Directions

THE PROFIT PICTURE

Guild operations achieved markedly higher sales gains than other types of jewelry stores in 1994, based on the latest Jewelers of America “Cost of Doing Business Survey.” But profitability was virtually the same for all types of jewelers.

The 1995 survey, conducted for JA by Industry Insights Inc. of Columbus, Ohio, is based on statistics from 1994 and involves 247 companies in three categories: guild stores (mostly high-end inventory), independent stores (mostly midrange inventory) and chain stores (a business with more than five stores with mostly midrange inventory). Not enough mass merchants responded to warrant a separate breakdown.

The statistics represent broad performance yardsticks against which jewelers can measure their own performance. “The primary purpose of the survey is to help JA members operate their businesses more profitably,” says JA. “In order to increase profitability, retailers should be able to judge where improvement opportunities lie and be able to prioritize them.”

For all types of jewelry stores, sales grew a median 6.7% in 1994, up from 5.2% in 1993 and 6% in 1992.

For guild operations alone, sales grew a median 10.9% to nearly $1.5 million per store. That compares with 6.1% growth to $392,800 for indepen-dent stores and 2.7% growth to just over $1 million for jewelry chain stores.

But all three types of stores had nearly identical gains in profitability, as measured by earnings before interest and taxes as a percentage of assets. This “return on assets” was 8.1% for chain stores, 7.9% for independents and 7.8% for guild stores. Compared with the previous year, chain and guild stores improved their performance (chains were up from 5.6% and guild stores were up from 5.5%). Independents’ return on assets fell from 8.7% the previous year.

Another statistic of note: independents with annual sales volume of less than $500,000 reported profitability of 10.8%. In other words, the smallest jewelers with the lowest volumes enjoyed the highest profitability. They achieved the feat with higher gross margins.

The accompanying chart illustrates performance by store type. It shows that chain stores achieved their profitability primarily through higher gross margins, guild stores through stronger sales and independents through a combination of factors, including lower payroll as a percentage of sales.

The complete report includes many measures of profitability, productivity and financial management broken down by store type and size. It also examines the sales growth, gross margin and turnover of diamonds, diamond jewelry, colored stone jewelry, watches, karat gold jewelry, cultured pearls, all other jewelry, tabletops and gifts, and repairs.

JA members who participated in the survey received a free copy of the results. Copies are available to other members for $75 and to non-members for $125. Jewelers of America Education Department, 1185 Ave. of the Americas, 30 Fl., New York, NY 10036; (212) 768-8777.

JEWELRY STORE SALES RISE 7.9%

If you’re an average retail jeweler, your sales grew almost 8% last year. You sold the most jewelry in December, but your biggest increase from the previous year came in May. Your lowest sales and your smallest increase from the previous year occurred in January.

These findings emerge from an examination of monthly and year-end sales results reported by jewelers across the country and compiled by the U.S. Department of Commerce. Retail jewelry store sales totaled a record $18.2 billion (figures will be revised slightly in the next few months), up 7.9% from 1994. That’s up considerably from a 2.7% gain in 1994 and marks the fourth consecutive annual increase.

The biggest sales month was December, of course, at $4.3 billion. But the biggest percentage increase was in May, when sales rose 18.5% over May 1994 to $1.5 billion. Other months with healthy increases were June (+12.1%) and November (+10.1%).

The slowest month, again no surprise, was January, when sales rose a modest 1.3% to $869,000. February was just a little better with a 2.9% increase to $1.2 billion.

The graphic above shows each month’s share of total retail jewelry store sales.

CHALLENGE OF GEMSTONE JEWELRY

The majority of retail jewelers are satisfied with their colored gemstone sales, based on a nationwide poll of the JCK Retail Jewelers Panel. But a surprising 35% are not.

We’ve been told over the years that color is “in” and that colored gem jewelry is the fastest growing segment of the jeweler’s mix. But jewelers polled by JCK say they still face serious obstacles. The most-often mentioned:

1. Customer knowledge. The general perception is that most customers simply don’t know much about colored gems beyond ruby, emerald and sapphire. “The majority of customers have a difficult time recognizing rarity in colored gems,” says Eileen Eichhorn of Eichhorn Jewelry in Decatur, Ind. “Even educated customers must be reeducated in gems. To close the major colored stone sales, one must be extremely good at selling rarity.”

Home shopping television networks have helped to promote less expensive colored gems, she adds. But the networks and discount merchandisers can also be an obstacle, according to jewelers polled by JCK. In fact, they are the next biggest obstacle.

2. Discount merchandisers. Jewelers say aggressive sales tactics by some mass merchandisers have “bamboozled” consumers into thinking they are getting high quality at a low price. “But discount merchandisers promote very low quality at very low prices,” says Charles Zerbe of Zerbe Jewelers Inc. in Colorado Springs, Colo. Evelyn Delfine of Delfine Jewelry in Canonsburg, Pa., adds a complaint about department stores that offer 80%-off sales. “That’s 80% off of what?” asks Delfine.

The problem goes beyond losing sales to mass merchandisers. When consumers realize they’re not getting quality from mass merchants, they are soured on colored gems no matter what the source, say jewelers.

The best way to fight this competition is to teach consumers about the value of good quality. “We point out to them that our gems are prettier and brighter and that the mountings are better made,” says Zerbe.

3. Customers’ lack of interest. Numerous jewelers say their customers simply aren’t interested in colored gems, and several admit paying much more attention to their diamond departments. Richard Kern of Churchill’s Jewelers in Santa Barbara, Cal., for example, acknowledges that his colored gem department needs help. “I’m talking this area up now because, otherwise, there is a low interest by the public,” he says.

Some jewelers tie this lack of appreciation to the lack of a national advertising campaign for colored gems. “There just is no industry backing like there is with platinum and gold,” says Bob Mann of R.A. Mann Inc. in Cleveland, Ohio. (The poll was conducted before the International Colored Gemstone Association launched a nationwide promotional campaign for ruby in May. See “ICA to Launch First Colored Gem Promotion,” JCK, May 1996, p. 24.)

4. Staff’s lack of knowledge. Some jewelers place the blame for the lack of colored gem sales squarely on their own shoulders. “There is a lack of enthusiasm [to sell color] in my staff, especially compared to diamonds,” says a jeweler in Wisconsin. “I deal with it by going with the flow. I focus on diamonds.”

For Larry Hirsch of Westerly Jewelry Co. in Westerly, R.I., the main obstacle was getting his sales staff to understand colored gems and to convey the same to an often ignorant public. His solution? “We romance the gemstones,” he says. Like Hirsch, a number of jewelers say they’re devising a strong campaign to educate their staffs.

Interestingly, a few of the jewelers we polled say the colored gemstone jewelry business has become too complicated. The reasons: a growing number of available gems and issues related to treatments, synthetics and disclosure.

5. Resources. “Our inventory dollars are exceedingly difficult to come by,” says a jeweler from New Jersey. “I have tended to feed those areas that have historically given us the best and most consistent return. This leaves little or no money for the question-mark areas such as colored gemstone jewelry other than ruby, emerald or sapphire.”

Justification? Are these reasons a justification for you to throw in the towel on color?

Remember that a strong majority of those we polled are satisfied with their colored stone departments. But even for those who aren’t satisfied, there are solutions.

Begin with a careful analysis of your market and your own interest in colored gems. The jewelers who say they do well with colored gems invariably are excited about color in the first place. In turn, they ignite an interest in their salespeople, who ignite an interest in consumers. “We have a very well-educated staff with many GGs and FGAs [diploma gemologists from the Gemological Institute of America and the Gemmological Association of Great Britain],” says Jeanie Larson of The Collector in Fallbrook, Cal. “And I promote heavily through advertising in local, regional and national publications.”

Also analyze your competition – especially discount merchandisers. Once you know what they sell and how much they know about it, you can stock a finer selection from manufacturers, designers and well-known faceters. This gives you not only better quality merchandise, but also a design dimension to discuss with customers.

Then advertise in and out of your store with educational and publicity resources from national and international organizations such as the American Gem Trade Association (800-972-1162) and the International Colored Gemstone Association’s Gembureau (212-688-8452).

TEENS GAIN ECONOMIC CLOUT

Teenagers expanded their already formidable stake in the national economy to a record-setting $336.2 billion in 1995. That’s up 12% from 1994, according to “Teen-Age Economic Power,” the Rand Youth Poll’s 43rd annual survey of monetary trends among youths ages 10-19.

The survey of 2,750 youths across the nation examined buying habits in 29 categories, including jewelry. The average teen spent $3.15 per week on jewelry in 1995, says Robert Williams of the Rand Youth Poll. That’s not a lot, but it does signal an early interest that you may use to your advantage as the older teens start to buy gifts for girlfriends and boyfriends and as they become engaged and married.

The total of $336.2 billion comprises four areas:

  • $74.9 billion over the course of a year in miscellaneous day-to-day spending, up 17% from 1994.

  • $14.4 billion in savings to buy more expensive possessions, up 41%.

  • $40.7 billion received from parents for family grocery shopping, up 43%.

  • $206.2 billion representing their influence on parental purchases for the family and home, up 49%.

Of the teens surveyed, 61% plan to spend more this year. Twenty-one percent plan to spend about the same as in 1995, and 11% will spend less.

Rand Youth Poll, 404 E. 55 St., New York, NY 10022; (212) 752-3489.

RETAIL THERAPY

You research your market to learn what merchandise your customers want to buy. You tap into the most advanced sales training programs available in the industry. You pay attention to experts’ advice on how to decorate your store and display your merchandise. You pay consultants to develop effective advertising campaigns.

But do you know why customers want to shop in the first place?

A boost to self-esteem and self-image is why most consumers shop for apparel and accessories, according to a new study conducted by DuPont Corp. and Management Horizons, a business consulting company.

Customers also find a sense of accomplishment in unearthing a good value, and they want shopping to be an entertaining experience.

So while the nuts-and-bolts advice from experts is critical, don’t forget to make a human connection with your customers. Tell them honestly how good they look wearing a certain style of jewelry. Show that you value their interest by taking time to explain a piece of jewelry that attracts their attention. Share their satisfaction at finding value. Entertain them with stories of where the gems and precious metals originated and how they got from the earth to your store. And treat them like they’re the most important person in your life at that moment – they are.

MEASURING JEWELERS’ PROFITABILITY – 1994

Source: Jewelers of America “1995 Cost of Doing Business Survey”
Guild stores Independent stores Jewelry Chains All stores
Earnings before interest & taxes as % of assets 7.80% 7.90% 8.10% 8.00%
Profit before tax to net sale 5.20% 5.40% 4.50% 5.30%
Gross margin 45.90% 48.50% 52.70% 48.50%
Asset turnover 1.5x 1.6x 1.5x 1.5x
Inventory turnover 1.1x 1.1x 1.2x 1.1x
Sales per sq. ft. of total area $503 $300 $672 $344
Sales per store ($000) $1,449 $393 $1,038 $530
Sales per worker ($000) $157 $111 $106 $116
Payroll as a % of sales 21.10% 22.10% 26.60% 22.40%
Typical store size (in sq. ft.) 2,800 1,550 1,500 1,600
Number of workers 9 4 140 5
Sales growth 10.90% 6.10% 2.70% 6.70%

FYI

When you’re figuring wages and benefits, look for innovations that save you money and make employees happy at the same time. For example, ask your attorney about programs that allow employees to set aside pretax earnings to pay for medical and child-care expenses. Because child care alone can average nearly $600 a month, employees may prefer a lower raise/pretax set-aside option over a higher raise.

Of course, employees who pay the most for child care would likely be the most interested in such a program. According to Runz-heimer International, New York City has the most expensive child care, averaging $589 per month. Others in the top 10, ranging from $445 to $579, are Boston, Mass.; Minne-apolis, Minn.; Philadelphia, Pa.; Washington, D.C.; Manchester, N.H.; Wilmington, Del.; Chicago, Ill.; Anchor-age, Alaska; and Hartford, Conn.

The least expensive child care is in Casper, Wyo., and Mobile, Ala., averaging $217. Others in the bottom 10 , ranging from $231 to $285, are Jackson, Miss.; Tampa, Fla.; New Orleans, La.; Columbia, S.C.; Little Rock, Ark.; Billings, Mont.; Boise, Idaho; and Springfield, Ill.

FYI

Retailers of all types plan to spend $52.2 billion for capital goods this year, according to a new survey by the U.S. Department of Commerce. That’s down 2% from 1995, reflecting some caution about the economy this year. But it’s also 15% ahead of 1994, indicating retailers’ outlooks have improved dramatically over the period.

The survey measures expenditures and planned expenditures for depreciable assets such as buildings and equipment needed to perform a job.

The wholesale trade is less optimistic. It plans to spend $19.7 billion for capital goods this year, down 10% from 1995 and 16% from 1994.

Total capital goods expenditures for all businesses are expected to total nearly $603 billion this year. That’s an increase of 2% from 1995 and 10% from 1994. The figures were compiled from the Commerce Department’s semiannual Investment Plans Survey and the annual Capital Expenditures Survey.