Starting from Scratch: Unique challenges of first generation jewelers

Opening a new jewelry store is always challenging. But for entrepreneurs with little or no experience in the industry—and without a family history in the business—the endeavor is especially difficult.

Besides addressing normal business concerns like cash flow, inventory management, and hiring and managing staff, first-generation jewelers must quickly get up to speed in areas that most second- and third-generation store owners take for granted: product knowledge, dealing with jewelry vendors, buying goods overseas, and understanding the subtleties of how the business works. And because they don’t have prior industry experience or a family reputation, first-generation jewelers also find it challenging to secure financing, land “A list” vendors, and negotiate the most favorable buying terms.

“I find that most folks starting a retail jewelry store without the help of parents before them are hindered by two distinct things: they don’t know what they don’t know, and they think they know enough to go it alone,” observes David Geller, a noted jewelry retailer, author, and store consultant.

JCK spoke with a number of successful first-generation jewelers and several industry consultants to uncover the unique challenges these novices face when launching a jewelry business.

The ABCs of jewelry

Lack of product knowledge is one of the most important obstacles first-generation jewelers must overcome, because it can result in stocking inferior product that doesn’t sell or gets returned. Lack of knowledge also can result in overpaying for inventory. This was the painful lesson learned by Charleston Alexander Jewelers, which opened its doors in Falls Church, Va., in 1986. According to John Sabet, president, the company initially bought whatever it could get its hands on and relied on the honesty of its vendors to supply quality product at fair prices.

“I remember buying from local vendors when tennis bracelets were hot,” Sabet recalls. “What I got was inferior-quality diamonds, but I didn’t know it at the time. We actually put ‘light brown’ on the tags. All we understood was price point.”

Despite the focus on price point, Sabet says his company paid about 30% more for the bracelets than it should have. “We were really taken advantage of,” he says. “There are a lot of vendors out there who will prey on you if you don’t know what you’re doing.”

Stories like this don’t surprise A.J. Sales, chief operating officer of KWHS Inc., a jewelry store consultancy based in Paducah, Ky. According to Sales, many entrepreneurs who make the leap into retail jewelry don’t understand the unique merchandising aspects of running a jewelry store. “Liking jewelry isn’t enough; you need superior product knowledge and a good understanding of fashion,” he says. “For most first-generation jewelers, unless they hire someone with gemological training, they are buying blind.”

For entrepreneurs new to the jewelry business, learning how to determine product quality and value, find vendors for specific products, and establish the right product mix for your market is a long trial-and-error process.

William Doddridge, president and chief executive officer of Tustin, Calif.-based Goldenwest Diamond Corp., a 14-store chain he started from scratch in 1977, can attest to that. Doddridge says his early merchandising philosophy was to keep buying what was selling, dump what wasn’t selling, and never make the same buying mistake twice. He received his initial product education in the course of doing business. “I visited every vendor in each product sector and went with the one that had the best prices,” he says. “Dealing with vendors will educate you very quickly.”

What’s in a Name?

Plenty, if you’re trying to launch a jewelry business. The value of your name and your company’s name—your reputation—can make or break you in the jewelry industry. Yet how do you earn a reputation if vendors, lenders, customers and even other retailers don’t know you and are hesitant to give you a chance?

“When you start a jewelry business from the ground up, you have no brand name, no reputation in the industry, no JBT rating, nothing,” says Dan Wixon, owner and general manager of Wixon Jewelers, which he founded in Bloomington, Minn., in 1988. “Nobody will talk to you at trade shows, the big vendors won’t come into your store, the top salespeople don’t want to work for you because they’ve never heard of you, and the banks don’t want to lend you money because they don’t know if you’ll be around in six months. It takes a lot of hard work and perseverance to get around all of that.”

For Wixon, who started out selling price-point goods but quickly shifted his sights to higher-end product, the struggle to do business without an industry reputation is typified by his experience in the watch sector. From the moment he decided he wanted to run a jewelry store, he wanted to have Rolex watches in his cases. But major luxury watch brands simply won’t do business with untested newcomers, and Wixon said it took many years of proving himself before he finally got Rolex into the store.

“The watch companies are extremely tough on new businesses,” he says. “They want to know who you are and what other brands you carry—and of course, you don’t have any, so they aren’t willing to sell to you. You end up starting lower in the pecking order and stocking whatever you can get.”

Show Me the Ropes

For many first-generation jewelers, finding someone willing to serve as a mentor—a vendor, retail colleague, business consultant, or even an experienced employee—undoubtedly made all the difference in the world in their store’s early days. Some even acknowledged they might have “thrown in the towel” without the mentor’s support.

Sabet said he was lucky enough to find “tremendous vendors” who saw the potential of Charleston Alexander Jewelers right away and helped the retailer through the early years with faith, trust, and sound business advice. “I never forgot the people who took advantage of us or those who helped us,” he says. One vendor in particular played a crucial role in the company’s development: The brother of one of the retailer’s wholesalers, who runs an office in Israel. He took Sabet under his wing, showing him how to buy diamonds abroad, setting him up with the right contacts, and teaching him how the international diamond markets work. “Every time I went back to Israel, I learned something new from him,” he says. “He is now my largest supplier in Israel; I buy several million dollars [worth] of merchandise from him several times per year.”

Hiring experienced, knowledgeable salespeople also helped Wixon elevate his business beyond the level of a typical first-generation store. Veteran staffers bring a wealth of knowledge as well as industry contacts and an understanding of how the industry works. They also know what the competition is doing—invaluable to a struggling entrepreneur who doesn’t have time to shop other jewelry stores.

“When you have employees who know more than you, you can bask in their knowledge,” Wixon says. “It saved my butt many times. I’ve been very lucky, because when you start out, you don’t get your pick of the top people in selecting a staff—you might not even be able to get people who have been in the industry. It’s a very different scenario for a second-generation jeweler, who usually inherits a great staff.”

Analysts estimate that nearly three-quarters of all small businesses won’t make it beyond their fifth year of operation. Of those that survive, most will not reap the financial rewards their owners envisioned. With the stakes so high, first-time jewelers must reach out and take advantage of every resource available to them, Sales says. This includes reading trade magazines, using the Internet for information, attending seminars at trade shows, and joining a trade association or buying group.

“For first-generation jewelers, it is critical that they research every aspect of the business carefully before opening a store, and afterward as well,” Sales explains. “This means planning properly, keeping good records, watching the balance sheet—not just profits, but cooperating with suppliers and banks, utilizing professional assistance, learning constantly, and recognizing their limitations.”