BusinessReport

‘Skips’: Costly Disappearing Acts

The Jewelers Board of Trade (JBT) has sounded an alarm bell over the growing numbers of “skips,” jewelry firms throughout the industry that instead of declaring bankruptcy simply disappear along with their valuable inventory.

In some instances, skips occur when jewelers don’t want to go to the expense or trouble of taking “the proper legal steps of filing for bankruptcy,” says Nat Earle, president of JBT. But he suspects that in most cases the skips are simply a form of fraud. Otherwise, the companies would file for bankruptcy or contact their vendors to work out a plan for paying off their debts.

JBT’s weekly Con- fidential Service Bulletin tracks skips, which JBT defines as companies that “discontinue operations, leav- ing unpaid obligations to the trade.” Most firms close with no advance warning, leaving no forwarding address or phone number. Typically the bulk of their assets, purchased on credit, are held in high-value, portable inventory, such as finished jewelry or loose stones. There were 492 disappearing acts in ’96, the first year JBT began tracking them. The numbers grew to 609 in 1997 and to 367 through Sept. 30, 1998. Surprisingly, there are far more skips than bankruptcies (see chart on page 71).

Industry observers are concerned. John Kennedy, president of the Jewelers’ Security Alliance, says that the “credit processes you have to go through to avoid this exposure,” combined with limitations on what cautious suppliers will ship, have “more of an impact on the industry than the dollar losses involved.” However, he notes, “these are necessary precautions.” Affected firms include jewelry manu- facturers and wholesalers, diamond dealers, gem dealers, brokers, and designers.

Kennedy notes that skips are “a nightmare for law enforcement to pursue – too much work for the possibility of getting a conviction. Non-payment or late payment is ordinarily handled as a civil matter. There has to be an egregious case, with lots of victims who will come forward to pursue it, and a clear pattern to defraud. By the time a detective puts a case together, the criminals are – in the wind.’ That’s why it’s so important for the jeweler to know who he’s shipping to and their credit standing. Relying on law enforcement after the fact [to recover losses] is nearly useless.”

Another concern, posed by JBT’s Earle, is that “there are a lot of people who are writing off receivables because they just aren’t going to get paid from the firms that disappeared. That puts a real crimp in their cash flow. Meanwhile, how can they pay the people they just bought diamonds or settings from, or how can they meet payroll or rent? If you don’t change the way you do business, these repeated hits will cause permanent damage to the point where you can’t recover or your bank retracts your financing.”

Michael Langhammer, vice president of finance at Quality Gold of Cincinnati, says that such losses “will be one of the factors that will tighten up credit throughout the industry. If there is a tightening of credit, the weaker chain stores and jewelry stores will be affected.” His firm, which serves 17,000 jewelry stores, has tightened its credit policy.

Still, Langhammer notes, “It’s getting tougher and tougher to collect. We’ve seen more skips recently. However, proportionate to our business growth I see fewer and fewer bankruptcy notices. A lot of times bankruptcy is more for the legitimate people who just can’t pay their bills. There are a certain number of people who can’t run the business or get in over their heads. But there are also a lot of people who intend to defraud.”

Where does the jewelry go? According to JBT, sometimes the inventory is sold at a discount to another dealer or another jeweler. Sometimes an individual will close a business, leaving unpaid obligations to the trade, and simply form a new business with a friend, relative, or new business partner who gets the old inventory and files as the sole officer for the company. Meanwhile, the person who contributed the inventory will work as a consultant to the firm or as a non-officer of the business.

Six Signs of a Skip Scam

It’s almost impossible to fully protect yourself against “skips,” but there are precautions that anyone who extends credit to jewelry firms should take. First, obtain a signed credit application with five references. The application is a legal document that you can use as a basis of comparison with information provided by the company to credit-reporting agencies. Second, obtain credit reports from JBT and other credit-rating agencies such as Dun & Bradstreet. Third, call references and confirm basic details such as addresses, phone numbers, principals involved, and dates of operation to see whether these match the credit report and credit application. If you aren’t familiar with the companies given as references, get references on them. If you’re concerned about a new client, visit the business to see whether it looks like a legitimate jewelry operation.

Even if a firm passes your credit test, you could still get hit with a skip. By definition, they occur virtually without warning, notes Nat Earle, president of the Jewelers Board of Trade. Here are six signs of impending trouble:

Unsolicited orders. Typically, salespeople develop and nurture clients over time in the jewelry industry. If a new customer calls out of the blue with a $25,000 order, check him out carefully. Trade show vendors or advertisers in trade publications can sometimes be a target for this type of fraud.

A large Number of Credit

inquiries on a Jewelers Board of Trade report. If 15 credit managers are requesting information on a firm, be suspicious. It’s possible that a business is placing multiple orders before it disappears. This scheme is sometimes called a “fraudulent overbuy.”

Indiscriminate buying. Most serious buyers examine jewelry closely and barter on price before they make a sizeable purchase. Someone who glides up to a booth at a trade show and orders six necklaces for $5,000 each without negotiating the price or carefully checking quality merits close scrutiny.

Inconsistent buying. Look at whether the value of purchases makes sense given a company’s size, merchandise, and prior purchasing pattern. Look especially for what law-enforcement agents call a “bust out” – a dramatic spike upward in the size of orders accompanied by a switch from paying in advance to obtaining the merchandise on credit. Scam artists establish phony jewelry companies, pay cash in advance for small orders, and return to each target for perhaps a second or third order for progressively larger amounts, paying in advance for each. Then, when all of the targets begin to trust the company, it obtains high-value goods on credit from each and disappears.

Questionable trade references. Check whether a credit reference is listed in the Jewelers Board of Trade’s Confidential Reference Book (sometimes referred to as the “red book”). When you call credit references, do they have the information at their fingertips — almost as if they were anticipating your call? When you call a second reference, do you hear the same background noise that you heard when you called the first reference? Does the reference answer the phone with a “hello” rather than with a company name? Another warning sign: When you ask when a company started doing business with the firm, does the answer predate the founding date listed on its credit application?

Numerous reference calls. You already do business with Company X, which lists you as a reference. Suddenly you’re being called by 10 other suppliers as a credit reference. You ought to question why so many orders are being placed simultaneously.

Christmas Returns: Bane or Boon?

Jewelers dread seeing their Christmas sales trickle back in as returns. There’s a way to turn this losing proposition into a winner, according to Harry Friedman, president of The Friedman Group, a Los Angeles sales and management training firm. Here are his recommendations:

  1. Treat every customer who returns merchandise with as much courtesy, warmth, and enthusiasm as you extend to a valued customer. Smile – make it as pleasant to return an item as it was to buy it. The way you handle returns can set the stage for a new lifelong customer or can convince a longtime customer never to shop at your store again.

  2. Try to interest the person in another item in the store. If that doesn’t work, offer a store credit. If this has no appeal, offer a cash refund cheerfully and promptly.

  3. To create an incentive for store staff to follow this model, consider creating a low-key, internal “save-a-sale” contest. Offer three points for an exchange for a higher-priced item, two points for an exchange for an item of similar or lower price, and one point for a store credit. The salesperson with the highest points could win cash, an extra paid day off, or jewelry.

  4. To redirect a return into a possible exchange, suggest to the customer: “Why don’t you look around the store and see if there’s anything you’d like to exchange your present with?” This can begin an entirely new sales cycle. If the customer isn’t interested, cheerfully offer a store credit. If he or she is interested, ask, “What kind of jewelry do you really like?” This qualifying information helps you make a suggestion: “In this category I have something terrific, and I have something else that’s spectacular if you’d like to see it.” This is how you politely ask permission to move the price point upward on the exchange.

  5. Consider sending handwritten thank-you notes to customers who visit your store with returns – regardless of whether they exchange the item or get a store credit or cash refund. Tell them, “Although you weren’t able to find exactly the right item, we certainly enjoyed having you in the store, and hope you’ll visit us again.” You never know how a classy communication like this might pay off over the long run.

The Friedman Group has trained employees at more than 250,000 retailers worldwide in a wide range of retail sectors. Jewelry clients include H. Stern Jewelers, Tourneau Inc., Mayor’s Jewelers, Robbins 8th & Walnut, and Lee Michaels Fine Jewelry.

Women Taking More Top Industry Posts

Bureau of Labor Statistics data reveal that more women than ever before are holding top-level executive jobs. The retail jewelry sector is no exception. Consider the evidence:

  • Beryl Raff recently was named president and chief operating officer at Zale Corp. in Irving, Texas.

  • Sue Gove recently was promoted to executive vice president and chief financial officer at Zale.

  • Mary Forté is the executive vice president and chief administrative officer at Zale.

  • Leslie Mann is vice president of jewelry for Sears in Chicago.

  • Kris Kulesza recently was appointed vice president of jewelry for Home Shopping Network in St. Petersburg, Fla.

  • Susan Morgan is president and chief operating officer of Marks & Morgan in Augusta, Ga.

The ascendance of women in the jewelry industry has come about one person at a time through years and sometimes decades of hard work, expert business management, skillful balancing of home and work pressures, and, at times, mentoring.

Women now hold positions that would have been unthinkable just 10 or 15 years ago. Osnat Gad of Osnat Gad Inc., New York City, an importer of gemstones and a manufacturer of precious metal wedding bands, rarely sees gender discrimination in the workplace. But when she entered the industry 18 years ago, she felt that some men could not accept women making decisions. “There were no women in this industry, and it was tough,” she recalls. Now she’s in charge of a $2 million business.

Phyllis Bergman, national president of the Women’s Jewelry Association and president of Mercury Ring Corp. in Englewood, N.J., believes that gender-related barriers don’t necessarily obstruct the career paths of talented women. And she’s working to make sure gender issues don’t stand in their way. Still, some stereotypes persist: “If a man is tough, he’s a good businessman,” she says. “If a woman is tough, she’s difficult.”

Bergman says that “standing on my merits” got her into a predominantly male business and social club in New York City. She was the second woman in the past eight years invited to join the 24 Karat Club. Since 1898, the club has restricted membership to 200 businesspeople, who meet several times a year for dinners, social events, and networking. Soon after gaining membership in the 24 Karat Club, Bergman was asked to join the Plumb Club, another exclusive and predominantly male business club in New York City.

Bergman is a firm believer in the career-building value of networking. In fact, the Women’s Jewelry Association is developing nationwide internship and mentoring programs to help talented women begin and build their careers in the jewelry industry. Through both programs, women at all stages of their careers will be able to work closely with retailers, designers, manufacturers, and possibly trade magazines. The internship program is expected to begin next summer. WJA will recruit candidates through outreach efforts among its 850 members, a new Web site to be launched this spring, and schools with jewelry design and business classes. For more information, call (973) 575-7190.

Julie Livingston, a New York City sales training/public relations consultant who has worked extensively with the World Gold Council and many major retailers, also participates in a small mentor group in New York City called Women as Mentors. Livingston says she’s helped novices write résumés and business letters and has even helped some get jobs. The group’s approach could serve as a model for the industry in other large metro-politan areas with a broad mix of jewelry-related businesses, she says. For more information, contact Livingston at (212) 481-5657. – Jennifer McClure

Sites for Career Advancement

For more information on advancing women’s careers, visit the following Web sites:

Also check the site called Feminist.COM at www.feminist.com/career. It lists resources for businesswomen, such as Cornell University’s Glass Ceiling Commission.

Certification Counts

A recent survey of jewelry customers shows that 86.6% prefer to use a professionally certified jeweler when they need to have a piece of jewelry repaired or designed. Only 5.6% of respondents did not have this preference, while 7% had no preference and 0.8% had no opinion on the subject.

Those figures come from a nationwide phone survey of people who bought jewelry during July, August, or September. The survey was conducted by Taylor Nelson Sofres Intersearch of Horsham, Pa.

The findings are important, given that custom-designed jewelry was the fastest-growing segment of the jewelry business for two years in a row. Sales of custom-designed jewelry grew 19.8% in 1997 and 22.5% in ’96, according to Jewelers of America’s Cost of Doing Business Survey.

Though the telephone-survey question didn’t specify any one professional certification, it suggests that jewelers might want to consider promoting the professionalism of their repair and design staff in ads, storefront displays, and other customer communications.

Bench jeweler certification and professional-development programs include:

  • The new Jewelers of America Bench Jeweler Certification program, which establishes four levels of certified proficiency in bench work and is intended to set a national standard for measuring bench jewelers’ skills. So far, 800 jewelers have earned this certification, and another 240 people are working toward it. For more information, call (800) 223-0673.

  • The Gemological Institute of America’s Graduate Gemologist and Graduate Jeweler programs; call (800) 421-7250.

  • The roughly 25 jewelry programs offered at educational institutions; for a listing, consult the JCK Jewelers’ Directory.

Valuable Information at a Discount

Jewelers of America has slashed the price of its annual Cost of Doing Business Survey from $75 to $19.95 for JA members. The price for non-members remains at $125.

In the past, only 200 copies of the survey have sold each year; another few hundred have been distributed free to survey participants. The organization decided the price had to drop for the 1998 edition, published this fall. David Rocha, JA’s deputy executive director, notes, “After all, the publication doesn’t provide an active revenue stream for the organization. What it does provide is useful, valuable information that can make our members stronger, so we’re trying to get the survey into more hands.”

Rocha says the $75 price tag was a deterrent to the very people who would benefit most from using it – retail jewelers. The survey is a useful tool for benchmaking profitability and analyzing key performance measures in comparison with peer jewelers. Accountants and consultants serving the industry have long used the survey to analyze key performance measures for their clients. It has been published annually for seven years.

For those who might be intimidated by the wealth of data in the survey, Rocha says, “even for somebody who’s numbers phobic, if their business develops problems with profitability, they can get over their phobia quickly to assess what they’re doing.”