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New Incentives That Move Old Merchandise

Had a recent discussion on doing spiffs for the staff to get rid of old inventory with a store manager. The manager liked the idea of putting a “red dot” on the tag and pay $50 or so for everything they sold rather than putting all old items in one showcase-to keep like items together.

I like the idea of keeping the items together but am not always as thrilled giving a set dollar amount as a spiff. I usually find the store owner is giving away too little amount of money to make it enticing. If they sell one old piece a week and get $50, you might think that's a lot of money. Bet there's two things to consider:

  1. Lunch is $10 around town. One spiff pays for lunch for the week. Woop-de-do!
  2. Your staff comes to work for the "guaranteed pay" you've already promised them, not extras.
If they are making $700 a week ($36,400 a year) then $50 one week isn't really a big to do. Besides, many a sales people think they are "shoving old, outdated product down the throats of their customers" and hate the idea. They'd rather sell new and fresh merchandise. Hey, I would too.

If you give them $50 for a spiff that's the AMOUNT they can earn. But if you gave them a percentage of what they sold that was old it just might make a difference.

If you have a $600 piece of jewelry sitting next to another piece that sells for $900 and both have a $50 spiff, where's the thrill?

You can't make any money from inventory over a year old anyway so you need to move it. An incentive is the way to move old merchandise and YOU might think $50 is an incentive but if you're unhappy with how old merchandise is moving (or not moving) out of the store then take a new approach.

Many stores spend 5-8% of total sales on advertising. Would you hire an advertising firm who said the following?

"Hi there, we'll personally market and advertise to your customers to buy your OLD products. We'll show it to them personally and tell them the reasons why they should buy this beautiful (but old!) item."
    "Great, what's its going to cost me each month?"
"Actually there is no 'cost' as you describe it. A 'cost' is usually a cost whether or not there is a sale, like traditional advertising. We'll only charge you if we successfully sell something. If on a day we can't sell squat, we won't charge you a cent."

"Really? When you do sell something for me, what's it going to cost?"

"We normally have jewelers spend 5% on advertising and they spend it whether or not the advertising works. So here we'll charge a bit more but only if we can sell."

"So which would you rather pay?
5% whether we sell anything or not, or 8% but ONLY if we sell something?"

"I think I'd go with the higher amount and only pay if you prove yourselves."

"DONE DEAL! So let’s get started! I hope we both make a lot of money because if we sell a lot, you'll get money as will we"

So going back to the staff, give them the same type of incentive to sell old merchandise where your money is all tied up in non moving merchandise and allow them to make some serious money, not just lunch money.

Pay the staff 8% of whatever they sell in the old merchandise, no matter what the margin or age. Then they'll be more adept to sell even higher priced merchandise for you and you'll get the cash. Just have them remove the red dot tag, staple it to a copy of the invoice and hand it over to the bookkeeper for pay day.

Just think of the sales staff as your "advertising agency that only gets paid if they move something." In addition to whatever you pay them, give them 8% of whatever they sell in old merchandise.


David Geller
Director of Profit

---

P.S. Allow me to address skeptics who are saying "Oh yes I can make a profit after a year!"


Running a jewelry store is a two fold benediction:

  1. Make a profit. Typically doing so pays the bills and you. Making a profit can only be done during the "season". Clothing makes a profit during their "season", which is about 4 months. Ever notice after the season is over they dump merchandise? A jeweler’s season is about 12 months long.

  2. After the season is over then we're no longer looking at profit but cash flow. We no longer look at profit but "what can we get out of this stuff?" So after 1 year get rid of it for one purpose only GET CASH. What will we do with cash that came from not selling at our normal profit (if any at all?)

  • a. Pay down debt we've accumulated while holding onto merchandise that refused to leave the store.
  • b. CASH will pay down debt or accumulate in our checking account. Either way we'll have less debt and immediately be able to now purchase better selling, better price pointed merchandise. Making a profit:
In retail, jewelers specifically, at a 50% margin you can hold the merchandise for about 12 months and do well.

Example:
If you buy a $100 chain January 2007 and sell it at Christmas for $200 in December 2007 then you've held it for 1 year and made a $100 gross profit.

Replace it in January 2008 and sell this one December 2008 you've made another $100 gross profit.

On an investment of $100 in 2007 it has made for you in 3 years a total of $300 in gross profits. This is how its supposed to be.

If it doesn't sell within 15-18 months after you stock it, dump it!

What if you have it 3 years later and per chance sell it at full retail: $200, which is keystone, did you make a profit?

Not in the 3 year time line.

It was to make $300 over 3 years and here it only made $100 gross profit. You LOST $200 holding onto it.

The only way this chain would make money holding it for 3 years is to add each years missed profit to the tag.

So a 3 year old chain would have to sell in 2009 for $400, not $200. Then in 3 years you would have made your $300 in profit. But can you afford to wait for your money?

Yes I know with gold going up you might have gotten that for the chain. But what about all of the other stuff that won't be so lucky?

Never going to happen!

Get rid of it. That's why I suggest paying the staff a hefty commission on old merchandise. Your merchandise is locked up. A showcase sign that reads "SALE SAVE 25%" will not get the piece out of your locked case for the customer to touch.

But giving the staff 8% of the sale price will get it out of the case and shown to the customer.

One day it will have to go. If it costs you $500 and retails for $1000 and never sells you might then be enticed to sell it for $600 and move on, making $100.

I'd rather have the staff maybe sell it for $650 to a customer and let the staff have $52 (8%) and walk away with $598 and move it out sooner than wait another year and the refiner make all of the money.

So now that you know, doesn't giving 8% to the staff such a bad thing? NO! Pay them for performance.

www.JewelerProfit.com

JewelerProfit
510 Sutters Point
Atlanta GA 30328
404-255-9565
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