Do the Math, Part 2

Having just completed the summer show season, I have an impression of significant concern in the jewelry community, if not a whiff of desperation. In talking to some of the brightest people in the industry, it’s clear that, collectively, they are no longer able to ignore the elephant sitting in the corner of the room, with the word “margin” written on it.

One has only to read the trades to know that some of our largest retail chains are struggling just to keep many of their doors open, because margins are too thin to support the expense of real estate, large inventories, and the other costs of doing business.

At the same time, manufacturers are diversifying and diffusing (watering down) their best-selling lines and adding new distribution points to an overinventoried, overstored market just to maintain sales volume levels and keep their factories busy.

That leads us to question: Do you think consumers can pass the following test? Cover up the names on the porticos over the jewelry doors at the mall, remove the in-case signage from the department store’s jewelry counters, and hide the names in the front windows of the mom-and-pop jewelers. Can the basic American consumer tell you which store he or she is in, based on the same-old, same-old jewelry and watch lines in every showcase? If your answer was anything other than “Uh-oh!” you may want to take off your pink, oversize, white-framed Gucci-logoed sunglasses (that cost you, and too many of your customers, four times more than a “fun” pair of fashionable diamond-accented hoop-within-a-hoop-within-a-hoop “circle of life” earrings you could have sold them) and behold the elephant.

Our “best” consumers (and potential consumers with disposable incomes) demand a fresher, better, more interesting sales experience in the store. Too many jewelry stores are still too boring and sell jewelry that is closer to a commodity than an unadulterated pleasure with immense personal, psychic satisfaction. The scary thing about this scenario is that we, as an industry, are so risk averse, that even though we know the products are too similar and don’t create an exciting shopping experience, we buy more of the same with just a slight variation for “this season.” If your big question is, “Um, yellow or white gold?” you are in deep trouble.

With margins under ferocious pressure from all sectors, you have to get out of your comfort zone. Using the quintile business analysis concept discussed last month in this space, identify and require the bottom 20 percent of your merchandise (and any merchandise that’s more likely to become a museum piece than a hot new trend, i.e., beyond two to three years old) to sell through in the next 90 to 120 days. Liquidate the remaining product (off premises, please) through eBay; a jewelry liquidator; scrapping; or, better yet, as a donation to a local charity, with all its public relations value, good will, and tax advantages.

If the type of jewelry you sell is in the “good” category, work to improve to the “better” category. The margins are stronger, and there is more to romance and inform your customers about—better jewelry creates a greater sense of theater and a better experience and is more likely to let them justify giving you their disposable income. (You simply cannot beat the price points of the Big Box Boys of the new retail world order in the “good” category with just your history of local service and “nice” product.)

The same goes for the “better” guild independent retailers. You need to work hard on adding more “best” to your inventories in terms of product, brands, and knowledgeable sales associates. (Bailey Banks & Biddle, Helzberg Diamonds, and Jared are already well on their way to executing exactly this strategy.)