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#1

As printed in letters to the editor JCK July 96 comment welcome

WHO KILLED THE GOOSE THAT LAID THE GOLDEN EGG?

I’ve heard more conversation than ever about what it is that has eroded the
confidence and profitability of the jewelry industry. The culprits range
from misrepresentation of grades to the grading report, from false
discounts to wholesalers competing with retailers, and of course Rapaport
and Fed Ex.

I will make the case that most of our problems are common to most other
retail industries and that the retail climate in general is a battlefield
between the DavidAEs and GoliathAEs, with the edge going to the Philistines.
I have talked to many of my fellow merchants in Glencoe, all of whom are
independent luxury, or at least upscale, stores. They are all struggling to
find identities that will be competitive with the big guys.

The fact of the matter is that large chains have access to a lot of money
and, thus, inventory. They don’t open a 5,000-sq.-ft. store with the goal
of building inventory. They open with a full complement of everything. They
have unbelievable buying power and can squeeze concessions from willing
vendors that allow them to sell for 20% above an independent’s cost while
still making keystone. Return privileges are also an advantage. Their
vendors are jobbing out the large orders overseas for very cheap labor.

The large retailer carries only the top producing merchandise for quicker
inventory turn. If a category has 100 items, they will stock only the top
50. This is why all the merchandise looks the same at the mall. The other
50 items are the scraps left for the independent to sell, but they are the
bottom 50 sellers. The chains also have very little customer service, which
keeps costs down.

The small retailers have two options. They can try to be a small big store
and stock a little of everything. This strategy is a losing one since they
will typically have less merchandise, higher prices and less budget for
promotion and advertising. Or they can concentrate on the strengths a small
business has – such as customer service and the ability to operate within
a niche. This is also a tricky strategy, since customer service is very
labor-intensive and, thus, expensive.

A prime example is Parkway Drugs down the street. The store does a big
delivery service on prescriptions, something Walgreens doesn’t do, and goes
out of its way for special requests. The owner told me he will close the
doors when he retires because it is almost impossible to survive on only
that business. He needs to sell bread-and butter items such as Listerine,
but he has to charge $7.85 while Walgreens charges $6.50. Customers are
smart enough to use him where he is strong and use Walgreens where it is
strong. This works well for Walgreens, but not for Parkway.

We all hope our service will instill some feeling of commitment among our
customers. But people look out for their own best interests: prescriptions
from Parkway, Listerine from Walgreens. Loose diamonds from wholesale-type
outlets, custom mounting from small independents, fashion jewelry from the
mall.

This brings up a final point. The industry is being segmented into two
distinct markets. Large companies gain great economies of scale. Few
companies can compete on price with Wal-Mart, Service Merchandise and Home
Shopping Network. The other market, the service-oriented market, is
becoming decentralized as anyone and everyone enters and tells their
neighbors, “I can get it for you wholesale.”

What is the answer? There isn’t much room to maneuver. The key is to be
strong in what you do well and get out of peripheral markets. You also must
decide if you have the staying power to ride out the impending shake out of
both markets. Once equilibrium is established, the hot investment money
will go elsewhere. We will not make as much as we used to and they (big
finance companies posing as retailers) will not be able to profit
excessively off the goodwill that our parents built up.

Steven Pollack, President
The Missing Link Jewelers
Glencoe, Ill.


#2

You bring up some very good points Steve- as I watch my little island of
tourist dependent jewelry stores struggle to survive.

I hear it all- we must be expensive because we are in a resort, the locals
bring in the stuff they bought from QVC, mainland chainstores, or
carribean shops and want me to confirm that they got a deal. (Yuck).

I make things other people don’t- sometimes they sell well (and some of
the other stores imitate them)- somtimes the R&D was not worth the effort.
So I do what my mentor told me many years ago- educate the public- one by
one. They can have reasonably priced quality jewelry- pieces that are
limited in production or one-of-a-kind; they just have to be patient while
I make it for them. I sell stones that chain stores don’t understand-
tourmalines, color change sapphires, fresh water pearls, tsavorite garnets-
and when it gets down to diamonds- GIA certs and reasonable prices.

There will always be a market for custom pieces- there always will be
people who respect, appreciate, and pay money for craftsmanship and great
design. Sometimes it is difficult to keep that in mind…

Rick Hamilton
Richard D. Hamilton, Jr
http://www.rick-hamilton.com
@rick_hamilton


#3

There will always be a market for custom pieces- there always will be
people who respect, appreciate, and pay money for craftsmanship and great
design. Sometimes it is difficult to keep that in mind…

You have hit the nail on the head! Educating the tourist and average
consumer is the only true way to overcome the QVC zombie drumbeat! …But
I would’t trade Cape life…it’s great!

Steven B. Wardle & Barbara W. Knowlton
Designer-Goldsmiths
Forest Beach Design
Chatham MA 02633
508-945-7334


#4
There will always be a market for custom pieces- there always will
be people who respect, appreciate, and pay money for craftsmanship
and great  design. Sometimes it is difficult to keep that in mind....

I don’t have difficulty keeping that in mind… I just have difficulty
finding those people!

Dave Sebaste :slight_smile:


#5

Richard, You are right about there always being a market for craftsmanship
and your words are encouraging.

I am in an area where all the diamond dealers in Chicago live and I very
rarely meet someone who did not buy from one of them. Some of them are
getting very aggressive however and when I quote a custom job requiring
12-.03 diamonds they go get them at MY COST. I don’t know if these guys
are trying to put us out of business or what but I find it hard to make a
living, with high retail overhead, just supplying labor. How much can you
charge for a custom mounting which will take 8 hours? If I charge $600 I
feel I am pushing the envelope but the few months I have had where most of
my work was labor it becomes obvious that my bench time is limited to the
point where I can just break even on the bills.

Luckily I don’t have many of those months and I manage to sell some side
stones and the ocassional stock piece. All in all I am building a strong
client base and things are going well but the frustration is there. Thanks
again for the encouragement.

Steve


#6

I recently had a client who bought and brought in the emerald and 2
diamonds for an engagement ring. I made a nice 18k yellow gold setting for
the stones. Charged him fairly. He really had done his homework- picked a
stone after looking at over 60 emeralds, and in the process saved himself
about 40% of the appraised value of the ring. I think that someone who does
spend the time to make such an important purchase deserves praise. I was
told that they would be back for the wedding bands.

In the Boston area people are selling 1 carat diamonds for a few hundred
dollars over cost. It really is tough to compete- clients are learning
about certified stones, and are shopping harder for quality.

I’ve politely declined when my instinct said a project (or client) would
be an exercise in frustration. It is imprortant to remember that you really
can’t please everyone. But isn’t it a great feeling when you make a piece
that is really great- fits the client’s style- and years later the feeling
is just the same? The recent emerald/diamond client was recommended by a
woman whose emerald /diamond ring I made in 1979. It is still a favorite
piece for both of us.

Rick Hamilton
Richard D. Hamilton, Jr
http://www.rick-hamilton.com
@rick_hamilton


#7

As a pearl vendor–one of the least understood items in our industry–I
always recommend people to buy from small retailers because usually you
can speak to the person who bought the goods. Your average mass
merchandiser behind-the-counter stuffed shirt has the 4C’s diamond
training and little else. Their pearl vocabulary is limited to
"beautiful" and “luster” and they rarely have a range of qualities to
educate the customer. Generally, I’ve found that people will pay more for
better pearls if they understand even a little bit about them. There’s a
quote on a friend’s wall:

“The bitterness of poor quality remains long after the sweetness of low
price is gone.”

I blame the Wal-Marts of the world (and Chinese overproduction that made
it possible) for turning jewelry into a price before quality issue. But
everybody from Macy’s to HSN are all trying to upgrade their image and
product line. The public is finally beginning to differentiate between
value and price.

In the last ten years on the wholesale level, there have been hundreds of
new stone suppliers that have jumped into the industry with a few
contacts, but little knowledge (or scruples) of how it operates. They
have been working on tiny margins and borrowed goods, running to major
manufacturers who are supplying the mass merchandisers. When the major
bankruptcies hit (Zale’s, etc) in the early nineties, returned goods hit
the market in force driving prices even lower and making it difficult for
established stone dealers to compete. This allows the major retailers to
bully around all of their domestic vendors–for some reason, overseas
companies can demand much better terms–with returns, etc. As a result
there are more goods on the market than money, creating a vast buyers
market but, at the same time, creating a sense of fear among potential
buyers (“Why is this so cheap?!?”). In the long run, this method of
business will systematically drive itself into the ground because the cost
of cheap labor is going up while the price of the merchandise produced is
going down. It will probably get worse before it gets better, but there
will be even more attrition and finally, the people who don’t buy into
this vicious circle–namely, the independent retailer who specializes in
niche markets, not QVC closeouts–will come out ahead. Hope hope.

There is one other curve ball: the internet. If everything heads in the
direction that Bill Gates is so heartily broadcasting, the ability to
shop around will get much easier and, guess what, we have a new era of
international market pricing competition. However, like television
shopping, it still lacks the hands on education that a store can provide.
The best way that I see of avoiding this whole mess is touting quality
and charging for it. Look at Cartier and Tiffany. The typical response
"I know I paid too much, but at least I can trust the quality." That’s
the type of customer that will keep our industry alive. Here’s to 'em!

Regards, William
Luma Group, Inc. Tel: (212)391.3999
21 W 47th St 6/F Fax: (212)391.0090
New York, NY 10036 Email: @William_Hochstedler


#8

I actually have a strange but good situation. I have a shop
doing work for about 25 retail stores. My guiding principle over
the years has been not to let any single store exceed 10% of our
gross. This was to protect us from the problems associated with
losing a large account, for whatever reason. I then let a large
account violate that principle, he had openned a second store,
was doing a huge business and together the two stores had become
30% of our gross. Although it was against my rule, everything was
good, lots of work, prompt payment, everyone was happy. The only
problem was I was working 75-80 hours a week and my key employees
not much less. It was at this point that this customer came to
me and said he was thrilled with the quality of the work, BUT, he
wanted faster service, three days on sizing and setting, 10 days
to 2 weeks on all custom work. I said no can do, we are at the
breaking point now, our service is good enough. He said, you
can’t be happy working all these hours, I want rested goldsmiths
setting our stones the quality will be better. He asked what will
it take to get faster service that is still high quality. I said
I had been thinking of raising prices (we were already charging
as much as the highest price shop in town) and dropping a couple
of problem customers. He said, how much? I said 25%. He said,
raise them 50%, what do I care if you charge me $6.00 or $9.00
to set a 1/2 carat stone that I am making $800.00 - $1000.00 on!
So after much thought we raised all labor and findings prices
50%, custom work stayed the same. We dropped several problem
accounts and have held on to the others. We are making just as
much money, I am not working more than 60 hours (still too much
but better), I wish I had done it 5 years ago. I guess the moral
is that sometimes what you fear can be your friend. Not only did
I rely on him but he was depending on us. I will never
completely shake the worry of losing a big account, but thats
also one of the things that drives me to always do a good job.

Mark P.


#9

Thoughtful comments and interesting. Thankyou

Charles

Brain Press
Box 1624, Ste M, Calgary, Alberta, T2P 2L7, Canada
Tel: 403-263-3955 Fax: 403-283-9053 Email: @Charles_Lewton-Brain

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#10

In a message dated 97-04-09 22:15:56 EDT, you write:

< There will always be a market for custom pieces- there always will be

people who respect, appreciate, and pay money for craftsmanship and great
design. Sometimes it is difficult to keep that in mind…

You have hit the nail on the head! Educating the tourist and average
consumer is the only true way to overcome the QVC zombie drumbeat! …But I
would’t trade Cape life…it’s great!

After doing “some shows” and talking to some who have done “many shows” I
tend to agree. . . we have to Educate the tourist and average consumer .
… there are TOO MANY of those QVC and “flea market mentallity” ones out
there. THose whom do no appreciate the time and skill put forth to produce
a one-of-a-kind piece. . .they think everything should be priced “under
$10.00”


#11

In a message dated 97-04-12 21:53:35 EDT, you write:

< The best way that I see of avoiding this whole mess is touting quality
< and charging for it. Look at Cartier and Tiffany. The typical response
< “I know I paid too much, but at least I can trust the quality.” That’s
< the type of customer that will keep our industry alive. Here’s to 'em!

Dear William

Hear, Hear!! Or is it, Here, Here!? At our little shop in the Bronx,
N.Y., I am desparately trying to maintain quality despite a rapidly
decaying income base. We are faced with underkarating, fictitious sales,
and 'I can get it cheaper for you" attitude, forcing generally poor
workmanship in all phases of jewelry. It isn’t helped by the huge chain
stores (macy’s for one) offering 50%, 60%, and 70% off all their suggested
retail prices, 50 weeks out the year. I belong to a jewelry group, called
’Consolidated Jewelers of Greater N.Y." , which has been fighting fictious
pricing for years now. Some of you who subscribe to National Jeweler would
have seen the article last month about the signs the group has printed
combatting this practise, and the signs are available from the group.
Anyone interested can contact me at:

1-718-231-4701; Ask for Allan Freilich re:consolidated jewelers assoc, of
greater n.y.


#12

Along these lines of small retailers, a customer made a comment lately
that at the time seemed minor, but as I sit here thinking about touting
quality vs. price, I realized that it held a major lesson for doing custom
work. I was making a custom 5-pointed star with a .25ct dia. in the
center, It was made to look like a general’s star so there was a lot of
filing to get all of the angles looking sharp and crisp. The inside star
cutout was a real pain to get neat because of those five little points.
The customer came in while I was partway done with it and I showed it to
him. His comment was, “A lot of hand work, huh?” He realized in that
brief instant that he was getting his money’s worth. There is a lot to be
said for letting customers see work in progress, even if it’s not there own
piece. It helps to educate (there’s that wonderful word) the consumers as
to the workmanship that goes into the price of custom or designer pieces.
Let’s face it, most of us underprice our custom work because we
underestimate the amount of work/time it is going to take and we "know"
what we are doing. How can we expect the average consumer to understand
the complexity of the process, unless we show them.

Most fields or hobbies have similar process that you can relate to to help
customers understand. For example, the processes necessary to achieve a
high gloss finish on wood is very similar to what we go through to finish
a piece of jewelry. A mason would understand the tediousness of getting
lines and angles precise, etc. With a little patience, most people will
understand the value of truly “fine” jewelry, and that is the first step
towards getting them to buy. (This being said as I sit here praying that
I can survive in business long enough to get to the point where they start
buying.) I think you’ll find that people like to brag about what they
know and the more you give them, the more they will tell their
friends and associates, and if you’re lucky, they say where they heard it.

Think of your customers as innocent victims who have been led astray by
deceptive advertising and mass merchandising. We are the heroes in the
story. We are trying to save them from poor quality and workmanship. We
are not the villian trying to rip them off.

Sorry for the preaching, but I think I needed to tell myself this. Now I
have to get back to my taxes.

Hope everyone has a great day.

Sharon Ziemek