Business Report

Test Your Family’s Business Compatibility

Family conflicts are an occupational hazard in the jewelry industry. So how do you know when conflicts go beyond normal and reach a level that can imperil both family happiness and the business itself?

One way to find out is with this checklist, prepared by Marc Silverman, Ph.D., of Strategic Initiatives Inc., a family-business consulting firm in Providence, R.I. Every family member who’s part of your business should fill it out on a scale from 1 (does not describe family dynamic) to 9 (describes family dynamic well). The scores can be revealing, as you’ll see below.

Family Business Checklist

1. There is trust between family and non-family employees.

2. Family members trust each other.

3. Communication is strong.

4. Self-esteem is strong. There is a general sense of individuals’ well-being.

5. Family members discuss business conflicts constructively.

6. Differences between family members are accepted.

7. There is a sense of good humor, openness, and respect among family members. Secrecy, sarcasm, cynicism, and suspicion are low.

8. Clear separation between family and business issues exists with reasonable family connectedness outside the business.

9. Business decisions are made for business reasons, not to satisfy family needs.

10. Win-win solutions are sought to resolve conflicts.

11. Problems are solved from a team approach (a score of 9), not unilaterally (score of 1).

12. There is adequate appreciation and acknowledgment given to all family members, particularly those not in the family business.

13. Family members are reasonably open and honest with each other.

14. None or few members have addiction problems, untreated depression, or stress-related physical problems such as hypertension or ulcers (9 for no addiction, depression, or other symptoms).

15. Feelings of hurt and anger are dealt with reasonably, rationally, and compassionately.

16. Blaming of each other is minimal.

17. There is a strategic plan in place that has been accepted by all employees.

18. There is a reasonably well-accepted succession plan.

19. Estate planning has been done in a way that feels relatively fair to all concerned parties.

20. There is a reasonably well-functioning, non-family-dominated board of directors.

Scoring:

Compute the average score for each form (add up the scores and divide by 20). Then compute a composite score for all family members working in the business (add all of the scores for every question and divide this sum by the number of forms filled out multiplied by 20). Consider computing average scores for each question as well (for instance, if five people fill out the form, add their scores for question 1 and divide by five). Use the scores and differences in scoring among family members as a tool for dialogue.

Average score of 7 to 9: Your health on family business issues is good. Relax and enjoy.

Average score of 4 to 6: There are some questions about the health of the business and family dynamics. Consider getting expert assistance—especially if succession and estate planning are in progress.

Score of 3 or below: Get help soon. “Dealing with family business issues is like dealing with cancer,” says Silverman. “If you catch the problem early, you can solve it quickly. If you wait too long, there’s not much you can do.”

If help is needed, look for a family counselor who’s knowledgeable about business. Check their references and background. “Their history usually reveals their bias, or the fact that they’ve worked as an accountant for 20 years and are now calling themselves a family-business consultant,” says Silverman.

Silverman himself holds a Ph.D. in organizational development and has 15 years’ experience as a family-business and organizational-development consultant. His phone number is (401) 826-1680.

Trading Up To Higher Diamond Sales

Trade-up policies are a good way for independent jewelers to make money on diamonds and at the same time compete more effectively against companies selling diamonds online and through direct-response TV.

Many jewelers offer trade-ups informally. They allow a couple to apply the price of the diamond they bought at the store when they got engaged to a larger diamond more in keeping with their income and lifestyle five or 10 years later. But not all jewelers market these policies aggressively enough—with purchase certificates and reminder letters when the time is right—to build diamond sales.

Consultant Philip Nulman, director of marketing for Scull and Co. of North Bergen, N.J., says about 40% of Scull’s 200 retail jewelry clients market their trade-up policies. More and more Scull clients sign on for trade-up marketing each year. “It allows the store the opportunity to keep a brand-loyal customer because, when the incentive is given to trade up, they’re not going to shop around,” says Nulman.

Trade-up policies build trust, a key feature when it’s so easy to compare diamond prices online. “The one thing you cannot get from an online service or QVC or Home Shopping Network is a relationship,” says Nulman. “They may have lower prices, but they can’t give the purchaser the security of knowing that they can return a diamond.”

Jewelers who offer trade-ups make money two ways. Diamond prices nearly always appreciate between when the stone was first sold and when the jeweler “buys” it back. Thus, the jeweler obtains at a discount diamonds that can be sold to other customers. Jewelers also make money on the larger diamond sale, with margins ranging between 10% and two times keystone.

Promoting the trade-up policy can begin via a certificate handed to a customer at purchase. It states that at any point in the future the customer can trade in the engagement ring diamond and apply the price toward the purchase of a larger stone. Terms of the deal vary. Some jewelers take the first diamond at full price only if double that amount is spent on the second.

Many jewelers, like Erik Runyan, owner of Runyan’s in Vancouver, Wash., don’t issue a certificate at all. “We’re an old, established jewelry store with a good reputation, and I give my word on it,” says Runyan. This assurance has been especially helpful “in situations where engagement ring customers wish they could get a little more. I’ll ease their mind by saying, ‘If this stone is what you can afford and are happy with, and in three years you want something bigger, we’ll help you out. We’ll use all the dollars you have invested so far toward a new purchase.’ ”

Direct mail is used to develop trade-up business as well. Scull clients typically use a contact management software program to generate letters reminding customers of their trade-up certificates at least three years after the initial purchase and then every two years after that. “What you’re looking to do is capture them in the first seven or eight years,” says Nulman. “That usually allows the customer to mature in terms of discretionary income.”

This letter works best as a purely emotional appeal. Nulman recommends phrases such as: “Are you looking to take that beautiful start-up diamond and trade it in on one that is more in line with your present lifestyle?” “Your love has grown. Now it’s time to reflect that in the size of a larger diamond.” “Give yourself the luxury of a larger diamond now that you can afford it.”

Although trade-ups are never for cash, Scull client jewelers hold funds in escrow that are equivalent to the total value of the trade-up certificates issued by the store. While not every store needs to do this, the practice ensures that cash is immediately available to apply toward the larger diamond purchase. Owing to the complexity of the process, trade-up marketing typically works best for independent jewelers with revenues of $2 million or less because these stores have fewer staff and less turnover. Otherwise, the training and oversight associated with the trade-up process may become too cumbersome.

A hidden benefit: An effective sales presentation may persuade the trade-up customer to take the first diamond and make it into a pendant or match it to another diamond for a pair of diamond earrings. She may then buy a larger diamond for her engagement ring, possibly along with a new, larger semi-mount.

“This is simply a marketing policy to suggest a new purchase and a remount of the older diamond,” says Nulman. “It’s not in the marketing language, but it is in the salesmanship. The original intention to trade up is out the window because they see the chance to create another piece of jewelry plus get a larger diamond.”

Getting Customers Who Feel Like a Million To Spend That Much

A simple routine has pushed upper-end sales at Molina Fine Jewelers in Phoenix skyward. Al Molina, president and chief executive of the firm, refers to the practice as “show the piece” and says it elevated his record for the most expensive jewelry item he ever sold from $75,000 25 years ago to $13 million this year.

Here’s how it works. Everyone who enters Molina’s is shown an inspirational piece of jewelry, typically the most expensive item in the shop or a luxury item uniquely suited to the customer. A salesperson initiates this during a sales presentation by saying, “Let me show you something very special that we have.”

Salespeople are trained to respond to customers who utter the classic brush-off, “Just looking,” with, “Welcome to Molina’s. Is this your first time in the store? Let me show you something exceptional.” The salesperson invites the customer to try on the piece and leads her to a full-length mirror to admire the effect.

“By putting it on, they become emotionally involved,” says Molina. “They smile. Their eyes light up like stars. Their whole physique changes from someone sitting there trying to protect themselves to someone who’s relaxed and chatty.” Though few people spring for the inspirational item, even the most standoffish become specific about what they would like to buy.

Sales associates also snap a Polaroid photo of the customer wearing the piece and hand it to her to take home and perhaps display on her refrigerator. “My wife does this all the time,” says Molina. “I’ll buy almost anything to get that picture off the refrigerator so I don’t have to look at it every day.” Of course, such a memento could just as easily inspire a self-purchase.

Molina has found that the “show-the-piece” technique transforms a visit to his store into a memorable experience for the customer. “I can’t tell you how many times I’m at an event, and someone says, ‘I’m still dreaming about that diamond necklace you put on me the last time I was at your store.’ People talk about it for years.”

The technique has never backfired. “People want to feel important. That’s what we’re selling. Even though the customer isn’t looking to spend $1 million, you’ve given them respect and exposure to a level of jewelry they may not be accustomed to. You put a $1 million [piece] on someone, and that magic number becomes inspirational. It raises their expectations considerably.” More than once the technique has turned a potential $20,000 sale into a $200,000 sale.

Though Molina has a broad selection of “inspirational” jewelry in keeping with the tastes of his affluent clients, the “show-the-piece” technique could just as easily be used at any store. Molina recommends that the inspirational piece be valued at triple the store’s top sale ever. “The goal should be to sell that piece, and once it sells, double that value and continue to push the envelope.”

Molina advocates that jewelers take this approach even if they must get the item on memo. “That should be the inspirational piece for that month. Then get another piece on memo for the next month. What you’ll find is that you’ll sell it.” His current goal is a $20 million sale. “As you go higher, you’ll find that you become more comfortable with the big numbers.”

Indicators of Discretionary Income

“This is simply a marketing policy to suggest a new purchase and a remount of the older diamond. It’s not in the marketing language, but it is in the salesmanship.”

—Philip Nulman, director of marketing for Scull and Co.

It’s no secret that affluent households have more discretionary income to spend on luxury goods such as jewelry. But you may be surprised at just how much they have available to spend on the extras in life. The Conference Board, a New York business-research group, analyzed spendable income according to education and occupation. The analysis incorporates data from 50,000 households reporting to the Bureau of the Census and a Department of Labor study of household budgets.

The data in the following two charts can help jewelers target their marketing dollars and assess customers’ spending potential. If you’re really lucky, your customers will break the mold and spend far beyond the Conference Board estimates.

Diamonds Still Dominant

Jewelers’ revenue sources changed only slightly between 1996 and 1998. Since 1996, the earliest period of comparable data provided by Jewelers of America, the biggest change was in the portion of total store revenues attributed to loose diamonds and diamond jewelry, which grew from 39% to 46%. Cultured pearl revenues grew from 2% to 3%, and revenues from tabletop ware and gifts grew from 2% to 3%. Likewise, silver flatware sales grew from 2% to 3% of total sales.

Categories in decline include appraisals, which dropped as a percentage of store revenues from 5% to 1%; colored stone jewelry, from 12% to 10%; estate jewelry, from 2% to 1%; and repair revenues, from 10% to 9%. Categories that held steady as a proportion of store revenues included watches at 5% and karat gold jewelry at 13%.

Key Stats

33% – Of family businesses survive to the second generation.

13% – Survive to the third generation.

427,000 – Small businesses went online between early 1998 and early 1999.

60% – Of those that accepted orders through Web sites attributed, on average, 23% of sales increases to their online presence.

2.9 – Total annual hours spent by the average person on the Internet in 1990. By comparison, the average person spent 1,470 hours watching TV and 1,135 hours listening to the radio that year.

20 – Hours spent online by the average person in 1996, compared with 1,567 hours watching TV and 1,091 hours listening to the radio. Estimates of time spent online jumped to 27.2 hours per person in 1997, 35.3 in ’98, and 40.9 in ’99.

44% – Growth in sales of uncut stones by De Beers in the first half of 1999. The total sold was valued at $2.45 billion.

-28% – By contrast, sales of uncut stones in the first half of ’98 were $1.7 billion, down 28% from the previous year’s figure.

$4.8 billion – Projected value of De Beers’ stockpile of diamonds by the end of ’99. Meanwhile stocks in diamond-cutting centers are said to be very low.

5.5 billion rubles – Russian jewelry retail sales in 1998, according to the State Statistics Committee of Russia. This was equivalent to U.S.$262.5 million.

By comparison, U.S. retail jewelry sales were $22.3 billion that year, not including sales outside jewelry stores, for instance at department stores and mass merchants.

30%-40% – Estimated portion of the jewelry business in Russia that’s conducted legally. The largest source for gray-market gold is reported to be the Russian Orthodox Church, according to www.cotexnews.com.

Sources

(Numbers represent order of data presented)1,2 Strategic Initiatives Inc.; 3,4 Cyber Dialogue; 5,6 U.S. Census Bureau; 7,8,9 Financial Times; 10,11 www.comtexnews.com.