The Jeweler, The Custom Piece and your Inventory
Even if you don’t do jewelry repair or custom personally I know all
of you sell it in some way. So if you’re a store owner and don’t mess
with the repair department, you should read this anyway. You’ll get
a lot out of it from an inventory side.
I got a call from a jeweler yesterday that is having cash flow
problems. He’s a 3 man band. He, along with another guy are the two
jewelers and there’s a young woman who works 2 days in the office and
3 days as an apprentice jeweler.
Cash flow is not great and he’s working lots of hours past the
number “40”. Sales are down for May. Did I mention cash flow stints?
Here are some of his problems. Now this guy is doing less than
$500,000 a year and many of you are much greater than that. But read
on, there s lesson here.
He does have product in his case and it’s a combination of things he
buys and a fair amount of things he makes. But easily 75% of all
traffic is driven towards “service”.
He uses The Edge, which has a report, key to success in the jewelry
industry GMROI. Jewelry Shopkeeper has it as well as just installed
with Ibis. This report tells you how well you are doing with
inventory. He stinks. His GMROI is 36 cents; it should be over $1.00.
For those not versed in GMROI, you can acquaint this to TURN. Turn
in a jewelry store should be greater than “1”. This means if you own,
at cost, $250,000 of jewelry, you should sell, at your cost $250,000
of jewelry. The formula is simple. Turn is the cost of what you sold
for the past 365 days (year) divided by the average inventory you’ve
had for the past year. Average inventory is what you had a year ago,
added to what you have today, and divided by “2”. (Its actually more
complicated but this is fine).
Turn should be “1” or greater, selling all inventory in a year. His
was.36, meaning he had enough inventory for three years.
He’s working his butt off at the bench, is ready to fire the admin
person because money is tight. He uses my price book and is making
money from the shop, hands down. His problem is this:
"Every time he makes some money from the bench, he takes probably
1/4^th of the shop profits and sends it to New York to a vendor, or
makes stuff himself to put in the case, with the full knowledge that
it won’t sell for almost three years (turn of.36).
Could you afford to send 1/4th of your paycheck to your Uncle Bob
who’s out of work, with a promise he’ll pay you back and it’s now
three years later and your cash flow stints, all because of Uncle
Bob’s drain on your account?
Inventory not selling at the end of a year is Uncle Bob.
Now I promised you something to get you to action based upon:
The Jeweler, The Custom Piece and your Inventory
It’s hard to get jewelers and jewelry store owners to give up on
their antiquated notion of “Hey, it will sell!” Doesn’t matter if it
ever sells, what matters is it must give you a profit somewhere
between the 1st day it sits in the showcase and its 365th birthDAY.
Here’s how I convinced him. Have you ever custom made a piece of
jewelry that was a round circle disc where you pierced out the
initials and placed a bail on it and it looked like this?
I found this picture on the web at:
So how to price the necklace was the question I asked him. I gave
If you had to buy a round disc from Hoover and Strong or Stuller
and it was the size of a half dollar (the diameter of the above
monogram pendant) and the disc cost you $100.00, how much would you
charge the customer for the gold?
After marking up the gold disc to the customer for materials, how
much would you charge for your time to cut out the letters, clean it
up and polish it? (We’re ignoring the bail at the moment)
He told me if the disc cost him $100 he’d charge a 2.5 time markup.
He’d sell the disc for $250.
He then said he’d figure almost all day to make it and wanted $700 a
day for his bench time. That comes out to $87.50 an hour if he really
worked 8 hours on it. Actually no jeweler has an 8 hour day at the
bench. Free time, customer time, bathroom time, all eat into our
billing time. My book is based upon $100 to $125 an hour so if he
actually spent 6 hours on it, he’d be charging $116 an hour for bench
time ($700 divided by 6 hours). I’m cool with that.
So the charge would be $700 plus $250 or $950.00 for this custom
pendant. The question is not is worth it nor can it be bought
someplace else cheaper. If the customer said I want the darn thing!"
this is what you’d charge.
Now back to the disc. Look at the pictures. Did the customer pay for
a whole “half dollar” size disc? YES! Did the customer take home all
of the gold from the half dollar disc?
ABSOLUTELY NOT! SHE WAS TAKEN!
Or was she? No she wasn’t. It is typical in almost all industries
that the custom pays for the scrap. If a guy repairs sheet rock in
home and uses half of it to fix a hole in the wall, you pay for the
whole sheet rock, plush time. Bad roof? You pay for all of the
shingles, even if he uses _ of them.
So it goes with a gold circle. Yes you can refine the left overs but
if you paid $20 a pennyweight, with all costs added in you’d be lucky
to get $15 a pennyweight.
So the pricing rule in custom design is if you order a disc to make
a monogram, 95% of the time your cost is for the whole disc and the
markup and charge to the customer is based upon the whole disc.
The entire disc, parts that left the store (on the customers neck)
plus any parts that don’t leave the store must 100% be paid for by
the profit of the item leaving the store.
Now onto Inventory. Same story. The profit from inventory that you
sell must pay for the product the customers bought plus the products
the customer didn’t buy.
To take it a step further:
"The profit from inventory that you sell must pay for the product
the customers bought plus the products the customer didn’t buy plus
it must give enough extra profit to also pay for overhead/expenses.
That’s what GMROI measures. Your inventory profits should pay for
the entire inventory, sold and unsold, plus enough profits to also
His store didn’t, that’s why he had cash flow problems.
Many bench jewelers work their butts off at the bench and make good
money but then they take too large of a portion of their profits and
plow into an area of the business that can’t make enough profits on
IT’S own. That’s “excess Inventory”.
He has merchandise that was dragging down the whole operation, his
Had three times as much inventory than he could sell in one
Had too many pieces that were way above the norm in price than
customers were buying. Too heavy in slower selling higher price
His customers didn’t conceive him as being a place to buy these
items. Bridal was a great example. He stocked it but people weren’t
buying it. They bought else where.
There are several solutions for this jeweler who makes a lot of his
living from the bench and wants to sell product for extra profits.
Do what he does best and focus on it. This happens to be bench
work. There is great money to be made from the bench.
Advertise correctly, often and your strong suits. He didn’t
advertise much at all and complains business is off. When everyone is
buying jewelry in America, even people with bad breath will sell
jewelry. But when times are rougher and sales drop the people who
continue to advertise continue to steal sales from those that don’t.
His product mix should be geared towards his strong suits in his
store and stock less of it overall. This is not to say that his life
long inventory plan should be to stock less, but he needs to drop off
the items that haven’t sold in a year and pay off debt. Then start
experimenting with what will sell and be good at it.
Over 50% of all jewelry sales are made by woman for themselves.
Typically a married woman will consider an “impulse” item in jewelry
to be $500 to $800. This means if she wants it she doesn’t need
anybodies permission! Above that amount the “couple” will discuss a
higher end purchase. I’d stock more fashion items of all types under
and way under these price points. Then re-order fast sellers
immediately and deep six anything not selling in 10 months.
This applies to all stores but especially to benchies. But the point
I wanted to make here was like pricing a gold disc where the customer
pays for the gold they received and also the gold that dropped into
the bench pan, selling retail merchandise must be the same way. Sold
inventory must also pay for the unsold merchandise.
Gross profit from selling inventory for the past 365 days should be
GREATER than your average inventory levels. Overall, by at least 10%
to be healthy. Meaning a good GMROI is $1.10 or greater.
Director of Profit