jewelry-store owners and managers. The full results will be published in the November edition of INSTORE.
