Chain and Multi-Store Operations: Small, Frequent, and Fast

Multi-store operators, especially regional and local chains, are buying inventory more frequently, including more “as-needed” orders. They’re also buying in smaller amounts to keep basic and fast-selling items in stock and turning, and they’re shipping more often to their stores. These are some of the biggest changes in multi-store operations’ buying habits, say many owners and managers. “Reordering faster and being able to generate good turn also means we have less dead inventory on hand, and less money tied up in it,” says Roger Marks, president and CEO of Modesto, Calif.-based Rogers Jewelers, which operates 11 stores in California and Nevada.

Accelerated, year-round consumer demand is one big reason for the change, says Tony Prater, president and chairman of the 10-store Jensen Jewelers chain, based in Twin Falls, Idaho. “Consumers are looking for new things and new styles more often, and that’s really affecting jewelers’ buying patterns. It used to be that we could market a popular ring style, for example, for a year or more. Now, consumers want something else sooner, and a popular piece of jewelry has a shelf life of six months. Watches, especially—even higher-end watches—have become trendy and extremely fashion oriented now because consumers want change and something new.”

Consumers’ quest for the new has prompted chains of all sizes to revise their in-store “look” to give the impression of having fresh merchandise. They rearrange display cases (50%); move goods between stores (41%); and change signage, in-store displays, and other promotions more frequently than they did in the late 1990s.

Here’s another factor: Consumers buy more gifts and self-purchases year round, rather than only at specific times—a change that has affected retailers’ traditional sales seasons. “There’s less time to build up to big shopping periods like we used to,” notes Prater, who does much of his business on the Friday and Saturday before a holiday.

“Even Christmas is less important than it used to be, with sales a few percent less than 10 years ago,” notes Perelman.

Tech effects. The technology and equipment now available to jewelers has helped make these buying and inventory changes possible—and necessary. And the technology is available to retailers of all sizes, not just national companies like Zale Corp. or Sterling Inc., both of which use it to improve their operating systems and procedures.

“The jewelry industry not only is getting more sophisticated, but with more competition out there than ever before, we must have sharper systems,” says Perelman. As multi-store operators—especially regional chains—keep getting better systems, he says, they have better control over inventory and buying. “We can see where we’re doing business, with whom, who are the ones we want to do business with, and get printouts by manufacturer and category. We can look at inventory and turnover more seriously and see how a product is doing statistically. Even a few years ago, it wasn’t like that. You were never sure.”

At Rogers Jewelers, says president Roger Marks, “Our computers are set up to identify for immediate replacement of bread-and-butter inventories, take better advantage of programs with our suppliers, carry a broader array of merchandise, replenish fast-sellers quicker, and increase our turnover. That lets suppliers back-stock more for you, too.”

Technology also lets both local and regional chains do more precise long-range inventory and marketing planning. At Jensen Jewelers, for example, “We plan our expectations [of frequent buying] with our suppliers ahead of time, so they’re prepared,” says Prater. And Kings Jewelers now plans its buying and merchandising six months or more ahead: “We’re doing our Christmas buying now, instead of during the summer like we used to,” Perelman said in early May 2003. “We’re working earlier and harder on marketing, which gives us more time to develop sharper promotions, look for media, get things printed earlier—and that lets us buy better and pay a little less.”

Technology has transformed buying into a year-round process, rather than one based primarily on trade shows or sales reps’ visits. The Internet, e-mail, and faxes keep even the smallest jewelers in contact with suppliers and manufactures, notes Perelman. “If someone sends us information about something they want to sell us or that we’re interested in, we can ask for a sample to be sent. That way, we don’t waste each other’s time” with visits and presentations for every new item.

Finally, technology enables regional and local jewelers to focus more narrowly on customer niches and sales opportunities. Kings Jewelers, for example, enters every customer’s anniversary and birthday into its database. “If I know birthdays, I can carry more birthstone rings, market them to more people than we used to, and add some sales.”

Suppliers’ flexibility. One of the biggest reasons for changes in buying, inventory control, and marketing is the changing relationship between multi-store jewelers and their suppliers. Jewelers use terms like “alliances,” “changing attitudes,” “partnerships,” and “flexibility” to describe it and say it’s a relatively recent phenomenon. “There’s a lot more cooperation between retailers and manufacturers than there used to be—and years ago, there was none,” notes Marks. “This change began 10 years ago but has increased in the last five.”

These closer relationships, especially with larger suppliers, have developed for a number of reasons. One is that more multi-store jewelers have reduced the number of suppliers they use, “making us more important to those fewer vendors,” as one put it. Another is competition: When one manufacturer provides better services and programs to retail customers, its rivals must emulate it to retain and add clients.

Multi-store operators are demanding more of their suppliers than they did just a few years ago. Of those polled, 62% expect longer terms—a permanent change, say 31%—and many more rely on their suppliers to serve as warehouses. Two out of five (44%), for example, ask for later delivery on seasonal items, and almost the same proportion (40%) now buy less back-stock than they did a few years ago and rely more on quick shipping by suppliers.

That doesn’t necessarily mean they’re using more overnight shipping. As Roger Marks explains, “If anything sells fast enough that we’d need it for the next day, we’ll buy enough of it when we order each week.” In fact, overnight shipping doesn’t seem to be a top priority for most jewelers. Just 4% of multi-store operators and 1% of independents say they buy only from shippers who provide that.

Multi-store operations are demanding more concessions from suppliers. Two out of five chains in JCK‘s poll (40%) now use more memo for high-end goods, and half (50%, vs. 37% of independents) insist on returning or exchanging goods that don’t meet sales expectations. A third of them believe this a permanent change in their relationship with suppliers. Just over half (52% of chains vs. 34% of independents) now place smaller orders for new items and reorder them as they sell. For 23%, this also is a permanent change.

Kings Jewelers, for example, “never used to return items,” Perelman says. “We’d mark it down and get rid of it. But today we’re demanding more guaranteed sales [of merchandise], which we discuss first with our suppliers, and returning merchandise more than we used to.” There isn’t a tidal wave of send-backs, though—Kings returns “maybe 2% of what we get, up from zero a few years ago.” And suppliers’ flexibility now lets Jensen Jewelers “push a little more to trade back things so we can keep stock fresh,” Prater says.

Many vendors are accommodating the retailers. “We are seeing more elasticity by suppliers in allowing returns and exchanges,” Marks says. “It’s not just that we’re asking for it more. They themselves are volunteering [to do it] more.”

Many jewelers also use memo and returns to test the viability of new products. “Our philosophy is, ‘Put money back into fast-turning goods and broaden the inventory with testing and memo,’ ” says Marks. “More manufacturers allow this, so if something sells, we put it in and order more. If it doesn’t, the supplier exchanges it for something that does.”

At Kings Jewelers, “we look for where we can make better markup,” Perelman says. “If we test something today, it’ll be a memo test, not an ‘asset’ test of something we buy outright. If we deal a lot with a vendor, they’re willing to do that. If something doesn’t work, we don’t lose, because he’ll take it back.”

Merchandise changes. More than half the multi-store operators surveyed (55%) told JCK they’ve expanded their merchandise choices, keeping more in stock (by SKU) than they did five years ago. Only one in five (19%) is stocking less. The major factors prompting the increases are the addition of product categories or brands (cited by 52% of multi-store operators vs. 30% of independent jewelers), the addition of more stores (45%), or moving to a larger store or a higher-traffic location (21%).

Those who carry fewer SKUs say they’ve done so to conserve cash or because they’ve changed their buying patterns. Some are buying less per order, but more frequently; others have implemented tighter inventory control; and some are selling down after overbuying.

Multi-store operations have also made significant changes in the past five years in what they stock—and what they won’t. More (56%) pay greater attention today than in the 1990s to traffic-pulling basics—bread-and-butter merchandise like solitaires, earrings, and rope chains, which turn again and again. (Note: “Basics” can differ from store to store as well as from region to region.) One-third (31%) of multi-store operators say that’s a permanent change. In comparison, just 24% of single stores say they’ve been buying more basics in recent years.

In product categories, big gainers include diamond jewelry and platinum jewelry. Again, the proportion of chains that have boosted buying in these categories is greater than that of single stores.

In diamond jewelry, four out of five multi-store operations (81% vs. 51% of single stores) are buying more three-stone jewelry than they did five years ago, followed closely by stud earrings (74% vs. 44% of single stores). More also have increased their purchases of loose diamonds (44%) and branded and designer goods (40%).

Bridal jewelry in all its forms has become a strong profit center for multi-store operators, and more have expanded their inventory accordingly. “A key to differentiating the specialty jewelry retailer today is bridal,” said Mary Forte, president and chief executive officer of Zale Corp., during a recent meeting for financial analysts. “It helps with the average check, gets customers into the store early, and brings them back for gift-giving days throughout their life cycles. With jewelry competition everywhere today, we have to rely on our core competency, and that is bridal.” Bridal jewelry now represents 45% of Zale’s business, “up from last year, which was up over the previous year,” Forte said.

The value of the bridal business isn’t limited to big chains. Jensen Jewelers, for example, in recent years “upgraded our image and moved into bridal,” says Prater. “Now we’re focused primarily on selling wedding sets—we now do very little else, other than karat gold jewelry. We’ve found that by focusing on bridal, our average ticket sale has gone up.”

According to JCK‘s survey, 60% of multi-store operators buy more diamond engagement rings than they did five years ago (compared with 38% for independents), while 42% (vs. 36% of independents) have increased their stock of diamond wedding bands.

Jewelry chains’ use of platinum bridal jewelry has increased significantly in recent years, which isn’t surprising in view of the Platinum Guild’s heavy marketing of the precious metal in the United States. Seven out of 10 multi-store operations (72%) surveyed told JCK they’re buying more of it than ever.

Gold bridal jewelry also is up, with 38% of chains buying more now than in the late 1990s (compared with 25% of independents).

Not everything diamond, though, is getting more display case space. Some diamond products have slipped far down the buying lists of multi-store operations since the late 1990s. Cocktail rings have taken the biggest hit—69% of chains surveyed stock fewer pieces. Other slipping categories include line bracelets (47%), fancy shapes (40%), non-stud earrings (37%), and branded or designer goods (35%).

In chain stores, gold jewelry has undergone less overall change than diamond jewelry. Almost half the multi-store operations surveyed (between 40% and 50%) say they’re buying the same proportion of gold jewelry categories (e.g., bridal, non-chain jewelry, basic earrings, fashion earrings, gem-set and designer or brand jewelry) as they did in the late 1990s.

Matters are less upbeat for colored-stone jewelry, though. While a sizeable number of multi-store operators (40%-48%) say they’re buying the same amount in most categories as they bought five years ago, many are buying fewer fantasy, drusy, or specialist cuts (46%); birthstones (44%); loose colored stones (40%); high-end semiprecious gems (37%); designer jewelry (35%); and emeralds, rubies, and sapphires (34%).

In other categories, multi-stores have a greater appetite for pearls than do single stores. Half are buying more Chinese pearls (compared with 37% of single stores), while a third have boosted their purchases of Tahitian pearls (37% vs.18% of independents) and South Sea pearls (33% vs. 18%).

Since the late 1990s, more multi-stores than single stores have made changes in pricing. More than half (56% v. 47% of independents) have boosted price points overall, while almost half (49% v. 35% of independents) have added a wider range of price points in various categories, especially bridal and diamonds. Twice as many have added more “special purchase” goods (18%) in the past five years compared with single stores (8.3%).

Looking ahead. Trends that developed in the past five years continue in 2003. A large majority of multi-store operators (86%) tell JCK they’re concentrating their buying now on “quality products that offer value for price.”

High-volume operations are focusing on basics like bridal, pearl strands, gold chain, and diamond studs (72% of multi-store operations vs. 34% of single stores); items that can’t be easily price-shopped by consumers (60% vs. 39%); and goods with a potential for higher margins (60% vs. 39%). There also is a growing focus on proprietary diamond cuts or other branded gems, including pearls (30% vs. 15% of independents), and on other branded goods, especially finished jewelry (19% vs. 8%).

Indeed, products exclusive to a specific jeweler in a local market—almost unheard of five years ago—are increasingly important profit makers. That’s true not only for national chains like Zales, Gordon’s, or Bailey Banks and Biddle—each of which has an expanding proprietary diamond line—but also for regional and local chains.

“When you go into a mall today, there are at least a half-dozen other jewelry stores,” notes Alan Zimmer, president and CEO of Reeds Jewelers, with 90 stores in 19 Southern and Midwestern states. “How do you make yourself different from the competition? At Reeds, we separate ourselves from the rest of the pack through branding, with brands exclusive to us, with a different watch line or a different diamond line, such as our Venus cut diamond line—our own proprietary diamond line which no one else has.”

Zimmer says branding is the biggest change he’s seen in regional chains in the past five years. “It’s making us different from our competition and is one more way to reach our goal of thinking like an independent, but with the efficiencies of a national chain.”

The growing use of branded diamond products has an added benefit for chains, says Roger Marks of Rogers Jewelers—”raising the overall quality standards for diamond jewelry in the industry.” Rogers Jewelers carries its own trademarked diamond brands (Rogers Ideal Cut and Fire and Ice) and is the exclusive distributor of Hearts on Fire jewelry and Love Story (the jewelry line of the Leading Jewelers group) for its market. But proprietary and exclusive jewelry isn’t limited to the diamond category. Jensen Jewelers’ own customized jewelry uses elk ivory (made from the back teeth of elk and carved like a cabochon gem) and retails for $500 to $10,000. “It’s a niche market, but it’s a strong, recognizable item that we sell internationally, primarily in Canada, New Zealand, and Australia,” says Prater.

Finally, about half of all jewelers surveyed told JCK that consumer confidence in their markets has weakened noticeably in the past three years. However, high-volume multi-store operations are more optimistic about the near future than smaller jewelers: Almost half (48%) expect consumer confidence to improve within the coming year, compared with 31% of the independents.