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The gold selling bug


#1

How are you going to make money in your store when everyone has
finally sold all of their scrap gold?

I don’t think the gold selling bug is over yet but I’m writing this
at the end of April and many jewelers across the country have
reported people selling their jewels have dropped off as much as 30%.
Many have said the quality of items are also lower and lower price
points. There is a gleam of happiness with some jewelers as a few
have said people selling their 2 ct and above diamonds have
increased.

If you’re among other jewelers who have been buying gold then you
may probably be almost debt free or have the lowest debt you’ve had
in years. That’s a good thing. No, I’m sorry that’s a great thing!

But don’t ask InStore Magazine to put you on their front cover as
the savviest jeweler just because you have no debt and a hundred
grand in the bank. All you did was win the Lottery. It also has
helped that so many American’s are out of work or have reduced
paychecks. I’m not happy about it but if this was the Bill Clinton
years you wouldn’t have bought as much gold.

So the buying scrap bug will decrease but when no one knows s do you
have another game plan in place to make a living?

How about Making money the old fashion way?

  1. Selling merchandise but this time not doing it the way your
    parents did it (if your folks were jewelers as well). How about
    selling jewelry like other retailers in the country…controlling
    inventory. Control it with what sells and what doesn’t along with
    what’s new, fresh and sells rather than items that just sit and cause
    accounts payables to grow.

  2. Time to take the shop out of 19th or even 20th century and get it
    to the 21st century by using technology along with demanding that the
    shop become a profit center, just like it is for car dealers

I want you think hard about one concept and that’s why you’ve made
so much money in buying and selling scrap. Its not because “there’s a
lot of money to be made in buying gold.” There’s not a lot of money
in most cases, think about it. The margins are many times lower when
you sell the gold to the refiner than when you might sell it as new,
dollar for dollar.

A. If you buy a bracelet for the showcase for $500 you’d sell it for
$1000. B. If you buy the customer’s scrap for $500 if you’re lucky
you might sell it to the refiner for $1000 but with all of the
competition you might get $800, 20% less.

So why do you have so much money in the bank? To make $500 in
example “A” above (selling from the case) you probably keep in
inventory $500,000. You keep 1/2 million in a debt causing asset to
make a measly five hundred bucks.

In example “B” above to make $500 (or even the $300 in profit) you
only have to keep in stock a measly $10,000 in inventory.

You might ask “where David do you get ‘$10,000 in inventory’”?

It’s the cash you have on hand. You’ve tied up ten grand, not to be
used for anything but buying gold. I help folks with their QuickBooks
and its evident. They have opened up a checking account called “Gold
Scrap” or they have a box in the safe with $10,000 in it.

Big difference in how much inventory you have to have to make
$500.00.

There’s one more aspect to making money in buying gold versus the
showcase.

dIn example “A” above, you buy a bracelet and expect to make $500 in
profit but that bracelet will probably sit in the store for about 12
months maybe even 3 years before you hear “show me the money”.

Whereas with the gold scrap where you’ll make $300 to $500 when you
sell it to the refiner, it typically will sit in the store for only 1
to 3 months.

Making money in gold scrap versus showcase sales is “reverse
osmosis”. What’s that?

In selling from the case you buy at your leisure and then sell it
whenever customers come into the store. The second part of this
sentence can be tough.

In buying gold you buy it when the customers come into the store and
sell it at your leisure. The first part of the sentence can be tough
but luckily there’s more demand for people have getting money that
spending money.

So business model would you like to be in?

  1. Make $500 in profit and buy & keep $500,000 in inventory and wait
    on the average 12-36 months to make that profit. If you’re lucky
    you’ll do this once a year.

  2. Make $500 in profit and keep $10,000 in inventory (cash) to make a
    profit but do this 4-12 times a year!

So it’s now time to plan for the cash cow to fall over dead and
we’ll eat hamburger. Relax, the cow is only a heifer at 5 years old,
it may last until its 8 or just die from a new disease called
"everything’s better now". But plan we must.

My brother and I are 14th generation jewelers and probably the last
in the family to do so. We started working in our father’s wholesale
manufacturing shop at the age of 10, this was in the 60’s. Many of
you may have either had parents who had a store back them or have
learned the business in another job from someone like our father.

Don’t imitate dad and mom or your previous mentor. Why? Because in
the 60’s and 70’s to make keystone on a 1 or 2 carat diamond was like
rolling out of bed. I worked at Neiman Marcus as their jeweler in
1971-72 and they sold a $100,000 diamond engagement ring and it had a
3 time markup on it.

Jewelers in those years had a gross profit margin of 60 to 72%. You
can afford “stupid”.

At these margins you can afford to buy more inventory than you’d
sell in a year. In fact your dad bought and paid for so much
inventory and made a good living to boot that when he cashed out
recently with a GOB sale he was able to retire. But if he had managed
his inventory better he’d have a lot more in his 401k plan that what
he cashed out in his store.

You won’t be so lucky because if you buy like dad and keep it
forever thinking you won’t be able to make a good living and have
"manageable debt". Debt has caused many a jeweler to close up shop.

Today the typical jeweler is only making 42 to 47% gross profit
margin. If you make 50%, big deal, 3 more points. When your day comes
to cash out you’ll have too much debt to pay off. You won’t be like
dad.

So what should you do?

Consider this question asked of you at a party: “So, how do you make
a living?”

If you answered “I’m a jeweler, I make or sell jewelry” you’d be
dead wrong!

You should have answered “I’m a banker”.

Why? Because your job is to make and keep and pile up money. That’s
a banker’s job.

Jewelers think their job is to sell or make jewelry to make money.
If that was so a banker would say “I make loans”. Neither is correct.
Can you go bankrupt selling jewelry? Plenty have.

Can a bank go under making loans? Look at the past 3 years, need I
say more?

Like a banker your job is to manage the money entrusted to you. The
banker handles dollar bills (as you do), she handles credit card
transactions (as you do) and manages an assortment of metals (as you
do). Her metals of course are nickels/dimes/quarters while yours is
gold/silver/platinum.

Your job is to handle money.

A banker stock piles money by offering interest on savings accounts
and later selling that money for a profit, called loans.

A banker must not build up her inventory of cash by going out and
offering all 200 million people in America 4% on their savings
account (a good return today). There’s no way she can make enough
loans to Americans to make enough interest (sales to a jeweler) to
make the interest she woes her savings account holders (called
vendors).

There has to be a balance between how much you sell (loans to a
banker) versus how much inventory you stock (called interest to a
banker.

Every jeweler makes money when they sell jewelry. But not all
jewelers have money.

Here’s the secret to having money in a jewelry store:

Your average inventory level for the year should be no higher than
the profit you’ll make from selling that jewelry.

Memo is not added into this equation.

So if you sell $1,000,000 and make a 45% gross profit margin your
gross profit will be $450,000.

You should not have over $450,000 in inventory levels.

You will then make money and have money.

If you keep $600,000 of inventory with those same sales you’ll make
money but have less money. if fact your accounts payables will be a
lot higher.

There’s a really great chance that increasing inventory from
$450,000 to $600,000 won’t increase sales enough to help pay for the
additional accounts payable increase.

To keep your inventory level lower than gross profit means selling
like a pro and dumping items that become old. Old is over 1 year
while dead is over 18 months.

Let’s talk about the shop.

Remember the story of my dad and others like him, where they made
2-3 time markup on 1 carat diamonds? You can bet at those margins
your dad gave great customer service! He was smiling all the way to
the bank.

What constitutes great customer service?

“Oh high Mrs. Smith. You’re a good customer, we won’t charge you for
that repair”.

or

“We need traffic, lets charge little for the repairs, that will
bring in traffic and we’ll get’m on the sale of the diamond”

Those days are gone.

The shop needs to be a profit center, it has to pay its own way.
There’s no more sugar daddies to go around.

There are far less bench jewelers around today and in my experience
that reason comes from one point and one point only

Bench jewelers aren’t paid enough nor have good enough benefit
packages that compete with a job in another industry

So if you’ve got a good one your first and foremost goal is to keep
them by paying very fair wages. Then charge customers enough money to
pay for the jewelers, findings and shop costs PLUS double that amount
for your profit.

That just might mean raising your $28 sizing price to $39! But again
as I’ve always said “Repairs are not price sensitive, they are trust
sensitive.”

Even in today’s economy my jewelers are still finding the closing
ratio is about 90% on repairs. yes you’ll have MORE walks on some
pricier items but remember you’re not a jewelers, you’re a banker.

Five years ago a woman might spend $145 to replace half shank on her
first small diamond engagement ring or her mom’s hand me down ring.
But that was gold at $600 and today at $160 that shank is now $250.
If she doesn’t think it doesn’t warrant spending it don’t sell it for
$145 to keep a customer, your cost on the gold is $60, triple that
and just the gold sells for $180. So far you sold a shank for less
than you would a $60 cost chain and you gave the labor away for free.

So you think “they’ll be back to buy a diamond?” There’s no loyalty
anymore and diamonds for the most part, like other showcase items,
diamonds are price sensitive, not trust sensitive. What proof? Fill
in this line below:

Product National closing ratio My Stores Closing ratios out of 10
presentations

  1. Items from the showcase 3-4 ___________________

  2. Repairs 9-10 ___________________

  3. Custom Design 6.5-8.5 ___________________

Using my price book, showing the price in the book to the customer
gives credibility and they will pay.

Technology

Its important to be efficient, especially at today’s cost. Every
shop should have a laser welder. It doesn’t costs, it PAYS. Leasing
is under $400 a month and that’s easily made up in a weeks repairs.

. A laser will make 75% of your work go faster.

. You will be able to do work that you had to turn down before
(increase even farther your closing ratio).

. Work that goes slower you can charge MORE for it, in our book its
50% more.

. You can make more money saving the customer money. How? If you
retip a ring with an emerald and you would charge to remove and reset
the stone plus tipping charges and it would take 1 hour you might
charge $156. But with a laser it can be done now without taking out
the stone, you’d charge the customer $108 thus saving her money but
this job now took 15 minutes.

At $156 you’re charging $156 an hour.
At $108 you’re getting $432 an hour!

In addition there’s big money in customized jewelry. About 75%+ of
my jewelers say custom is up in sales and still doing great and
competes with profit margins with repairs. But you have to be well
trained at this and have the right tools. On Polygon.net many
jewelers have had great success using these Cad programs in order of
ease of use:

Firestorm Cad
http://www.ganoksin.com/gnkurl/1yu

Stuller
http://www.ganoksin.com/gnkurl/1yv

CounterSketch A Gemvision/Stuller collaboration
http://www.ganoksin.com/gnkurl/1yw

Gemvision Matrix
http://www.ganoksin.com/gnkurl/1yx

Customers will pay to have items made as they like it. It will help
you to sell more diamonds.

Think back to the idea of selling a $1000 item from the case.
Remember how you need $500,000 in inventory to make a $1000 sale?

Well to make a $1000 custom sale requires virtually no inventory.
What does it take? Training and knowledge.

For little money and an amount of time you can buy knowledge.

While you’re still paying the bills with scrap gold sales or “just
plain luck”, time to get some more knowledge.

Knowledge on how to handle inventory with the 21st century and how
to make a lot of money from the shop.

I’m reminded of 3 phrases:

“We make money the old fashion way, we earn it.”

“Insanity is defined as doing the same thing over and over and
expecting different results.”

“Stupid is as stupid does”

Sincerely
David Geller
Director of Profit
www.jewelerprofit.com