Changing Money Can Cost Big Bucks
If you’re buying goods overseas with U.S. dollars, you’re practically leaving money on the table for someone else to take. A bank or the company you’re buying goods from can easily add a mark-up to the exchange rate it quotes you. Even companies that pay overseas vendors in foreign currency may be overlooking ways to save money.
Last March, Isaac Meisels, president of Priceless Resources Inc., a watch wholesaler in Brooklyn, began working with Sonnet Financial, which offers wholesale currency rates. That means the rates don’t include the typical mark-up, or “spread.” Sonnet makes money, instead, on transaction fees of $40 for trades up to $2,000, $75 for trades between $2,000 and $9,999, and $150 for transactions over $10,000.
After comparing his bank’s rates with those of Sonnet, Meisels soon began doing all of his currency buying through the San Mateo, Calif., firm. He estimates he saves nearly $40,000 a year, even with the per-trade fees factored in. His banker couldn’t match the rate.
Jim Laing, a vice president of S. LaRose Inc., a watch and clocks parts wholesale mail-order firm in Greensboro, N.C., also switched to Sonnet. Importing goods from Europe and Asia, the firm makes about 400 overseas payments a year, totaling $600,000 to $2 million. Laing estimates he saved around $25,000 last year on rates and transaction fees by using Sonnet instead of his bank. Some of the savings come from using Sonnet to batch invoices (paying a single vendor a lump sum for several invoices) to reduce transaction fees.
“Anyone who’s doing foreign currency payments should certainly compare firms like Sonnet to what they’re doing now,” advises Laing. “It doesn’t cost anything to do comparisons, and if you’re trying to save money in the long run it’s certainly worth it.”
Jewelers should also price shop at Reusch International of Washington, D.C., which has six offices in the United States and two in Europe. The rate structure is different from Sonnet’s. Though Reusch doesn’t promise wholesale currency rates, its rates apply to virtually any size transaction and are very competitive, as they track second-to-second fluctuations in the spot market for currencies. The only fees are $3 for a draft and $15 for a wire transfer.
A Reusch client, Elie Mouhaddeb of New York costume jewelry importer Acacia Bijoux Ltd., says he saves at least $10,000 annually on the 50 currency transactions he makes in a given year. “For a small company like mine, it makes a big difference,” he says. “But bigger companies might get a better deal with the bank.”
Rate-shop at the bank, too. Before you shift your business, check with your own bank to see if it can match the prices you’ve been quoted. Even consider getting price quotes on every trade: Owing to differences in rates and fees, or even the time of day a quote is given, a particular currency firm or bank may come out cheaper on one trade but not on another.
Some banks are surprisingly competitive. At Marine Midland Bank’s New York foreign currency desk, which specializes in small to mid-size corporate transactions, the rates quoted on a given day in October were even better than those quoted by Reusch and Sonnet. The bank attributes that fact to its large presence in the currency markets and to variations in the price of the currency quoted that day. The only fee would be $20 for a wire transfer for a company without a foreign exchange line with Marine.
Robbin Price, a senior vice president of foreign exchange at Marine, says the bank has many clients throughout the United States “who were absolutely being ripped off [on currency trades]. Small banks can only do so much. They still have to go to a larger bank to transact a currency exchange. You can usually do much better if you go to the source – not necessarily a super-large bank, but in order to get both the service and pricing, somewhere in the middle.”
Price says too many small companies pay foreign transactions in U.S. dollars. “Don’t leave yourself at the mercy of the other guy,” she urges. “It’s easier to send dollars and not think about it than it is to ask the question, ‘How do I go about dealing in my customer’s currency?’ Once you ask that question, you realize you have been leaving money on the table for years.”
Depending on the size and frequency of currency transactions, jewelry companies may also want to look into “forward contracts,” a hedging tool that allows a firm to lock in a currency price for a particular day in the future to protect against rate fluctuations. All three companies mentioned here offer this service.
Currency contacts: Sonnet Financial, (800) 272-8339, Reusch International, (800) 424-2923, Marine Midland Bank, foreign currency desk, (212) 483-0806
Taxing Situations: Writing Off Business Trips
Jewelers sometimes combine business and leisure travel, tacking on personal vacations to trade shows, seminars, and buying trips.
When you’re blending business with pleasure, particularly with friends or family along, it’s important to draw a clear line between what you can and can’t write off. Here are some strategies to help you take advantage of Internal Revenue Service deductions in these situations:
Bringing company. If your spouse, a relative, or a friend accompanies you to a convention, typically you can’t deduct his or her travel expenses. You can deduct those expenses only if that person is your employee and has a bona fide business purpose for the trip and if that person would otherwise be allowed to deduct the convention expenses for himself or herself.
When a business associate accompanies you on a trip and you foot the bill, you can write off the bill as well, if that person has a legitimate business purpose to travel with you and if he or she would otherwise deduct the expense. The IRS defines a business associate as a customer, client, supplier, agent, partner, or professional adviser. However, individuals who provide incidental services such as typing notes or entertaining your customers are not covered.
Consider, for example, jeweler Joe Smith, who drives to Chicago for a convention with his wife, Jane. Even if her presence serves a business purpose, her expenses are tax-deductible only if she’s an employee or a principal in the business. Joe pays $115 per night for a double room. A single room costs $90 per night. He can deduct the total cost of driving his car to and from Chicago but only $90 per night for his hotel room. If he uses public transportation, he can deduct only his fares, not his wife’s.
Mixing business with pleasure. The tax rules clearly state that all travel expenses are tax-deductible if the trip to the convention or trade show was entirely business-related. But what if you combine the convention with a vacation?
If the trip was primarily for business but you extended your stay for a vacation or a non-business side trip, you can still deduct some of your business-related travel expenses. These include the costs of getting to and from the convention destination and any other business-related expenses once you’re there.
However, your travel costs need to be adjusted: Multiply the cost of your round-trip travel by a fraction in which the numerator (top number) is the number of business days and the denominator (bottom number) is the total number of travel days. This result is then added to your other business-related expenses (meals, lodging, and taxi fares) at your business destination. This sum is your total deductible travel expenses.
But if the trip was taken primarily for personal reasons, such as a vacation, the cost of the trip is a nondeductible personal expense. You can deduct only the business-related expenses you incur while at your destination.
Deducting the essentials. The cost of traveling from your home to the site of the convention or trade show is a tax-deductible expense. This includes taxis, airport limousines, and mass transit. Registration costs are deductible, as are meals, lodging, laundry, telephone calls, and tips.
There are two ways to document meal expenses – using a standard amount or deducting 50% of the actual cost of the meals. The standard meal allowance lets you deduct a set amount daily. However, you must still keep notes to prove the time, place, and business purpose of your trip. You cannot use the standard meal allowance, however, if your employer is a relative or a corporation in which you own more than 10%.
The standard meal allowance is around $30 a day for most U.S. cities. See the meals and incidental expenses (M&IE) portion of the following Web sites for more detail: www.policyworks.gov/per-diem for U.S. rates and www.state.gov/www/perdiems for foreign rates.
When you file deductions based on the actual cost of the meals, keep receipts. For pricey meals, remember that the IRS does not set an upper limit on meal expenses or exclude deluxe restaurants, hotels, nightclubs, or resorts. However, the IRS rules do state that you cannot deduct expenses for meals to the extent they are lavish or extravagant. You should consult a tax adviser regarding meals that might fall within this category. The IRS rules simply state that the costs must be reasonable based on the facts and circumstances.
A wealth of information on how to deduct business travel expenses is available on the IRS Web site at www.irs.ustreas.gov. To find what you need, click on the search function and type in the phrase “business travel.” The IRS even explains how to deduct the cost of traveling via a luxury cruise ship to your business destination – not a bad way to go! – Mark E. Battersby
Where Women Buy Diamond Jewelry
A key customer for every jeweler is the woman shopping for diamond jewelry for herself. In recent years her loyalty seemed to be shifting to department and discount stores, but new data from a J. Walter Thompson marketing survey are encouraging. As the chart shows, jewelry stores are beating out these rivals, as well as catalog showrooms and other retail competitors. The figures are for pieces costing $5,000 or less and are based on questionnaires mailed to 63,000 women.
Three Tax Resources
Grappling with 1998 corporate taxes and wondering how to refine your corporate-tax strategies for ’99? Inc. magazine recommends the following resources (none of which address state tax issues) for small businesses :
This is the address for the “Tax Info for Business” section of the IRS’s official Web site. It’s free and relatively easy to use. See especially the “Frequently Asked Tax Questions” section.
Tax Savvy for Small Business: Year-Round Tax Strategies to Save You Money , Nolo Press (800) 992-6656, by Frank Daily, a tax lawyer. Now in its third edition, the book is crammed with information. Inc. describes the book as “invaluable” and recommends that small businesses focus on Chapter 1, “Business Income and Tax-Deductible Expenses,” and Chapter 3, “Recordkeeping and Accounting.”
Don’t Let the IRS Destroy Your Small Business: 76 Mistakes to Avoid, Perseus Books, (800) 386-5656, by tax lawyer Michael Savage. According to Inc., “It sounds like the kind of rant that’s all too simple to find (and discard), but it’s actually worth skimming all 174 pages…” One of the classic mistakes described in the book may well apply to many jewelers. “Mistake number 31” describes giving employees too large a discount on company products. This can cause a firm to incur a tax liability if it breaches IRS limits.
Literature as a Lure for Jewelry
Most jewelry store ads feature products, but New York’s Bvlgari recently tried something altogether different. The company teamed up with the New Yorker to publish a series of “advertorials” that look and read like the magazine’s short fictional stories – but with a twist: The stories are loosely based on the topics of handbags, scarves, and diaries, three products sold by the upscale Italian jeweler.
Photos of Bvlgari’s new product line accompanied each of the stories, and text at the end of each installment invited readers to attend a reading and book-signing event at the Café Bvlgari in the upper level of the company’s redesigned Fifth Avenue store. The stories were written by critically acclaimed authors Ernesto Mestre, Ntozake Shange, and Maggie Estep, who held readings last fall.
According to Patti Renton, jewelry and watch director for the New Yorker, “Those events were all calculated venues to introduce new people to the store. Chances were people weren’t going to buy anything at the reading, but they might come back to Bvlgari when they’re in a mood to buy jewelry.” With a median household income of $114,000, the New Yorker’s readers are an appealing audience for any jeweler.
Francesco Trapani, Bvlgari’s CEO, says the firm relied on the magazine to choose the writers and oversee the text. He notes that while it’s difficult to measure the impact on sales, “the readings have strengthened the store’s image, reinforcing the idea that Bvlgari stores are more than simply retail spaces, but are centers of beauty, culture, and passion.”
A similar approach might appeal to jewelers in markets outside the New York area. It’s a way of cutting through the clutter of advertising to engage readers through the highly personal medium of literature. Research suggests that the typical American is exposed to 2,500 marketing messages a day – daunting competition for any one jewelry advertising campaign. In-store readings also subtly reinforce messages that are an integral part of sales presentations: the artistry and uniqueness of jewelry and expressing the individuality of the wearer.
“Any jeweler might find it a nice way to attract traffic and ultimately generate some business, using the retail setting as a venue,” says Renton. The New Yorker will not replicate this marketing campaign for other companies or for jewelers in other parts of the country, she says, “because it would take away from the originality and uniqueness of the program.”
Spoken-arts events may also be a way to attract new and perhaps younger clients to your store. Poetry readings, in particular, have become a pop culture phenomenon, typified by competitive events called “poetry slams” that lend the drama of pro wrestling.
Trapani says Bvlgari didn’t intentionally emulate this evolving literary trend. “It just was thought that something as personal as a handbag needed to be communicated through more than just a product shot. Thus, the idea of narrative was developed to let ‘the products tell a story.’ ” The firm, which has stores in nine U.S. cities, introduced a similar campaign in Japan last September and is creating a series of cultural events geared toward the entertainment industry for its Los Angeles store.
A Literary Promotion Primer
Consider partnering with an organization with literary expertise to help you find talented regional writers with a strong local following and to help you manage the process of creating the text of the advertorial. The group may want to cosponsor the in-store reading.
Check these Web sites to find literary organizations near you: www.loft.org (click on the “literary organization” button); www.pw.org (click on the “literary links” button); and lcweb.loc. gov/loc/cfbook/ (click on “state center affiliates”). Other places to check: a nonprofit arts council, state arts agencies, libraries, the literature or creative writing department at an area university, or even a local bookstore that has a strong series of literary readings.
Evaluate audience demographics for the publications in which the advertorials might run to determine which best reflects your target customer. Consider zoned editions of national publications or a glossy city magazine.
When you’re commissioning the short story or poem, consider having a literary nonprofit group serve as the primary contact with the writer when the piece is assigned and while it’s being edited. Ask the author to write about a general topic related to jewelry or a giftware product you carry. But don’t ask the writer to mention a specific brand or your store name. Many authors would balk at being asked to “hype” a product but would welcome a new venue in which to reach large audiences. Also, a potential customer might want to attend a literary reading but would think twice about going if he or she thinks the event is specifically geared toward selling jewelry.
Make sure the text is clearly identified as an “advertisement” on every page of the text.
– 12%: Decline in average per ounce price for silver between 1988 and third quarter of ’98.
– 28%: Decline in price per ounce for platinum during that time.
– 32%: Decline in price of gold.
$487 to $275: Highest and lowest price per ounce for gold over the last decade, a $212 difference.
$630 to $329: Highest and lowest price per ounce for platinum in the same time frame, a $301 difference.
17.5%: Of American adults purchased a watch for themselves in 1997.
13.5%: Of Americans purchased a watch for someone else.
35%: Of those purchases were for watches priced between $20 and $49.
20 sq. ft.: Amount of retail space for every person in the United States today.
7.5 sq. ft.: Per person in 1976.
1 in 70: American households filed for bankruptcy in 1997.
29.9%: Increase in bankruptcies between ’92 and ’97.
73%: Of specialty retailers say that compensation for employees is their biggest problem in hiring and retaining workers.
47%: Of specialty retailers says that working hours and shifts are a problem. The type of work was a problem for 53% of respondents, and benefits were a problem for 27%.
(Numbers represent order of data presented)1,2,3,4,5 Platinum Guild International; 6,7,8 “The U.S. Watch Market,” Kalorama Information; 9,10 “Retailing in the 21st Century,” Roger D. Blackwell, Ph.D.; 11,12 American Bankruptcy Institute; and 13,14 “1998 Logistics Study for the Mass Retail Industry” International Mass Retail Association.