Whenever I speak to jewelers about their business, I get the same thing over and over:
Jewelers keep focusing on MARKUP!!!
Jewelers consistently want to get keystone on everything and are just unhappy if they make just a little money on selling a diamond. It is not about markup ALONE.
The automobile industry figured this one out years ago and I didn't know it in the early 1990's when I made my first repair and design price book, but my book mimics the repair department of the car industry. In their repair shop, the mechanics are on 100% commission and get about 40% of the labor charge, that's one reason why your car repair bill has labor broken out from the parts. My price book is based upon the same system, just different percentages. Findings has a markup and then a 4 time markup on jewelers wages
Last night we had 30+ people over for a casual dinner and I got to speak to the guy who is the parts manager of a very high end car brand here in Atlanta. Over he years I have found if you give people a lead in question, they love to open up. Tonight was no different. So I asked the parts manager this question:
"So, what kind of turn does a parts department have in a car dealership?"
Then the numbers just start dribbling out of his mouth like a baby drooling baby food:
"We have a turn of about 10."
(This means that 10 times a year the complete parts department is sold out. About every 5 weeks they sell at their cost the complete inventory. A good jewelry store has a turn of about 1. We sell everything once a year. ? while they sell everything in 5 weeks)
How much inventory do you have to keep on hand?"
"We have about a million dollars in inventory; I'm trying to get it down to $800,000 even to $750,000."
Smart retailers of any type always think of HOW to reduce inventory levels, not grow them. Most jewelers who are in financial difficulty are always saying "More is better; we'll have better selection; somebody will buy it one day!"
Then I didn't have to ask any other questions, the baby just started drooling." Quick, get a bib!
"This month in the parts department we'll do about $800,000 in sales with a gross of $300,000."
Do the math, that means they have a profit margin of only 38% and they are happy. Jewelers want 45-55%. They are not driven by markup, they are driven by inventory levels and turn in a year. They watch and look at turn and inventory levels. We only look at margin. If you follow my writing on Gross Margin Return on Investment, that gives them a GMROI of about $3.60. Jewelers TODAY are around 67 cents to under a $1.00. A dollar or better is good for a jeweler but most got caught with their pants down in 2008-left with lots of high end merchandise and too stubborn to dumb it.
"Two years ago I started putting the parts department on the web. We'll do this year probably a million dollars on the internet and I don't have to do anything. Just come in the morning, look at the orders and ship'm!"
I then ask "People buy parts for cars over the internet? Who is this, other dealers?"
"Oh no, we don't sell things like alternators. People are buying accessories. Hats, t-shirts, gloves, fancy wheels. Fun stuff. It's amazing, we ship all over the world. China, Australia, you name it."
This is still a brick and mortar car dealership but he recognized the web will be big for them. Many car dealers have at least one person dedicated to handling inquiries on the web to buy a car, those leads are still being given to REAL SALES PEOPLE to call and have a personal touch with the consumer and try to sell them in the showroom or over the phone.
What did you do today?
"I hardly ever work a Saturday. I hire that out, there's others that work Saturday hours, I watched football with my 2 sons today."
I've met a few jewelers who don't work like dogs and take off to be with their family. This guy manages a back area that few customers ever see and his area is doing about $10 to $12 million in sales a year. He's handling all types of parts to FIX a car; things to CUSTOMIZE a car as well as SELLING things for fun and his staff is trained so the back area runs without him. Did you notice the capitalized areas I type? They are in a jewelry store:
FIX: Repairing Jewelry
CUSTOMIZE: Custom Designing Jewelry
SELLING: Selling jewelry from the showcase
For you younger folks in the jewelry business today, maybe its time to STOP emulating the boss, the boss's father or the old codger boss or what you were taught in the other jewelry store where you got your training. Maybe its time to start copying other successful models in retail. Yes, car dealers as well as jewelers have closed up in the last few years, but this car dealership I speak of typically sells cars from $39,000 to $100,000 each. High end and they are doing well in this economy because they manager the numbers rather than letting the numbers manage them.
So I ask you this question, the same question I ask myself several times a year when I want to ask myself a body shaking question to see how I think I'M DOING IN MY BUSINESS:
"Yes, so how's that working for you?"
If its not, time to do something different, isn't it?
David Geller
Director of Profit.
www.JewelerProfit.com
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