Most retail jewelers refuse to understand ONE universal law on money
in a retail jewelry store. Every retail store has a NUMBER thats
right or that industry. TURN.
Actually there are three numbers which when combined give you
(GMROI) but lets not confuse the facts.
If your OVERALL product sales (no custom work or repairs added in)
gives you a 45% to 50% gross profit margin (get close to double cost
on sales=keystone) then the turn should be about "1.0 to 1.15". This
turns means if you buy a bunch of inventory on January 2nd at the NY
show almost all of it would be sold by December 1st or so.
A turn of LESS than 1.0 means you have inventory over a year old and
in jewelry retail if it stays TWO years you can't make any money
unless you increase the selling price by 50%. A $100 item sells for
$200 and you make $100 gross profit, you should make this every year
(reorder or buy similar and sell it)
if it stays for 2 years you need to add ANOTHER $100 in profit
So a $100 item:
Profit to be gained if sold in year one = $100
Didn't sell so ANOTHER $100 required in the second year
So Cost $100 + one years profit $100 + 2nd years profit $100 =
selling price of $300.
So whats the chances of a $200 DUD not selling in 12 months and
expecting it to sell next year at $300??? Get rid of it.
If you sold it for $200 in year 2 you would have a $100 profit, but
you were supposed to have two $100 profits.
Look at your inventory at cost. Add up ALL of the inventory over one
year old. Multiply it by 75 percent. $500,000 over a year x 75% =
Now go to QuickBooks and add up your accounts payable, credit card
debt and short term lines of credits and money you loaned the company
(building debt and equipment leases don't count)
You'll find that 75% of old inventory is about equal to your stores
Thats the difference between MAKING money (you did in year two) and
HAVING money (You don't because you can't satisfy all of your debt)
Simple, unload at any price stuff over 15-18 months old (don't have
it there in 18 months-including diamonds, its inventory) and you
1. Much less Debt
2. more salable merchandise which will turn into
3. Increased sales because customers and sales staff don't see the
same old boring crap.
Great insight David!
I wish I would have had advice like that when I owned a family owned
auto repair shop. I kept having that I will need that part as soon
as I get rid of it.
Thus my hoarding !8-)